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[DOCID: f:wm011.wais]
105th Congress WMCP:
2nd Session COMMITTEE PRINT 105-11
_______________________________________________________________________
SUBCOMMITTEE ON TRADE
OF THE
COMMITTEE ON WAYS AND MEANS
U.S. HOUSE OF REPRESENTATIVES
__________
WRITTEN COMMENTS
ON
H.R. 4526, A BILL WHICH WOULD CHANGE CUSTOMS RULES-OF-ORIGIN FOR
CERTAIN TEXTILE PRODUCTS
[GRAPHIC] [TIFF OMITTED] TONGRESS.#13
DECEMBER 9, 1998
Printed for the use of the Committee on Ways and Means by its staff
COMMITTEE ON WAYS AND MEANS
BILL ARCHER, Texas, Chairman
PHILIP M. CRANE, Illinois CHARLES B. RANGEL, New York
BILL THOMAS, California FORTNEY PETE STARK, California
E. CLAY SHAW, Jr., Florida ROBERT T. MATSUI, California
NANCY L. JOHNSON, Connecticut BARBARA B. KENNELLY, Connecticut
JIM BUNNING, Kentucky WILLIAM J. COYNE, Pennsylvania
AMO HOUGHTON, New York SANDER M. LEVIN, Michigan
WALLY HERGER, California BENJAMIN L. CARDIN, Maryland
JIM McCRERY, Louisiana JIM McDERMOTT, Washington
DAVE CAMP, Michigan GERALD D. KLECZKA, Wisconsin
JIM RAMSTAD, Minnesota JOHN LEWIS, Georgia
JIM NUSSLE, Iowa RICHARD E. NEAL, Massachusetts
SAM JOHNSON, Texas MICHAEL R. McNULTY, New York
JENNIFER DUNN, Washington WILLIAM J. JEFFERSON, Louisiana
MAC COLLINS, Georgia JOHN S. TANNER, Tennessee
ROB PORTMAN, Ohio XAVIER BECERRA, California
PHILIP S. ENGLISH, Pennsylvania KAREN L. THURMAN, Florida
JOHN ENSIGN, Nevada
JON CHRISTENSEN, Nebraska
WES WATKINS, Oklahoma
J.D. HAYWORTH, Arizona
JERRY WELLER, Illinois
KENNY HULSHOF, Missouri
A.L. Singleton, Chief of Staff
Janice Mays, Minority Chief Counsel
______
Subcommittee on Trade
PHILIP M. CRANE, Illinois, Chairman
BILL THOMAS, California ROBERT T. MATSUI, California
E. CLAY SHAW, Jr., Florida CHARLES B. RANGEL, New York
AMO HOUGHTON, New York RICHARD E. NEAL, Massachusetts
DAVE CAMP, Michigan JIM McDERMOTT, Washington
JIM RAMSTAD, Minnesota MICHAEL R. McNULTY, New York
JENNIFER DUNN, Washington WILLIAM J. JEFFERSON, Louisiana
WALLY HERGER, California
JIM NUSSLE, Iowa
Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public
hearing records of the Committee on Ways and Means are also published
in electronic form. The printed hearing record remains the official
version. Because electronic submissions are used to prepare both
printed and electronic versions of the hearing record, the process of
converting between various electronic formats may introduce
unintentional errors or omissions. Such occurrences are inherent in the
current publication process and should diminish as the process is
further refined.
C O N T E N T S
__________
Page
Text of H.R. 4526................................................ iv
Advisory of Monday, September 14, 1998, announcing the request
for written comments on H.R. 4526, a bill which would change
Customs rules of origin for certain textile products........... 1
______
American Apparel Manufacturers Association, Stephen Lamar, letter 2
American Textile Manufacturers Institute, statement.............. 3
Fashion Accessories Association:
Gail T. Cumins, letter....................................... 4
Gail T. Cumins, letter and attachments....................... 5
Joint Industry Group, Evelyn Suarez, letter...................... 5
Mead Corporation, statement...................................... 6
National Retail Federation, Erik O. Autor, letter................ 8
Pakistan, Islamic Republic of, Farrakh Qayyum, letter............ 9
United States Association of Importers of Textiles and Apparel,
Laura E. Jones, statement...................................... 10
[GRAPHIC] [TIFF OMITTED] T2054.001
[GRAPHIC] [TIFF OMITTED] T2054.002
[GRAPHIC] [TIFF OMITTED] T2054.003
ADVISORY
FROM THE
COMMITTEE
ON WAYS
AND
MEANS
SUBCOMMITTEE ON TRADE
CONTACT: (202) 225-6649
FOR IMMEDIATE RELEASE
September 14, 1998
No. TR-30
Crane Announces Request for Written Comments
on H.R. 4526, a Bill Which Would Change
Customs Rules-of-Origin for
Certain Textile Products
Congressman Philip M. Crane (R-IL), Chairman, Subcommittee on Trade
of the Committee on Ways and Means, today announced that the
Subcommittee is requesting written public comments for the record from
all parties interested in H.R. 4526, a bill which would restore a pre-
existing rule-of-origin for certain dyed and printed fabrics, and
certain silk accessory products.
BACKGROUND:
Section 334, the so-called ``Breaux-Cardin'' amendment, of the
``Uruguay Round Agreement Act'' (P.L. 103-465) directed the U.S.
Department of the Treasury to prescribe new regulations for determining
the country-of-origin of textile and apparel products. As a result,
certain fabrics, silk handkerchiefs and scarves are considered to
originate where the base fabric is knit and woven, notwithstanding any
further processing. H.R. 4526 would revert the rule-of-origin for these
products to the rule that existed prior to enactment of P.L 103-465.
The original rule permitted the processes of dyeing and printing to
confer origin, when accompanied by two or more finishing operations.
As part of the settlement of a complaint brought by the European
Union (EU) against the new ``Breaux-Cardin'' rules-of-origin, the
United States and the EU agreed to a ``proces-verbal'' prepared on July
15, 1997. H.R. 4526, which was introduced by Rep. Benjamin Cardin (D-
MD) on September 9, 1998, at the Administration's request, is intended
to implement this agreement.
Because of the short time remaining in the legislative session,
Chairman Crane requests that all comments be filed with the Committee
by no later than Monday, September 28, 1998.
DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:
Any person or organization wishing to submit a written statement
for the printed record should submit six (6) single-spaced copies of
their statement, along with an IBM compatible 3.5-inch diskette in
WordPerfect 5.1 format, with their name, address, and comments date
noted on label, by the close of business, Monday, September 28, 1998,
to A.L. Singleton, Chief of Staff, Committee on Ways and Means, U.S.
House of Representatives, 1102 Longworth House Office Building,
Washington, D.C. 20515.
FORMATTING REQUIREMENTS:
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1. All statements and any accompanying exhibits for printing must
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2. Copies of whole documents submitted as exhibit material will not
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3. A witness appearing at a public hearing, or submitting a
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Note: All Committee advisories and news releases are available on
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<F-dash>
American Apparel Manufacturers Association
September 28, 1998
The Hon. Philip Crane, Chairman
House Ways and Means Trade Subcommittee
1104 Longworth House Office Building
US House of Representatives
Washington, DC 20515
RE: Request for Written Comments (TR-30) on HR 4526
Dear Chairman Crane:
On behalf of the American Apparel Manufacturers Association (AAMA),
I am writing in connection with the Subcommittee's recent request for
written comments on legislation to change rule of origin requirements
for certain textile products (HR 4526). Thank you for providing me an
opportunity to submit AAMA's views on this important issue.
As you know, AAMA is the national trade association for the apparel
industry. Our members are located in every state and produce about 85
percent of the apparel sold at wholesale within the United States each
year. AAMA members produce products throughout the United States, in
the Caribbean Basin and Mexico, and in many other parts of the world.
AAMA has several concerns about the approach outlined in HR 4526,
and would oppose enactment of this bill as it is currently drafted.
First, the legislation does not appear to resolve fully the
complaint brought by the European Union (EU) against the Breaux-Cardin
rules-of-origin. To avoid dispute settlement proceedings on Breaux-
Cardin before the WTO, the United States reached an agreement in July
1997 with the EU to restore the rule of origin requirements for certain
dyed and printed fabrics and products. We understand, however, that the
EU does not believe the legislation satisfies the commitments of that
agreement and that it will seek further proceedings before the WTO if
the legislation is left unchanged. Before the Congress approves this
bill, it should assure itself that the legislation appropriately
resolves the EU concerns. We expect our trading partners to swiftly
implement the changes to which they agree in such agreements. We should
do no less.
Second, aspects of the legislation seem to have a regressive
nature. For some silk products, origin is conferred in the country
where dyeing and printing and two other finishing processes occur. For
other silk products, even though they may undergo identical finishing
processes, origin reverts to the country where the fabric was formed.
We are unclear as to the logic driving this distinction and believe
this flaw may trigger further confusion.
Third, we are troubled over the possible precedent that may be set
by the legislation, if enacted. With rule of origin harmonization talks
expected to resume next year, we are concerned that this rule of origin
change for a specific set of products might undermine negotiating
positions in those future talks. To protect these negotiations, we
would argue strongly that the legislative history of this provision
clearly reflect that this change is intended as a one-time fix
undertaken to implement a specific exception.
Fourth, we applaud the Trade Subcommittee's recent decision to send
a signal by approving draft legislation designed to implement the
required marking changes called for in the 1997 decision with the EU.
However, we would prefer that this change be considered as part of
legislation that effects all the changes required by that agreement.
Although piecemeal changes would demonstrate our good faith to the
Europeans, such an approach only makes sense if it forestalls further
action in the WTO.
From time to time, AAMA has supported special rules of origin for
individual products. However, we do so only when the product is or such
complexity, unique design, or commercial significance that it demands
an exemption. The NAFTA single transformation rule for bras is one such
example that we strongly support. In such cases, we believe it is
imperative that the Congress commit to and adhere to such rules lest
their periodic review and modification be the source of consumer
confusion and market disruption.
If the Congress decides to enact a rule of origin change for these
dyed and printed fabrics and products, it should do so only if it
believes the exemption has merit and if it is willing to abide by the
terms of the exemption for some years to come. To the greatest extant
possible, rules of origin should reflect continuity, consistency,
transparency, and predictability.
Thank you for providing AAMA an opportunity to submit these views.
Sincerely,
Stephen Lamar
Director of Government Relations
<F-dash>
Statement of the American Textile Manufacturers Institute
This statement is submitted by the American Textile
Manufacturers Institute (ATMI), the national association of the
textile mill products industry. Our member companies consume
nearly 80 percent of the textile fibers used in the U.S.
Therefore, ATMI and its members have an on-going, vested and
keen interest in rules of origin pertaining to imported textile
and apparel products.
ATMI wholeheartedly supports the rules of origin for
imported textile and apparel products incorporated as Section
334 of the Uruguay Round Agreements Act (``Breaux-Cardin'').
These rules recognize and reflect the commercial reality of
textile-apparel manufacturing and were obviously developed with
a great deal of care in order to achieve that end.
Legislation to amend ``Breaux-Cardin'' with respect to
certain silk accessories and fabrics which have been dyed and
printed has been presented as H.R. 4526. These proposed changes
reflect an agreement reached between the United States and the
European Union (EU), which claimed that the adoption of Breaux-
Cardin had unfairly and illegally impaired its trade and was
actionable under the Uruguay Round Agreement.
In ATMI's view, the EU's claims of trade impairment are
overstated and unsupported by evidence of such impairment and,
furthermore, the country of origin of the affected silk
accessories and dyed and printed fabrics ought to be and is as
stated in Breaux-Cardin. Nevertheless, ATMI does not object to
this proposed amendment of Breaux-Cardin.
<F-dash>
Sharretts, Paley, Carter and Blauvelt, P.C.
New York, NY 10004
September 25, 1998
A.L. Singleton
Chief of Staff, Committee on Ways and Means
U.S. House of Representatives
1102 Longworth House Office Building
Washington, DC 20515
Dear Mr. Singleton:
The Subcommittee on Trade of the Committee on Ways and Means has
issued a request for written comments for the record from all parties
interested in HR 4526, a bill which would restore the pre-existing
rules of origin for, among other items, imported silk accessory
products.
This submission in support of the proposed legislation is submitted
on behalf of the Fashion Accessories Association (FAA). The FAA is a
non-profit trade association comprised of importers and distributors of
silk handkerchiefs, shawls, scarves, mufflers and like articles
classified in subheadings 6117.10, 6213.10, and 6214.10 of the
Harmonized Tariff Schedule of the United States. In most instances, the
members of the association purchase the finished silk handkerchiefs and
scarves in a country other than the country from which the greige
fabric was produced.
Since the enactment of PL 103.465, the Uruguay Round Agreements
Act, the country of origin for handkerchiefs and scarves is based
solely upon the place where the fabric is woven or knit. Further
processing in a second country can not change the origin of the
accessories produced from the raw material--the greige fabric. Thus,
the concept of substantial transformation, the key stone for origin
determinations in this country for the previous ninety-five years of
this century, was swept away to be replaced by a simplistic test of
origin which fails to acknowledge reality. We submit that HR 4526
corrects this situation.
Only by returning to the pre PL-103.465 origin rules for
handkerchiefs and scarves will we recognize importance of the
processing of silk greige fabric in a second country. Such processing
not only adds significant value to the raw material (in most instances
more than twice the value of the greige) but also subjects the material
to significant manufacturing operations resulting in the creation of a
new and different article of commerce. Indeed, such operations are
neither minimal in nature nor insufficient to confer country of origin.
These manufacturing operations define what the article is and determine
its appeal to the consumer. Accordingly, the FAA believes that the
proposed legislation will b beneficial to the consumer since this
legislation will result in a more realistic representation of correct
country of origin.
Any approach to country of origin which does not recognize the
importance of operations which take place in a second country, will
result in the continued distortion of international trade by refusing
to acknowledge that transforming a starting material into a new and
different commodity which has no resemblance to the finished article is
insufficient to determine origin.
The restoration of the previous rule of origin for these products
will return us to the agreed upon purpose of the Uruguay Round
Agreement of Rules of Origin, to create impartial and neutral rules of
origin which eliminate restrictive or distorting effects on
international trade. Clearly, this is a situation which the members of
this committee can and should address if we are to create harmonized
origin rules in accordance with the mandate of the WTO.
It is for these reasons that the FAA urges that favorable action be
taken on HR 4526.
We thank the committee for providing us with the opportunity to
submit these comments and we look forward to seeing this bill enacted
during this session of Congress.
Respectfully,
Gail T. Cumins
<F-dash>
Sharretts, Paley, Carter and Blauvelt, P.C.
Washington, DC 20036
September 29, 1998
A. L. Singleton
Chief of Staff, Committee on Ways and Means
U.S. House of Representatives
1102 Longworth House Office Building
Washington, DC 20515
Dear Mr. Singleton:
On September 28, 1998, the Fashion Accessories Association (FAA)
filed written comments in support of the passage of HR 4526, a bill to
restore pre-existing rules of origin for, among other items, imported
silk accessory products. In order to enhance your understanding of
those comments, attached are samples of: greige silk fabric (usually of
Chinese origin) and a scarf that is created from greige silk fabric
(usually in Italy or Japan). Under the country of origin rules which HR
4526 is intended to change, the country of origin of the attached
finished scarf is China. We submit that these samples are worth a
thousand words in explaining why the current country of origin rule, as
it applies to silk scarves, should be changed back to the prior rule,
as is proposed by HR 4526.
If you have any questions please do not hesitate to contact us.
Very truly yours,
Gail T. Cumins
[Attachments are being retained in the Committee's files.]
<F-dash>
Joint Industry Group
September 28, 1998
Mr. A. L. Singleton
Chief of Staff
Committee on Ways and Means
US House of Representatives
1102 Longworth House Office Building
Washington, DC 20515
Dear Mr. Singleton,
The Joint Industry Group (JIG) thanks you for this opportunity to
comment on H.R. 4526, a bill to amend section 334 of the Uruguay Round
Agreements Act to clarify the rules of origin with respect to certain
textile products.
JIG is a coalition with more than 130 members including Fortune 500
companies, trade associations, professionals and businesses actively
involved in international trade. We both examine and reflect the
concerns of the business community relative to current and proposed
international trade-related policies, actions, legislation, and
regulations, and undertake to improve them through dialogue with
several Executive Branch departments and agencies and the Congress. JIG
membership represents more that $250 billion in trade.
JIG recommends that H.R. 4526 be amended. In its current form, the
bill appears to create an illogical rule of origin for textile products
that will not resolve the dispute between the United States and the
European Union. Therefore, passage of the bill in its current form
would not be a useful exercise. Instead, the Subcommittee should focus
its attention on assuring that a logical origin rule is established and
that enactment of legislation supports the resolution of the US-EU
dispute.
H.R. 4526 reinstates the origin rule that was in effect for fabrics
other than wool before July 1996. However, the bill does not cover all
``dyed and printed textile and apparel products,'' which appears to
have been the agreement under the proces verbal negotiated between the
United States and the European Union. That is, the bill omits from its
scope products made from fabrics, such as bedsheets, pillowcases,
quilts, curtains, and tablecloths. Unless these products are included
in the amendment, the bill would establish a rule of origin that cannot
be defended.
An example makes this point very clear. As H.R. 4526 is currently
worded, the following situation would occur:
Assume that a fabric is woven in Country A. The origin of that
fabric is therefore Country A, under the terms of the Breaux-Cardin
rules, which states that where a fabric is knit or woven determines its
origin.
Assume that fabric is then printed, dyed and finished in Country B.
Under H.R. 4526, the origin of the fabric would become Country B
because H.R. 4526 states that printing plus dyeing plus two finishing
operations constitutes an origin-conferring process.
Assume that printed, dyed and finished fabric is then cut and sewn
in Country B to make a fitted sheet. Under Breaux-Cardin, the origin of
the fitted sheet would be Country A. H.R. 4526 does not address bed
linens, leaving that portion of Breaux-Cardin unchanged, and Breaux-
Cardin requires that where the fabric is knit or woven determines the
origin for goods classifiable in HTSUS Chapter 63. (Fitted sheets are
classified in HTSUS Chapter 63.)
Such a result--requiring that origin go backwards when non-origin-
conferring operations such as cutting or simple sewing are performed--
simply does not make sense. How can a country, which adds further value
to a product, lose the origin that it had already gained by a prior
manufacturing operation? That is not how origin rules work. JIG cannot
believe that the US and EU negotiators involved in drafting the proces
verbal intended such a result.
JIG strongly recommends that the Subcommittee revise H.R. 4526 to
avoid this problem, especially since doing so would appear to eliminate
the objections being voiced by the EU. An amendment to H.R. 4526 would
not be difficult. The amendment should allow for the continuing
recognition of printing, dyeing and finishing operations as origin
conferring for products that are made from such fabrics. It is JIG's
view that this can be accomplished by simply adding the words ``and
goods of these fabrics'' after ``fabric of silk, cotton, man-made
fiber, or vegetable fiber'' in Line 19 of the bill.
That amendment would ensure that both fabrics and products that are
made from the named fabrics, but which do not undergo any other origin
conferring operations, will have their origin determined by where the
fabric was printed and dyed and finished. The origin of all other
products will be unaffected. That amendment would create (actually,
reinstate the prior) logical origin rule and would allow the dispute
between the United States and the European Union to be resolved once
and for all.
Sincerely,
Evelyn Suarez
Chairperson, JIG Rules of Origin Committee
<F-dash>
Statement of the Mead Corporation
Section 334 of the Uruguay Round Agreement Act (``Section
334'') amended the Customs country of origin marking statute
(Section 304 of the Tariff Act of 1930, 19 U.S.C. 1304) by
modifying the rules of origin applicable to textile and apparel
products. As part of these revisions to the rules of origin,
Section 334 stipulated that certain textile articles shall be
considered to originate in the country in which the fabric
comprising the article is produced.
This fabric-based rule of origin was, logically, generally
applied to ``flat'' goods, such as handkerchiefs, scarves,
sheets, etc.--all goods where the finished product required
relatively little fabrication beyond the fabric itself.
However, through oversight or inadvertence, the tariff
classification applicable to miscellaneous textile articles,
not elsewhere specified in the Harmonized Tariff Schedule of
the United States (``HTSUS''), was also included among the
HTSUS subheadings made subject to the fabric-based rule of
origin. More specifically, Section 334 includes HTSUS
subheading 6307.90 (Other Made up [textile] articles, other)
among the HTSUS subheadings subject to the fabric-based rule of
origin. Included within this subheading is the residual
``basket'' category for all textile articles, HTSUS subheading
6307.90.9989, which covers all remaining textile articles not
specifically described in any of the preceding subheadings
within the HTSUS textile chapters. Such miscellaneous textile
articles are classified under this residual basket category,
regardless of the amount of processing of the fabric component
required to produce the finished article. In fact, it is likely
that a majority of products included in this residual category
are fabricated articles, rather than flat goods, since most
flat goods are specifically described under preceding
subheadings of the HTSUS.
It should also be noted that the products classified under
this subheading are not subject to textile import quotas, as
are most flat goods. Accordingly, these residual, made up
textile goods are not generally regarded to be import
sensitive.
The application of a fabric-based rule to fabricated
products has caused considerable difficulties for the School
and Office Products Division of the Mead Corporation (``Mead'')
with respect to the country of origin marking of certain
foreign-produced components and finished school and office
products imported into the United States. It has been
impossible to reconcile the U.S. textile rules of origin with
the otherwise universally-applied country of manufacture or
assembly rule of origin, imposed by those foreign countries in
which Mead manufactures such products.
As an example, Mead produces nylon zipper school binder
covers in China, which are fabricated from fabric produced in
Taiwan. These covers are imported into the United States, where
they are finished and used to produce three-ring binders,
notebooks, and other school and office products for sale in
this country and abroad. The binder covers are produced through
a relatively complex fabrication process. The fabric is first
cut into various pieces. The sides and spine of the binder are
made from two layers of fabric, between which polyethylene foam
is inserted as a stiffening agent. A zipper is attached and the
sides and spine are sewn and formed into a binder cover. The
finished covers are not flat, but three dimensional objects,
with internal space for in insertion of three ring binder
mechanisms and paper documents. The binder cover is a product
fabricated well beyond the characteristics of the fabric used
to produce the product.
The fabricated binders are deemed to be produced in China
or, in other words, to originate in China for purposes of the
Customs laws of China. In fact, these products would be deemed
to be made in the country of fabrication by most other
countries other than the United States. However, under the U.S.
textile rules of origin, these products are deemed to originate
in Taiwan, since the fabric is produced in that country, even
though the fabric is subject to significant processing in
China. Under the general U.S. country of origin marking
regulations, the fabric is clearly ``substantially
transformed'' in the process of fabricating zipper binder
cover.
The Customs authorities in China refuse, for understandable
reasons, to permit the binders to be exported from China if
they are labeled as made in any country other than China. On
the other hand, the U.S. Customs country of origin marking
rules, as amended by Section 334, require the binders to be
labeled as Made in Taiwan upon importation into the United
States. Such inconsistent marking requirements add costly
complications to Mead's production processes. Further
complications arise when Mead exports zipper binders from the
United States to other countries. In such case, the binders
must be relabeled as Made in China, since, again, essentially
all other countries would consider these fabricated items to
originate in China, where the binder covers are manufactured.
The inconsistencies of the U.S. textile marking rules and the
difficulties which they create for Mead are not unique, but
must certainly affect many other U.S. companies which produce
and sell made up textile articles in the United States with
components sourced abroad.
Mead would urge the Subcommittee to modify H.R. 4526 so
that miscellaneous textile articles, not elsewhere specified in
the HTSUS, that are fabricated beyond the flat state of the
original fabric are deemed to originate in the country in which
the fabric for the article is cut into parts and assembled into
a completed good. One way of accomplishing this goal would be
to adding ``subheading 6307.90.9989 (along with a reference to
other made up textile articles)'' to subparagraphs (C)(i) and
(C)(ii) of Section 334(b)(2), as set out in H.R. 4526. This
modification of H.R. 4526 would insure that miscellaneous
textile articles which were not cut into parts and assembled in
a single country would continue to be considered to originate
in the country in which the fabric for the article originates.
<F-dash>
National Retail Federation
September 29, 1998
The Honorable Philip M. Crane
Chairman
Trade Subcommittee
Committee on Ways and Means
U.S. House of Representatives
1104 Longworth H.O.B.
Washington, D.C. 20515
Dear Mr. Chairman:
On behalf of America's retailers, the National Retail Federation
(NRF) respectfully submits the following comments on H.R. 4526, a bill
to modify the rule of origin with respect to certain dyed and printed
fabrics and silk accessory products.
The rule of origin provisions included in H.R. 4526 would make
specific changes to the so-called ``Breaux-Cardin'' origin rule in
order to resolve a dispute with the European Union (E.U.) over the
origin of certain dyed and printed textile and apparel products. When
Breaux-Cardin went into effect in July 1996, it stipulated that the
origin of these products is the country where the fabric is knit or
woven, rather than where final assembly occurs. Thus, for example,
products such as fine silk scarves cut, printed, and sewn in France and
Italy are considered under Breaux-Cardin to be products of China, where
the silk fabric is made.
The E.U. requested consultations with the United States regarding
this new rule of origin under the dispute settlement rules of the World
Trade Organization (WTO). In a proces-verbal prepared in July 1997,
however, the E.U. agreed to withhold further action at the WTO if the
U.S. would change Breaux-Cardin before the end of 1998.
U.S. retailers strongly opposed Breaux-Cardin when it was
originally proposed in 1994 for inclusion in the Uruguay Round
Agreements Implementation Act. The industry argued that the change in
the rule of origin effected by Breaux-Cardin was not required by the
Uruguay Round Agreement, would be too disruptive to textile and apparel
importers, was unwarranted because of the initiative at the WTO to
harmonize rules of origin, and would create a host of needless
problems, such as the subsequent dispute with the E.U. Now that
Congress is considering changing the Breaux-Cardin rule of origin to
address some of these problems, U.S. retailers urge Congress to act
quickly to resolve the dispute with the E.U. within the time frame
stipulated in the proces-verbal.
While consistency with the terms of the proces-verbal may be an
important consideration in determining what changes to the rule of
origin may be warranted, a more important consideration is to ensure
that any change is logical and avoids creating new problems in
administering the rule of origin.
Unfortunately, the proces-verbal is no model of clarity with
respect to what the agreement between the two parties covers. The
United States points to subparagraph 6(i) to support its claim that the
commitment was to modify the rule of origin for silk scarves and
fabric, which are the only products covered in H.R. 4526. The E.U.
points to language in paragraph 2 of the proces-verbal to argue that
the change in the rule of origin must cover all ``dyed and printed
textile and apparel products'' (emphasis added) rather than just silk
scarves and fabric.
Even if the United States is correct that the agreement in the
proces-verbal to change the country of origin does cover only silk
scarves and fabric, the United States should not restrict itself to
such a limited legislative change if doing so would only create
additional problems and fail to address the underlying problem
sufficiently to resolve the dispute with the E.U. Specifically, a
legislative change that focuses only on silk scarves and fabric and
does not include all dyed and printed textile and apparel products,
would have some absurd and illogical consequences. For example, under
the proposed legislative modification, Chinese silk shipped to France
would be exempt from the country of origin marking requirement if is
printed, dyed, and undergoes two finishing operations in France.
However, if the same piece of silk is further processed in France by
cutting and sewing to make a handkerchief or a tie, it must still be
marked as a product of China. Moreover, the exemption from the country-
of-origin marking requirement would not apply to a scarf (or any other
textile product) made from any fabric other than silk. In other words,
if the fabric from China is satin or cotton, which is printed, dyed,
and made into a scarf, bed sheet, or table cloth in France, it must
still be marked as a product of China. Finally, the E.U. has stated
that it would continue its action at the WTO if the United States
implements such a limited change to Breaux-Cardin.
To avoid these problems, it is NRF's recommendation that Congress
not limit the modifications to the current rule of origin only to silk
scarves and silk fabric. Rather, Congress should address the problem in
a more comprehensive manner by modifying the rule of origin with
respect to all dyed and printed textile and apparel products as
requested by the E.U.
The National Retail Federation (NRF) is the world's largest retail
trade association with membership that includes the leading department,
specialty, discount, mass merchandise, and independent stores, as well
as 32 national and 50 state associations. NRF members represent an
industry that encompasses over 1.4 million U.S. retail establishments,
employs more than 20 million people--about 1 in 5 American workers--and
registered 1997 sales of more than $2.5 trillion.
Sincerely,
Erik O. Autor
Vice President, International Trade Counsel
<F-dash>
[BY PERMISSION OF THE CHAIRMAN]
Embassy of Pakistan
September 28, 1998
Subcommittee on Trade
Ways & Means Committee
U.S. House of Representatives
Washington, D.C. 20515
Re: Public Comments on H.R. 4526
On behalf of the Government of Pakistan, the following comments are
respectfully submitted with regard to H.R. 4526, legislation to amend
the Uruguay Round Agreement Act to clarify the Rules of Origin for
certain textile products.
The Government of Pakistan maintains a keen interest in this matter
as both a fellow member of the World Trade Organization (WTO), as an
active participant in that body's Committee on Rules of Origin, as well
as in the World Customs Organization (WCO)'s Technical Committee on
Rules of Origin.
As a major textile exporting country, the Government of Pakistan
has watched with great interest the dispute settlement process between
the European Union (EU) and the United States (US) over the Breaux-
Cardin Rules of Origin. Indeed, Pakistan formally joined the
consultations on this issue in Geneva as the matter has potential
implications for Pakistan's textile exports to the United States.
As introduced, the language of H.R. 4526 does not address the
impact of those rules on flat goods such as bed and table linens, nor
does it resolve the origin issues affecting accessories made of fabrics
other than silk. Like the EU, the Government of Pakistan believes the
language of the bill should be broadened to include these products.
In addition, the Government of Pakistan has consistently taken the
position before the WTO and the WCO that any one--not two--of the
processes such as bleaching, dyeing or printing should be origin-
conferring. From a commercial perspective, companies in the trade do
not always dye and print fabrics. Fabrics could be dyed in solid colors
or printed without dyeing. The proposed legislation clearly does not
take into account the actual operations of the fabric industry. It is
important to note that this is not only Pakistan's position but is
shared by other major textile exporting countries who are members of
the WTO.
The provisions of H.R. 4526 as currently worded, also present a
problem for international trading partners in the area of made-up and
miscellaneous products. For example, if fabric is woven in Country A,
and then printed, dyed and finished in Country B, the origin of the
fabric would be Country B. However, if that same fabric was used to
manufacture a made-up product such as bedspreads, the origin would
return to Country A. Such a result cannot be intentional since it
requires that origin go backwards when cutting or simple sewing take
place.
The Government of Pakistan is certain that the experienced
negotiators from the US and the EU did not intend to introduce the
concept of moving origin back to the original country of origin into
the WTO's concurrent negotiations to establish internationally
harmonized Rules of Origin. Under traditional origin rules, once it is
determined that a manufacturing process is origin-conferring, the
origin remains unchanged until another origin-conferring process takes
place. H.R. 4526 is completely contrary to this long-accepted
principle.
The Government of Pakistan appreciates this opportunity to provide
comments to the House Ways & Means Committee. Our purpose is to ensure
that when considering H.R. 4526, the Committee understand the broader
implications of the proposed language.
We appreciate the efforts of the Committee to resolve the
international dispute over the Breaux-Cardin Rules of Origin. However,
H.R. 4526 falls short of achieving that goal.
Farrakh Qayyum
Minister (Trade)
<F-dash>
Statement of United States Association of Importers of Textiles and
Apparel, USA-ITA
H.R. 4526 Should Be Revised to Properly Restore the Pre-existing Rule
of Origin For Dyed and Printed Fabrics
Summary:
The U.S. Association of Importers of Textiles and Apparel,
USA-ITA, opposes H.R. 4526 in its current form. USA-ITA was
extremely disappointed to see that H.R. 4526, and its companion
bill in the Senate, S. 2394, were introduced at the request of
the Administration to ``clarify'' the rules of origin with
respect to certain fabrics and silk accessories. The bill is
not a clarification. The bill fails to properly reinstate the
pre-Breaux-Cardin rule of origin for fabrics and in fact
creates a bizarre and indefensible rule. Moreover, enactment of
this bill will not resolve the underlying dispute that it
purports to address.
H.R. 4526 reinstates the pre-July 1996 ``printing plus
dyeing plus two finishing operations'' rule for fabrics other
than wool. However, it fails to properly modify Breaux-Cardin
to cover all ``dyed and printed textile and apparel products''
as required under the proces verbal negotiated between the
United States and the European Union. Thus, the bill does not
cover products made from fabrics, such as bedsheets,
pillowcases, quilts, curtains, and tablecloths.
This omission is significant. As H.R. 4526 is currently
worded, the following situation would occur:
If a drapery fabric is woven in Country A, and then
printed, dyed and finished in Country B, the origin of the
fabric would be Country B. But if that fabric were then cut and
sewn to make draperies, the origin of the draperies would
return to Country A.
Such a result--requiring that origin go backwards when non-
origin conferring operations such as cutting or simple sewing
are performed--cannot be defended and cannot have been intended
by experienced negotiators obviously cognizant of the World
Trade Organization's concurrent negotiations to establish
internationally harmonized rules of origin. Under traditional
origin rules, once it is a determined that a manufacturing
process is origin-conferring, the origin of the product remains
unchanged until another origin-conferring process takes place.
H.R. 4526 is completely contrary to this long-accepted
principle.
The anomalous result is based solely upon the wording of
Breaux-Cardin, which currently applies the same origin rule to
bed and table linens that is applied to fabric--that is, origin
is where the fabric is knit or woven. The problem can be easily
avoided, and an international dispute diffused. The
Subcommittee can revise H.R. 4526 to maintain the parallel
treatment for fabrics and goods made of those fabrics, so that
the origin for both is either where the fabric is knit or woven
or where it is printed, dyed and finished.
H.R. 4526 can and should be revised 1) to comport with the
terms of the proces verbal, 2) to ensure the establishment of a
rational rule; and 3) to correct rather than exacerbate one of
the wrongs done when the Breaux-Cardin rules were rushed
through the legislative process without sufficient
consideration and analysis.
Discussion:
USA-ITA, founded in 1989, represents some 200 importers,
manufacturers, distributors, retailers, and related service
providers, such as shipping lines and customs brokers. USA-ITA
member companies account for over $54 billion in U.S. sales
annually and employ more than one million American workers.
USA-ITA members have a strong interest in the establishment of
rational, commercially enforceable rules of origin for textile
and apparel products.
Historical Context
The poorly considered Breaux-Cardin rules have already cost
the United States dearly in terms of credibility within the
international trading community. The rules change was put
forward by the Administration to soften the blow to the U.S.
textile industry of the liberalization required under the World
Trade Organization's Agreement on Textiles and Clothing (ATC).
The U.S. industry had wanted a 15-year phase-out of the long-
standing international quota regime. When the U.S.
Administration could deliver only a 10-year phase-out, the
Administration perceived a need for an offsetting benefit.
The revised rules were sprung on the U.S. importing
community during the House Ways and Means Committee ``mark-up''
of the Uruguay Round implementing bill in mid-1994. Although
almost defeated when the Senate Finance Committee reached a
tie-vote on the plan and a ``mock-conference'' between the
Senate and the House failed to reach a resolution about the
provision, the Administration nevertheless insisted upon
including Breaux-Cardin as Section 334 in its final version of
the implementing bill, which became law in December 1994.
No hearing was ever held on the now infamous Breaux-Cardin
rules; no careful review or evaluation of the practical impact
and workings of the rules was ever conducted prior to their
enactment. The import community, and manufacturers abroad, were
given a mere 18 months to adjust their operations. And in fact,
they were given much less time than that since it took the U.S.
Customs Service until September 5, 1995 to issue regulations
interpreting Section 334. Then companies had to wait months, in
many instances until well after the effective date of July 1,
1996, to obtain rulings specific to their products.
Breaux-Cardin replaced the textile and apparel origin rules
that had been in place for more than a decade as regulations,
19 C.F.R. section 12.130. Besides marking the first time that
any non-preference U.S. origin rules were codified into law, as
opposed to being administratively set, Section 334 constituted
a drastic change in practice:
<bullet> Under the old rules, the origin of fabrics was
determined either by where the fabrics were formed or if the
fabrics were subject to both dyeing plus printing plus two
finishing operations, where the fabric was so finished. Breaux-
Cardin eliminated recognition of dyeing plus printing plus two
finishing operations as an origin conferring process. Notably,
this change in practice moved the U.S. farther away from the
European Union's rules, which consider either printing or
dyeing alone to be origin conferring.
<bullet> The origin of ``made ups'' or ``flat goods,'' such
as bed linens, quilts, table cloths, draperies, and clothing
accessories such as scarves, was changed from where either the
fabric was formed or finished or the fabric was subject to
substantial sewing operations to where the fabric was knit or
woven. Thus, under section 12.130, silk scarves printed in
Italy were products of Italy even though virtually all silk
fabric is made in China. Also, under section 12.130, a fitted
sheet was a product of the country in which it was cut and
sewn. Under Breaux-Cardin, those value-added operations are
irrelevant; all that matters is where the fabric is woven. As a
result of the change, very often the country that last
processed a product is no longer considered by the U.S. to be
the country of origin; quota and visa requirements applicable
to products of the country in which the fabric was formed are
imposed on products that have long since left the fabric-making
country.
<bullet> The U.S. change in its apparel rules created the
greatest stir at the time that Breaux-Cardin became law, but in
retrospect this change was relatively less shocking than the
change in the rules for fabrics and other non-apparel goods.
Under the old U.S. rules, the origin of a garment depended upon
whether it was a tailored garment or a simple assembly item,
such as a t-shirt, or a skirt. Section 12.130 provided that
sewing was origin conferring only for tailored clothes. For
simple assembly items, section 12.130 stated that the place of
cutting to shape was the country of origin. Breaux-Cardin
applies an assembly rule to all apparel. Given the substantial
amount of multi-country assembly programs in place, confusion
reigned while the Customs Service considered on a case-by-case
basis which assembly operations were ``most important'' and
therefore origin-conferring. One saving grace of the change in
the apparel rules is that Breaux-Cardin arguably moved the U.S.
rules closer to those applied by most other countries. Other
major countries, such as the European Union only recognize
assembly as origin-determinative.
Practical Ramifications of Breaux-Cardin
The change in the U.S. rules of origin caused an
international uproar. As an obvious attempt to undermine the
liberalization required under the ATC, by moving the origin to
countries that either were not participating in the ATC or had
very tight quotas, the balance of trade was greatly upset. In
addition, many (properly, we believe) viewed the U.S. action as
contrary to the standstill obligation inherent in the origin
rules harmonization program also agreed upon as part of the
Uruguay Round Agreements.
The practical consequences of the rules change soon became
clear. African factories producing bed linens from Pakistani-
made fabric were forced to shut down, because the product they
were making was no longer considered African; it was now
Pakistani. (Of course they could not obtain a quota allocation
or an export license (visa) from the Pakistani fabric mill.)
Philippine makers of fine embroidered table linens faced the
loss of their livelihood, since much of the base fabric was
woven elsewhere. Canadian quilt makers were furious when they
realized that their extensive cutting, sewing and stuffing
operations would be rendered irrelevant under the new U.S.
rules. [In fact, in July 1996, this Committee heard from an
irate American quilt maker, who could not believe that because
he was using Chinese-made shell fabrics, the quilts being cut,
stuffed and sewn in the U.S. with union labor were going to
have to be marked ``Made in China.''] And, European makers of
silk scarves bearing status labels were incensed by the notion
that the U.S. thought their products should be marked ``Made in
China.'' German fabric finishers and Spanish makers of bed
linens also had to face the threat to their businesses if they
were not using European made fabrics. These European makers
were furious that they, who had been safely doing business in
the U.S. market without the hassles of quotas or visas, were
suddenly supposed to obtain visas and quotas from the countries
from which they obtained their fabrics, a practical
impossibility.
Not surprisingly, a steady line of governments approached
U.S. textile negotiators, seeking quota adjustments and
compensation. Citing a provision of the ATC that calls for
consultations ``with a view to reaching a mutually acceptable
solution regarding appropriate and equitable adjustment'' if
there are administrative changes that ``adversely affect the
access available to a Member,'' (ATC Article 4) each sought to
undo the damage presented by the new rules. For a long while,
the U.S. successfully resisted the demands, saying that it was
incumbent upon supplier governments to provide specific proof
of the square meters and dollars impacted by the new rules.
Eventually, the U.S. began to relent, albeit in small ways
and, in some cases, without conceding that it was providing
compensation or with large price tags attached. Thus, the U.S.
agreed to increase Pakistan's cotton sheets and pillowcases
quotas to account for the additional trade that would be
assigned to Pakistan under the new rules, but Pakistan had to
agree to a new quota on man-made fiber sheets and pillowcases
for the remainder of the ATC. To offset the losses to the
Philippine embroidery industry, the U.S. agreed to drop the
Philippine quota on babies' garments in 1997, a year before
that category was scheduled to be removed from the quota
system, and to provide additional flexibility in other quotas.
To mollify Canada, the U.S. dropped the Pakistan visa
requirement that applied to quilts made from Pakistani-made
shell fabrics. That way, Canadians would not have to seek a
visa from Pakistan to export their quilts to the U.S. market.
U.S.-EU Negotiations Over the Rules Change
The EU also came forward to defend the interests of its
silk scarf manufacturers, as well as its fabrics and home
furnishings producers. The EU demanded that the U.S. exempt its
products from the new fabric rule in order to ensure that
European processed goods would remain immune from the U.S.
quota program. The U.S. repeatedly offered partial solutions.
For example, at first the U.S. proposed to create special
provisions in the U.S. tariff schedule to identify certain dyed
and printed woven man-made fiber staple fabrics and to then
remove those items from the U.S. quota program.
A partial deal was reached between the U.S. and EU in
September 1996. Under that deal, the U.S. agreed that three
categories of man-made fiber fabrics that are dyed and printed
with a ``discharge printing process'' would be placed outside
any visa requirements, if the fabrics were woven in Thailand,
Malaysia and Indonesia. The U.S. apparently insisted upon the
discharge printing limitation based upon its understanding that
such a manufacturing process is performed only in Europe and
Japan.
However, the larger issues remained unresolved and in
November 1996 the EU Commission initiated an investigation
under its domestic trade barriers law to determine whether
there was a basis for the EU to challenge the U.S. origin rules
before the WTO. At the conclusion of that investigation, with
the EU apparently prepared to initiate WTO dispute settlement
proceedings, the U.S. stepped forward with another proposal.
This time, the U.S. offered to permit labels indicating that
silk scarves were produced in a European country from Chinese
silk, but the EU continued to press for full resolution of the
issues.
In May 1997, the EU formally requested consultations with
the U.S. under WTO dispute settlement rules. Within weeks,
Japan, India, Pakistan, Hong Kong, Honduras, Switzerland, the
Dominican Republic, Canada, and Costa Rica, had each filed
letters with the WTO requesting to join in the consultations.
Shortly thereafter, the U.S. for the first time proposed to
exempt from quota requirements some cotton fabrics, if they
were produced in Turkey or Egypt, but that was apparently not
sufficient to convince the EU to suspend its WTO action.
The Proces Verbal
On July 15, 1997, the eve of the scheduled formal WTO
consultations, a deal was struck, in the form of a ``process
verbal.'' The terms of that agreement reveal that two matters
were uppermost on the minds the negotiators: the fact that
legislation would be necessary to make any significant changes
in the Breaux-Cardin rules and the concurrent harmonization
negotiations, which neither side wanted to upset or unbalance.
The process verbal noted: 1) Returning to the rules of
origin in place before July 1996 would require an amendment to
U.S. law; and 2) the two countries were both involved in the
WTO's negotiations to harmonize internationally the rules of
origin for all products. The note therefore stated, in
Paragraph 2, that it was agreed that it would be best if any
legislative change by the U.S. awaited the conclusion of those
harmonization talks, which were scheduled to end July 20, 1998.
The scope of the proces verbal is set forth in the first
sentence of Paragraph 2: ``dyed and printed textile and apparel
products.''
Also in Paragraph 2, the U.S. promised that it would put
forward in the WTO harmonization forum its pre-July 1996 origin
rules for silk accessories and silk fabrics, and for dyed and
printed cotton, man-made fiber, and vegetable fiber fabrics.
In Paragraph 3 it was provided that the U.S. Administration
would propose to the U.S. Congress an amendment to the law
either reinstating the old origin rules ``for the above
products'' or implementing whatever rules had been agreed upon
in the WTO exercise. The reference to ``the above products''
has, unfortunately, turned out to be an unclear statement, as
will be discussed in greater detail below.
In any event, whether it was an internationally harmonized
rule, or simply reinstatement of section 12.130 as a statutory
rule in place of Breaux-Cardin, Paragraph 3 further provided
that the legislation was to be introduced in time for it to be
considered and acted upon before the Congress adjourned for the
year.
In another part of the proces verbal (Paragraph 6(i)) the
U.S. also agreed to immediately seek legislation exempting from
U.S. marking requirements silk scarves and silk fabrics. Also
included in the proces verbal was confirmation that the U.S.
would create new provisions in the U.S. tariff schedule
covering discharge printed cotton fabrics and then exempt from
quotas any such fabrics, if the fabrics were woven in Egypt,
Turkey, Thailand, and Indonesia (Paragraph 6(ii)). And the
proces verbal confirmed the provision agreed to for man-made
fiber discharge printed fabrics made in Malaysia, Indonesia or
Thailand (Paragraph 6(iii)).
In early 1998, the U.S. Administration took two actions to
meet its responsibilities under the proces verbal. First, in
the WTO harmonization talks, USA-ITA understands that the U.S.
did put forward a proposal to recognize dyeing plus printing
plus two finishing operations as an origin conferring process
for all fabrics except wool. That constituted a change in
position for the U.S., which had before that time limited its
offer to an origin rule based solely upon the weaving or
knitting of the fabric. In that context, the U.S. did not
appear to limit its offer to goods that would enter another
market as fabrics and gave no indication that its proposal
should be interpreted that narrowly. Under traditional rules of
origin concepts, origin rules are cumulative. That means that
origin is assigned to a product by virtue of certain processing
having occurred until such time as another origin-conferring
process occurs. The U.S. proposal remains ``on the table,'' and
the issue of the proper rule of origin for fabrics remains
outstanding, with participants in the negotiations continuing
to debate whether printing or dyeing alone should be considered
origin conferring, and whether certain finishing processes also
should be required.
Second, the Administration put forward a bill to exempt
silk scarves and silk fabrics from U.S. marking requirements.
That bill, H.R. 3294, was introduced by Mr. Matsui, by request.
It appears to conform to that aspect of the proces verbal.
Legislative action by the Administration on the origin
rules for fabrics was postponed pending completion of the WTO
harmonization talks. Unfortunately, the WTO harmonization talks
failed to meet the July 20, 1998 deadline for completion. No
resolution is likely on that front through 1999, if then.
How H.R. 4526 Fails To Honor the Proces Verbal
The U.S. Administration then put forward the legislation
that is the subject of this request for comments by the
Subcommittee. H.R. 4526 reinstates the printing plus dyeing
plus two finishing operations rule for fabrics other than wool.
However, it fails to properly modify Section 334 either to
cover all ``dyed and printed textile and apparel products'' or
to ensure that once such an origin conferring operation takes
place, origin stays with the fabric until another origin
conferring process takes place. That failure means that the
legislation does not conform to the terms of the proces verbal.
Section 334 currently specifies a weaving or knitting rule
of origin for home furnishings (HTSUS chapter 63), that is,
where the fabric is knit or woven determines the origin of a
bedsheet or a quilt. That rule for home furnishings is workable
when the fabric rule also specifies weaving or knitting as
solely origin conferring for fabrics. But it does not make
sense when fabrics are subject to a more ``liberal'' rule, such
as when printing, dyeing and finishing are also recognized as
constituting an origin conferring process. That is the
situation created by the current wording of H.R. 4526.
H.R. 4526 would result in a situation in which the
following absurd conclusions would be required: If a fabric
were printed, dyed and finished in Italy, it would be Italian,
but if that same fabric were then cut and sewn to produce a
tablecloth or a bedsheet, it would become a product of the
country in which the fabric had been woven. In effect, H.R.
4526 would require origin to go backward if additional, non-
origin-conferring, operations were performed after printing and
dyeing.
Clearly, that is contrary to all common understandings
about origin rules and could not have been the intent of the
negotiators.
The text of the proces verbal makes clear that the EU had
good reason to believe that adoption of the printing plus
dyeing plus two finishing operations rule would suffice to
address most but not all of its concerns about fabrics and home
furnishings. Thus, sentence one of Paragraph 2 refers to a
``return to the rules of origin set forth in 19 C.F.R. section
12.130 for dyed and printed textile and apparel products.''
Sentence two of Paragraph 2 refers to what the U.S. committed
to propose in the harmonization talks--the prior rules for silk
accessories and fabrics other than wool. Paragraph 3 then
refers to the commitment of the U.S. to ``propose to Congress .
. . an amendment to the US rules of origin for the above
products.'' The Administration now contends the ``above
products'' refers only to those for which it would propose its
prior rules in the harmonization talks (the second sentence).
The EU, and USA-ITA, believes that the reference had to be to
all of the products mentioned in Paragraph 2 (both sentences),
including ``dyed and printed textile and apparel products,''
the more inclusive product description in Paragraph 2.
The fact that the U.S. committed to propose the old section
12.130 origin rules in the harmonization exercise indicates
that the U.S. could not have expected to have those rules apply
only to goods that entered the U.S. market as fabrics. As noted
above, origin rules are cumulative, and no experienced
negotiator in origin rules would assume that origin
``disappears'' or ``evaporates'' if further non-origin
conferring operations are performed after an origin-conferring
operation has taken place. Thus, in the context of the WTO
harmonization talks, the proposal by the U.S. that printing
plus dyeing plus two finishing operations equals an origin-
conferring process meant that the U.S. also agreed that other
products made from those fabrics would bear the origin of the
country in which those processes occurred, unless another
later-in-time origin-conferring process was performed.
The only reason that this issue is arising is because of
the unique terms of Section 334. In order to eliminate the
section 12.130 rules for home furnishings, which recognized
cutting and substantial sewing as origin conferring operations,
Section 334 contains specific language addressing HTSUS Chapter
63 products (among a few others). These rules, set forth in
Section 334(b)(2)(A) states that instead of the ``assembly''
rules, the products in the specified list of tariff
classifications are subject to the fabric rule. To implement
the proces verbal faithfully and logically, this aspect of
Section 334 also must be addressed. All products subject to the
fabric rule under Section 334 should be--must be--subject to
the revised, or reinstated, fabric rule. H.R. 4526 fails to do
this and for that reason must be revised.
Proposed Revision of H.R. 4526
Correcting H.R. 4526 to properly reinstate the pre-Breaux-
Cardin rules of origin for fabrics and establish a logical
origin rule is simple. The words ``and goods of these fabrics''
should be added to the paragraph describing ``certain other
textiles,'' proposed paragraph (B) of the ``special rules.''
Specifically, USA-ITA recommends that the proposed paragraph
(B) of the special rules read as follows:
``(B) CERTAIN OTHER TEXTILES.--Fabric
of silk, cotton, man-made fiber, or vegetable
fiber and goods of these fabrics shall be considered to
originate in, and be
the growth, product, or manufacture of, the
country, territory, or possession in which the
fabric is dyed and printed if at least 2 of the
following finishing operations are performed in
By adding the words ``and goods of these fabrics,'' both
fabrics and products that are made from the named fabrics, but
which do not undergo any other origin conferring operations,
will have their origin determined by where the fabric was
printed and dyed and finished. The origin of all other products
will be unaffected. The intent of the proces verbal will be
fulfilled. The relevant portions of section 12.130 will be
reinstated. Logical and credible origin rules will be
established--which means that the law is less likely to have to
be changed again later as a result of the international
harmonization process. And an unnecessary dispute between the
United States and the European Union (and the many other
countries waiting in the wings, hoping to participate in the
WTO dispute settlement action against the U.S.) will be
resolved.
Conclusion:
USA-ITA respectfully urges the Subcommittee to amend H.R.
4526 as recommended above and to promptly enact H.R. 4526, as
amended, into law.
Respectfully submitted,
Laura E. Jones
Executive Director
-