U.S.-Chile FTA to Allow 3-Country Filament Rayon in Certain Woven Fabrics

On September 23, 2016, the Committee for the Implementation of Texile Agreements ("CITA") released (Publication Number: 4632 Investigation Number: U.S.-Chile FTA-103-029) Probable Economic Effect of Certain Modifications to the U.S.-Chile FTA Rules of Origin.

U.S. negotiators have reached agreement in principle with representatives of the government of Chile on certain modifications to the ROOs in Chapter 3 and Annex 4.1 of the Agreement.

The current Chile FTA rule allows woven fabrics of artificial filament yarns (including rayon yarns) classified in heading 5408 to receive the preferential duty treatment only (1) if they are made with originating artificial filament yarns (or with originating cotton, wool/fine animal hair, or other manmade filament yarns) and (2) if all other non-originating inputs are classified in other tariff chapters.

The proposed modification would create a separate rule for fabrics classified in subheadings 5408.22–5408.23. The modification would be liberalizing because it would allow covered dyed and yarn-dyed woven fabrics to be eligible for preferential duty treatment under the Chile FTA even if they are made of non-originating rayon filament yarns. However, even for those fabrics classified in subheadings 5408.22–5408.23, the rule would still require non-rayon artificial filament yarns (e.g., cellulose acetate) or any other manmade fiber filament yarns to be originating in order to qualify for the FTA preferences. Moreover, the existing rule’s criteria would remain the same for fabrics classified in HTS subheadings 5408.10–5408.21 and 5408.24–5408.34, even though new individual ROOs would be established for these two groups of HTS provisions.

The proposed modification would likely have a negligible effect on U.S. imports under the Chile FTA and on total U.S. imports. In 2015, 74 percent of U.S. imports from Chile under subheadings 5408.22–5408.23 qualified for the preferential rate of duty under current Chile FTA provisions. The trade-weighted average tariff rate on U.S. imports from Chile was less than 0.5 percent ad valorem for goods covered by the proposed modification. U.S. imports from Chile accounted for less than 0.7 percent of total U.S. imports of these goods in 2015.

The effect of the proposed modification on total U.S. exports would also likely be negligible. The United States did not export the subject fabrics of rayon yarns to Chile in 2015; in 2014, U.S. exports of these goods represented less than 1 percent of total U.S. exports of such goods. Chile imposes a 6 percent ad valorem MFN rate of duty on its imports under subheadings 5408.22 and 5408.23.15

The effect on U.S. production would likely be negligible because the net effect on total U.S. trade in the subject fabrics is expected to be negligible. In addition, U.S. industry sources indicated there is no domestic production of rayon yarns used in the subject fabrics; therefore, there would be no effect on U.S. producers of the subject yarns.