Water-Tight Compartments

REMINDER TO THE TRADE -- Agathon Associates from time to time gets questions regarding how the U.S. free trade agreements work together. The short answer is that they don't. Each agreement is a "silo" regulating trade between the U.S. and the partner country (or in the case of NAFTA and DR-CAFTA, partner countries). So while the U.S. has a free trade agreement with Mexico (NAFTA) and with six Caribbean region nations (DR-CAFTA), there is no general provision that allows co-production in Mexico and the Caribbean. While co-production would give manufacturers greater flexibility in sourcing, there are are problems with the concept --

1. When the U.S. gives a nation duty-free access via a free trade agreement, certain obligations are imposed on that partner nation and it would be unfair to give the benefit to a third party who has not signed on to the particular obligations of that agreement.
2. Each FTA is unique and reflects the compromises made by the U.S. and partner nation(s), it is a delicate balance of the interests of the U.S. and the partner(s), giving benefits to a third party would upset that balance.
3. Enforcement of FTA rules is already difficult enough, allowing "mix-and-match" would make enforcement extremely difficult.

There are a few fairly narrowly defined exceptions --

1. Some, but not all, FTAs permit the use of certain nylon yarn from Canada, Israel, or Mexico.
2. DR-CAFTA allows for a limited amount of Mexican fabric in the case of woven (but not knit) apparel, with sub-limits for certain types of woven apparel.
3. Some, but not all, FTAs contain tariff preference levels (TPLs) which allow a limited quantity of yarn and fabric from any source. These provisions are often specific to the type of fiber, yarn, fabric and apparel.

The U.S. has 14 FTAs with 20 countries. No two agreements are the same, with the rules varying from agreement to agreement. In the case of the two multi-lateral agreements, NAFTA and DR-CAFTA, the rules even vary among the partner countries of the agreement. Agathon Associates can assist you in understanding, complying with, and benefiting from, free trade agreements.