DR-CAFTA Article 3.26: Most-Favored-Nation Rates of Duty on Certain Goods
The textile and apparel trade is generally aware that under the U.S.-Dominican Republic-Central America Free Trade Agreement ("DR-CAFTA") most apparel articles of cotton or man-made fiber are under a "yarn forward" rule of origin. Less well-known is a outward processing provision, sometimes called "Special 809," that provides for reduced import duties for apparel assembled of U.S.-made fabric, without regard to the origin of the yarn.
Article 3.26 of DR-CAFTA states:
For a textile or apparel good provided for in chapters 61 through 63 of the Harmonized System that is not an originating good, the United States shall apply its MFN rate of duty only on the value of the assembled good minus the value of fabrics formed in the United States, components knit-to-shape in the United States, and any other materials of U.S. origin used in the production of such a good, provided that the good is sewn or otherwise assembled in the territory of another Party or Parties with thread wholly formed in the United States, from fabrics wholly formed in the United States and cut in one or more Parties, or from components knit-to-shape in the United States, or both.
Given that the bulk of the value in a garment is the fabric plus the cut-and-sew operations, this means that the total duty paid could be substantially reduced, because although the rate of duty will not be reduced, in will be applied to only the non-U.S. portion of the total value (which is almost the same as saying duty paid only on the valued added in DR-CAFTA).
Special 809 Usage
Usage of this provision has been low, but increasing, from $25 million in 2009 to $81 million in 2017 (out of $6.4 billion in total CAFTA-DR-qualifying trade in apparel).
Agathon Associates has prepared a WRITE UP OF SPECIAL 809 to assist clients in understanding this provision and would be happy to discuss it with interested parties. To access the file you will need your username and password. If you do not know your username and password email David Trumbull at david@agathonassociates.com.
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