Overview of The U.S. – Peru Trade Promotion Agreement
John Gilliland, Partner at Gilliland & McKinney International Counsellors
Updated March 31, 2019
The U.S.-Peru Trade Promotion Agreement (TPA) took effect on February 1, 2009. The Peru TPA provides duty-free treatment for all originating goods, including apparel. While the Andean Trade Preference and Drug Eradication Act (ATPDEA) previously provided duty-free entry into the United States for many apparel articles from Peru, the TPA covers a wider range of products and provides for duty-free importation of U.S. originating goods into Peru. The TPA also provides duty-free treatment on more favorable terms.
Rules of Origin
The Peru TPA covers all articles and permits unlimited use of U.S. or Peruvian inputs. Like most other U.S. free trade agreements, the Peru TPA treats as originating any apparel articles that are wholly obtained or produced entirely in the United States or Peru, as well as apparel articles for which non-originating inputs meet specific tariff shift rules.
Subject to additional rules applicable to certain components, discussed below, the tariff shift rules for most apparel articles of cotton, wool or man-made fibers are yarn-forward, meaning that generally only staple fiber may be non-originating. Under the yarn-forward rules, the component determining classification must be woven or knit in Peru or the United States with yarn spun or extruded in Peru or the United States, and the apparel article must be cut or knit to shape and sewn or otherwise assembled in Peru or the United States. The tariff shift rules under the Peru TPA apply only to the component of an apparel article that determines its classification.
The Peru TPA also provides for duty-free treatment of non-originating textiles and apparel that are composed of fibers, yarns, or fabrics that are not available in commercial quantities in the United States or Peru. At the time of the Peru TPA’s implementation, the short supply list included only 18 fabrics and yarns. Additions to the short supply lists for the Dominican Republic-Central America-United States Free Trade Agreement (CAFTA-DR), the North American Free Trade Agreement (NAFTA) and other U.S. free trade agreements are not automatically incorporated into the Peru TPA’s short supply list. The Peru TPA provides for additions to the short supply list if the United States, upon the request of an interested person, determines that a fiber, fabric, or yarn is commercially unavailable.
The United States must make short supply determinations on a short timeline and must approve such requests if there is no opposition. The Peru TPA also permits the addition of items to the short supply list in restricted quantities and permits removal of items from the short supply list if the United States determines that the items are no longer unavailable. Updated information about short supply is available at www.otexa.ita.doc.gov.
The Peru TPA’s short supply provisions establish that apparel articles will be treated as originating if they are cut or knit to shape and sewn or otherwise assembled in Peru or the United States, or both, and if the fabric of the outer shell (exclusive of collars and cuffs) is wholly of one or more of the following:
- short supply fabric,
- fabric that is formed in Peru or the United States, or both, with short supply yarns, or
- any combination of the foregoing fabrics and originating fabrics, which originating fabrics may contain de minimis yarns.
An exception provides that any elastomeric yarn contained in originating fabrics or knit to shape components must be formed in Peru or the United States or both.
Additional Requirements for Originating Articles
Despite the general rule under the TPA that only the component that determines classification must meet the applicable origin rule, the TPA includes additional rules for sewing thread, pocketing, narrow elastic fabrics and visible linings.
First, cotton, man-made filament and man-made staple fiber sewing thread in apparel articles must be both formed and finished in Peru or the United States. This rule, however, specifies particular sewing thread classifications in the Harmonized Tariff System (HTS). Because only multiple, folded, or cabled yarns are classified as sewing thread under the HTS, single yarn sewing thread is not subject to the sewing thread rule. Furthermore, apparel articles that qualify for duty-free treatment under the short supply rules are not subject to the sewing thread rule.
Second, the pocket bag fabric of any good of HTS Chapter 61 or 62 that contains pockets must be formed and finished in Peru or the United States from yarn wholly formed in Peru or the United States. Apparel articles that qualify for duty-free treatment under the short supply rules are not subject to the pocket bag fabric rule.
Third, apparel articles that contain narrow elastic fabrics will be originating only if the narrow elastic fabrics are both formed from yarn and finished in Peru or the United States. Apparel articles that qualify for duty-free treatment under the short supply rules are not subject to the narrow elastic fabrics rule.
Fourth, certain types of visible lining fabrics in suits, suit jackets, skirts, overcoats, carcoats, anoraks, windbreakers, and similar articles must be both formed from yarn and finished in Peru or the United States. Apparel articles that qualify for duty-free treatment under the short supply rules are not subject to the visible lining rule.
Single Transformation Rules
The Peru TPA includes a cut-and-assemble rule of origin for brassieres under which duty-free treatment is provided to such goods that are cut or knit to shape and sewn or otherwise assembled in the United States or Peru from foreign fabric. The Peru TPA also includes a few other single transformation provisions for apparel articles of fabrics that are not normally available in the United States or Peru. For example, apparel articles of silk or linen can be made with foreign fabric as long as they are cut and sewn in Peru. The Peru TPA does not include any tariff preference levels (TPLs).
De Minimis Fibers and Yarns
An apparel article is still originating under the Peru TPA despite the presence of fibers or yarns in the component that determines the article‘s classification that do not meet the applicable tariff shift rule, if these fibers or yarns account for 10 percent or less of the total weight of all the fibers or yarns in the component that determines the article’s classification. An exception to this rule provides that a good containing any elastomeric yarns in the component that determines its classification is not originating unless the elastomeric yarns are wholly formed in the United States or Peru.
Nylon Filament Yarn
An article is still originating under the Peru TPA despite the presence in the component that determines the article’s classification of yarns that do not meet the applicable tariff shirt rule, if these yarns are certain nylon filament yarns produced in Canada, Mexico, or Israel.
The TPA does not provide for cumulation or co-production of fabrics or yarns from any other countries.