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February 7, 2019

Incentivising US content in imports to reduce tariff burden

A group of US industry associations – including those representing apparel and footwear brands, retailers and importers – is calling for an update to a programme that provides duty reductions for goods made with US content.

A group of US industry associations – including those representing apparel and footwear brands, retailers and importers – is calling for an update to a programme that provides duty reductions for goods made with US content.

They are seeking an expansion to the so-called 9802 provision that would allow US origin textiles and leather, in addition to US components, to be deducted from the dutiable value of a finished product when it is imported into the United States.

Under current US law, the value of US origin components used to manufacture a product can be deducted from the imported merchandise before assessing duty. But narrow definitions by the US Customs Service officials on what constitutes a “component” under the 9802 programme mean that US exports further processed abroad before being assembled into a product – such as US fabric or leather hides – are excluded.

This means significant US value that is included in articles made abroad is charged the full US tariff when imported.

As an example “US Customs and Border Protection (CBP) has interpreted yarns and fabrics as not being “components” and therefore are not eligible for current provisions for duty exemption,” the groups say in a letter sent to the leadership of the Senate Finance Committee and House Ways and Means Committee.

“At the same time, CBP does consider US sewing thread and US narrow elastic fabric (which are yarns and fabrics, respectively) to be US components and therefore eligible for deduction.”

What this means for a pair of jeans assembled offshore using US sewing thread and containing US yarns is that the value of the sewing thread can be deducted because it is considered a “component” by US Customs when it is assembled into the garment. But the yarn cannot because it must first be woven into fabric, then cut and sewn into the finished garment.

According to organisations including the American Apparel & Footwear Association (AAFA), the Footwear Distributors and Retailers of America (FDRA), and the United States Fashion Industry Association (USFIA): “This practice acts as a significant disincentive for the use of US textiles and leather in articles made abroad, undermining the opportunities for US exports of those materials and the jobs associated with those exports.

“Knowing there is no duty reduction benefit for the use of US materials results in foreign producers using less expensive foreign substitutes,” they add.

“Congressional action is needed now. Not only would swift action incentivise the use of US exported materials, but it would also undo a status quo that is largely inconsistent.”

The groups claim US law already envisions such an approach. “For example, Harmonized Tariff Schedule (HTS) 9802.00.60 already allows importers to deduct the cost of US metal materials, even if those materials were further processed abroad, from the value of the imported article. The proposal we are advancing would build on the 9802.00.60 provision to provide similar exemptions for US exports of textiles and leather.

“Such a programme would firmly root US inputs into the global production supply chains by signaling that US content – whether that content comes in the form of a recognised stand-alone component or is otherwise incorporated into a finished article – is exempt from applicable duty.”

Other organisations supporting the change include the National Retail Federation (NRF), the United States Hide, Skin and Leather Association (USHSLA), the Retail Industry Leaders Association (RILA), and the Leather Industries of America (LIA).

They say the benefits would include the creation of US jobs and the promotion of exports of US materials on a global basis – without the need to engage in tit-for-tat tariff wars.

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