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Notice

Determination by the Department of Commerce on the Wholly Formed Requirement for Qualifying Woven Fabric Under the Dominican Republic Earned Import Allowance Program

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Start Preamble July 29, 2010.

AGENCY:

Department of Commerce, International Trade Administration.

ACTION:

Notice.

SUMMARY:

The Department of Commerce has determined to maintain the current interpretation of the wholly formed requirement of qualifying woven fabric under the Dominican Republic Earned Import Allowance Program (DREIAP).

Start Further Info

FOR FURTHER INFORMATION CONTACT:

Robert Carrigg, Office of Textiles and Apparel, Import Administration, U.S. Department of Commerce, (202) 482-2573.

End Further Info End Preamble Start Supplemental Information

SUPPLEMENTARY INFORMATION:

Authority: Section 2(a) of the Andean Trade Preference Extension Act of 2008 (“ATPEA”); Section 404(b)(2)(H) of the Dominican Republic-Central America-United States Free Trade Agreement (“CAFTA-DR FTA”) Implementation Act, as amended; Imports of Certain Apparel Articles: Interim Procedures for the Implementation of the Earned Import Allowance Program Established Under the Andean Trade Preference Extension Act of 2008 (74 FR 3563, published January 21, 2009) (“Interim Procedures”).

DATES:

Effective Date: August 3, 2010.

Background

On December 1, 2008, the Department of Commerce implemented provisions under the Andean Trade Preference Extension Act of 2008 (Pub. L. 110-436, 122 Stat. 4976) (ATPEA or implementing legislation). Section 2 of the ATPEA amends Title IV of the CAFTA-DR FTA Implementation Act (Pub. L. 109-53; 119 Stat. 495). Specifically, Title IV of the CAFTA-DR FTA Implementation Act is amended by adding Section 404, creating a benefit for eligible apparel articles wholly assembled in the Dominican Republic that meet the requirements for a “2 for 1” earned import allowance. Section 2 of the ATPEA requires the Secretary of Commerce to establish a program to provide earned import allowance certificates to any producer or entity controlling production of eligible apparel articles in the Dominican Republic, such that apparel wholly assembled in the Dominican Republic from fabric or yarns, regardless of their source, and imported directly from the Dominican Republic, may enter the United States duty-free, pursuant to the satisfaction of the terms governing issuance of the earned import allowance certificate. The Secretary of Commerce has delegated his authority under the CAFTA-DR FTA Implementation Act to implement and administer the Earned Import Allowance Program to the International Trade Administration's Office of Textiles and Apparel (“OTEXA”).

On January 21, 2009, OTEXA published interim procedures, 74 FR 3563, implementing Section 2 of the ATPEA. These procedures set forth the provisions OTEXA will follow in implementing the DREIAP. In accordance with these procedures, OTEXA issues certificates to qualifying apparel producers to accompany imports of eligible apparel articles wholly formed in the Dominican Republic and exported from the Dominican Republic. Such certificates will be issued as long as there is a sufficient balance of square meter equivalents available as a result of the purchase of qualifying woven fabric. “Qualifying woven fabric” is defined in Section 2 of the ATPEA and in OTEXA's interim procedures as “woven fabric of cotton wholly formed in the United States from yarns wholly formed in the United States” and intended for production of apparel in the Dominican Republic. See Section 2(e) of the Interim Procedures; Section 404(c)(4) of the CAFTA-DR FTA Implementation Act, as amended by Section 2 of the ATPEA. Neither the ATPEA nor the interim procedures define the term “wholly formed” as it is used in the definition of “qualifying woven fabric.”

OTEXA received inquiries regarding the interpretation of “wholly formed” as a requirement under the definition of “qualifying woven fabric.” Accordingly, on April 3, 2009 (74 FR 15254), OTEXA requested public comment on the intended meaning of the “wholly formed” requirement in the definition of “qualifying woven fabric” for the purposes of the DREIAP. In that request for public comment, OTEXA explained that it “currently interprets `wholly formed' within the definition of `qualifying woven fabric' to require that all production processes and finishing operations, starting with weaving and ending with a fabric ready for cutting or assembly without further processing, take place in the United States.” Id., 74 FR at 15255.

OTEXA received ten comments and has carefully analyzed the points raised in each submission. These comments are available on OTEXA's Web site at http://web.ita.doc.gov/​tacgi/​otexa_​dr_​eiap_​publiccomments.nsf/​504ca249c786e20f85256284006da7ab?​OpenView&​Start=​1. Department officials have also discussed this matter on several occasions with interested stakeholders to ensure that all points have been considered.

Commentators that support OTEXA's current interpretation contend that the DREIAP was intended to improve the competitiveness of Dominican apparel producers and create new export opportunities for United States manufacturers of qualifying fabrics. These commentators suggest that from the beginning, it was clear that the intent was to base the program on the delivery of qualifying fabric ready for cutting and sewing into trousers. There was never any discussion of permitting greige fabric (raw fabric that has yet to be bleached or dyed) to be shipped to another country for finishing and allowing such fabric to qualify for benefits under the program because it was understood that support from United States industry was dependent on the requirement that fabric be produced and finished in the United States so that it would be ready for cutting and sewing upon arrival in the Dominican Republic. These commentators argue that effective enforcement of the program would be more difficult if third countries were able to participate as finishers. They also contend that the dyeing and finishing stage imparts distinct characteristics that only then make the fabric suitable for a specific apparel application as envisaged by the legislation. Unfinished fabric can be used for applications other than the assembly of trousers and similar garments. The commentators contend that although the program was enacted as an amendment to the CAFTA-DR FTA Implementation Act, it could have been implemented as a stand-alone bill or as an amendment to other relevant legislation. These commentators suggest that the connection between the program and the vehicle to which it was attached is one of legislative convenience. These commentators state that at no time was there an expression Start Printed Page 45604to treat the program as other than a preferential program and at no time was it contemplated that the finishing of qualifying fabrics could take place outside the United States.

Furthermore, these commentators state that allowing finishing outside the United States does not preserve or promote the use of United States fabrics as intended by the program. Lastly, these commentators contend that there is more than sufficient capacity in the United States to dye, print, and finish the amount of fabric required by Dominican Republic apparel manufacturers for qualification under the program.

Commentators who disagree with OTEXA's current interpretation assert that the term “wholly formed” as used in the DREIAP does not require the fabric to be dyed and finished in the United States, and that such an interpretation negates the benefits of the program. These commentators contend that this issue was never addressed during the discussions leading to the creation of the program. As such, they contend that OTEXA's current interpretation was not contemplated in the drafting of the legislation and is not required under the express terms of the legislation. They argue that Customs and Border Protection (“CBP”) interpreted the term “wholly formed” when used in the Caribbean Basin Trade Preference Act (“CBTPA”) of 2000 (Pub. L. 106-200, 114 Stat, 251, 2766) as not requiring dyeing and finishing. These commentators contend that Congress did not amend the definition of “wholly formed” in the Trade Act of 2002 (Pub. L. 107-210), but only added a new requirement. These commentators state that because the DREIAP is not an amendment to the CAFTA-DR FTA, the requirements for dyeing and finishing specified in two footnotes in that agreement do not apply to the term in this program. They contend that there is no requirement to directly ship qualifying fabric to the Dominican Republic; therefore, dyeing and finishing of United States greige fabric is not precluded. They argue that OTEXA's interpretation is inconsistent with other similar programs. Finally, these commentators argue that originating apparel under free trade agreements need not be dyed or finished by the parties.

Analysis and Determination

After careful consideration of the interested party comments, OTEXA has determined it will continue to interpret “wholly formed” within the definition of “qualifying woven fabric” to require that all production processes and finishing operations, starting with weaving and ending with a fabric ready for cutting or assembly without further processing, take place in the United States under the DREIAP.

Neither the ATPEA nor the interim procedures define the term “wholly formed” as it is used in the definition of “qualifying woven fabric.” Additionally, there is no legislative history regarding this term as it is used in this program. Although not controlling, OTEXA considered testimony given by former Special Textile Negotiator for the United States Trade Representative, Scott Quesenberry. See Testimony before the United States International Trade Commission on the matter of the Earned Import Allowance Program: Evaluation of the Effectiveness of the Program for Certain Apparel from the Dominican Republic (Investigation No.: 332-503) (Nov. 18, 2009). Mr. Quesenberry testified “through the course of many years of hard negotiation on this issue, plus several months of hard work on the legislative language, this issue never came up, so I can tell you that it was not the intent of the negotiator that finishing would be allowed from outside of the United States at the Dominican Republic. This was designed to be a program between those two countries.”

Without any legislative history, OTEXA considered the interpretation of “wholly formed” in light of other programs it administers. The CBTPA, which was enacted pursuant to the Trade and Development Act of 2000 (Pub. L. 106-200, 114 Stat. 251, 2766), included the phrase “wholly formed,” but did not define that term. In implementing the CBTPA, CBP promulgated regulations (United States-Caribbean Basin Trade Partnership Act and Caribbean Basin Innitiative, 65 FR 59650, October 5, 2000) which did not require finishing, dyeing, or printing to occur within the region for preferential treatment. Subsequent to the promulgation of the regulations implementing CBTPA, Congress enacted the Trade Act of 2002 (Pub. L. 107-210), which amended and extended the CBTPA and established the ATPDEA. In that Act, Congress amended the CBTPA and provided in the ATPDEA the wholly formed requirement that all dyeing, printing and finishing of fabrics be carried out in the United States (Pub. L. 107-210, 116 Stat, 1035-1036):

Apparel articles entered on or after September 1, 2002, shall qualify under the preceding sentence only if all dyeing, printing, and finishing of the fabrics from which the articles are assembled, if the fabrics are knit fabrics, is carried out in the United States. Apparel articles entered on or after September 1, 2002, shall qualify under the first sentence of this clause only if all dyeing, printing, and finishing of the fabrics from which the articles are assembled, if the fabrics are woven fabrics, is carried out in the United States.

Further, the CAFTA-DR FTA uses the term “wholly formed” in two provisions, footnote 6 to Article 3.25(8) and footnote 7 to Article 3.26. In both provisions, the definition of “wholly formed” includes dyeing and finishing. Although the terminology is used in different instances in the DREIAP Implementation Act and the CAFTA-DR FTA, OTEXA considers it persuasive in defining the term here.

OTEXA agrees with the commentators who stated that the dyeing and finishing stages impart distinct characteristics which only then make the fabric suitable for a specific apparel application; i.e., intended for production of apparel in the Dominican Republic as stated in the DREIAP Implementation Act. Unfinished fabric can be used for other applications beyond the assembly of trousers and similar garments covered by DREIAP. OTEXA does not believe that dyeing and finishing outside the United States would preserve or promote the use of United States fabrics as intended by the DREIAP. Furthermore, in OTEXA's experience administering trade preference programs, OTEXA understands that often over 50 percent of the value of a fabric is attributable to the dyeing, finishing and printing process. Thus, allowing offshore finishing undercuts critical benefits to the United States textile sector, contrary to an aim of the DREIAP.

OTEXA is also mindful of the manner in which Congress directed it to administer the program. Permitting finishing outside the United States prior to the fabric being shipped to the Dominican Republic would potentially involve one or more countries and companies involved, and it would be difficult if not impossible to verify that the fabric was eventually exported to the Dominican Republic from the United States for cutting and assembly. This is a critical determination for fabric to qualify for duty free importation into the United States. See Sections 4 and 6 of the Interim Procedures, 74 FR at 3565-66.

Based on the foregoing, OTEXA has determined it will continue to interpret the term “wholly formed” within the definition of “qualifying woven fabric” to require that all production processes and finishing operations, starting with weaving and ending with a fabric ready for cutting or assembly without further Start Printed Page 45605processing, took place in the United States under the DREIAP.

Start Signature

Kim Glas,

Deputy Assistant Secretary, Office of Textiles and Apparel.

End Signature End Supplemental Information

[FR Doc. 2010-19065 Filed 8-2-10; 8:45 am]

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