The International Trade Commission has determined that a proposed modification to the rules of origin on certain woven fabrics under the U.S.-Chile Free Trade Agreement that would allow the use of more non-originating rayon filament yarn is likely to have a negligible effect on U.S. imports, exports, and industry. U.S. and Chilean negotiators reached an agreement in principle on this change earlier in the year following determinations that U.S. and Chilean producers are unable to produce rayon filament yarns in commercial quantities in a timely manner.
According to the ITC, the current Chile FTA rule allows woven fabrics of artificial filament yarns (including rayon yarns) classified in heading 5408 to receive preferential duty treatment only if (1) they are made with originating artificial filament yarns (or with originating cotton, wool/fine animal hair, or other manmade filament yarns) and (2) all other non-originating inputs are classified in other tariff chapters.
The ITC states that the proposed modification would create a separate rule for fabrics classified in HTSUS subheadings 5408.22–5408.23 that would allow covered dyed and yarn-dyed woven fabrics to be eligible for preferential duty treatment under the Chile FTA even if they are made of non-originating rayon filament yarns. However, even for these fabrics the rule would still require non-rayon artificial filament yarns (e.g., cellulose acetate) or any other manmade fiber filament yarns to be originating to qualify for FTA preferences. Moreover, the existing rule’s criteria would remain the same for fabrics classified in HTSUS subheadings 5408.10–5408.21 and 5408.24–5408.34 even though new individual rules would be established for these two groups of HTS provisions.
The ITC report finds that the proposed modification would likely have the following effects.
Imports. In 2015, 74 percent of U.S. imports from Chile under HTSUS subheadings 5408.22–5408.23 qualified for the preferential duty rate under current Chile FTA provisions, and the trade-weighted average tariff rate on U.S. imports of such goods from Chile was less than 0.5 percent. In addition, U.S. imports from Chile accounted for less than 0.7 percent of total U.S. imports of these goods in 2015. As a result, the likely effect of the proposed modification on imports would be negligible.
Exports. The U.S. did not export the subject fabrics of rayon yarns to Chile in 2015, and in 2014 U.S. exports of these fabrics to Chile represented less than one percent of total U.S. exports. Further, Chile imposes a 6 percent duty on imports under subheadings 5408.22 and 5408.23.15. As a result, the effect of the proposed modification on total U.S. exports would likely be negligible.
U.S. Production. The ITC concludes that the effect on U.S. production would likely be negligible because the net effect on total U.S. trade in the subject fabrics is expected to be negligible. In addition, U.S. industry sources indicated that there is no domestic production of rayon yarns used in the subject fabrics.