CHAPTER FOUR TEXTILES AND APPAREL ARTICLE 4.1: TARIFF ELIMINATION 1. Except as otherwise provided in this Agreement, each Party shall eliminate its customs duties on originating textile and apparel goods in accordance with its Schedule to Annex IV (Tariff Elimination). 2. Duties on originating textile and apparel goods provided for in the items in staging category A in a Party’s Schedule shall be eliminated entirely and such goods shall be duty- free on the date this Agreement enters into force. 3. Duties on originating textile and apparel goods provided for in the items in staging category D in a Party’s Schedule shall be reduced to 50 percent of that Party’s base rate of duty on January 1 of year one. Beginning January 1 of year two, duties shall be removed in five equal annual stages, and such goods shall be duty-free, effective January 1 of year six. 4. Duties on originating textile and apparel goods provided for in the items in staging category F in a Party’s Schedule shall be removed in nine equal annual stages beginning January 1 of year one, and such goods shall be duty-free, effective January 1 of year nine. 5. Duties on originating textile and apparel goods provided for in the items in staging category H in a Party’s Schedule shall be removed in ten stages. On January 1 of year one, duties shall be reduced by three percent of that Party’s base rate, and by an additional three percent of the base rate on January 1 of each year thereafter through year four. Beginning January 1 of year five, duties shall be removed in six equal annual stages, and such goods shall be duty-free, effective January 1 of year ten. 6. The United States shall eliminate customs duties on any originating textile or apparel goods that, after the date of entry into force of this Agreement, are designated as articles eligible for duty-free treatment under the U.S. Generalized System of Preferences, effective from the date of such designation. 4-1 7. On the date of entry into force of this Agreement, each Party shall provide that the originating apparel goods specified in Annex 4-B shall be duty-free, up to the annual quantities identified therein. Duties on originating apparel goods specified in Annex 4-B above those quantities shall be reduced as provided for in paragraph 3. 8. An importing Party, through its competent authorities, shall require an importer claiming duty-free treatment for an originating apparel good listed in Annex 4-B to present to the competent authorities at the time of entry a declaration that it is entitled to duty-free treatment in accordance with paragraph 7 and Annex 4-B. The importing Party shall not be required to provide duty-free treatment if an importer does not provide such a declaration. An exporting Party may require the exporter to prepare a declaration of eligibility for duty-free treatment in order to administer the annual quantities listed in Annex 4-B. 9. On the request of either Party, the Parties shall consult to consider accelerating the elimination of customs duties, and to consider increasing the annual quantities listed in Annex 4-B. An agreement by the Parties to accelerate the elimination of a customs duty or to adjust the annual quantities listed in Annex 4-B shall supersede any duty rate, staging category, or annual quantity determined pursuant to this Agreement when approved by each Party in accordance with its applicable legal procedures. ARTICLE 4.2: SPECIAL TEXTILE AND APPAREL SAFEGUARD ACTIONS 1. If, as a result of the reduction or elimination of a duty under this Agreement, a textile or apparel good benefiting from preferential tariff treatment under this Agreement is being imported into the territory of a Party in such increased quantities, in absolute terms or relative to the domestic market for that good, and under such conditions as to cause serious damage, or actual threat thereof, to a domestic industry producing a like or directly competitive good, the Party may, to the extent and for such time as may be necessary to prevent or remedy such damage and to facilitate adjustment, increase the rate of duty on the good to a level not to exceed the lesser of: (a) the most-favored-nation (“MFN”) applied rate of duty in effect at the time the action is taken; and (b) the MFN applied rate of duty in effect on the date of entry into force of this Agreement. 4-2 2. In determining serious damage, or actual threat thereof, the importing Party: (a) shall examine the effect of increased imports of the good from the exporting Party on the particular industry, as reflected in changes in such relevant economic variables as output, productivity, utilization of capacity, inventories, market share, exports, wages, employment, domestic prices, profits, and investment, none of which shall necessarily be decisive; and (b) shall not consider changes in technology or consumer preference as factors supporting a determination of serious damage or actual threat thereof. 3. The importing Party may take a safeguard action under this Article only following an investigation by its competent authorities. 4. The importing Party shall deliver to the exporting Party, without delay, written notice of its intent to take a safeguard action and, on the request of the exporting Party, shall enter into consultations with that Party regarding the matter. 5. An importing Party: (a) shall not maintain a safeguard action for a period exceeding three years, except that the Party may extend the period by up to two years if the Party’s competent authorities determine, in conformity with the procedures set out in paragraphs 3 and 4, that the action continues to be necessary to prevent or remedy serious damage and to facilitate adjustment by the domestic industry, and that there is evidence that the industry is adjusting; (b) shall not take or maintain a safeguard action against a good beyond ten years after the Party must eliminate customs duties on that good pursuant to this Agreement; (c) shall not take a safeguard action more than once against the same good of the other Party; and (d) shall, on termination of the safeguard action, apply to the good that was subject to the safeguard action the rate of duty that would have been in effect but for the action. 4-3 6. The importing Party shall provide to the exporting Party mutually agreed trade liberalizing compensation in the form of concessions having substantially equivalent trade effects or equivalent to the value of the additional duties expected to result from the safeguard action. Such concessions shall be limited to textile and apparel goods, unless the Parties agree otherwise. If the Parties are unable to agree on compensation, the exporting Party may suspend tariff concessions under this Agreement having trade effects substantially equivalent to the trade effects of the safeguard action. Such tariff action may be taken against any goods of the exporting Party. The exporting Party shall apply the tariff action only for the minimum period necessary to achieve the substantially equivalent trade effects. The importing Party’s obligation to provide trade compensation and the exporting Party’s right to take tariff action shall terminate when the safeguard action terminates. 7. Nothing in this Agreement shall be construed to limit a Party’s right to restrain imports of textile and apparel goods in a manner consistent with the Agreement on Textiles and Clothing or the Safeguards Agreement. However, a Party may not take or maintain a safeguard action under this Article against a textile or apparel good that is subject, or becomes subject, to a safeguard measure that a Party takes pursuant to either such agreement. ARTICLE 4.3: RULES OF ORIGIN AND RELATED MATTERS Application of Chapter Five 1. Except as provided in this Chapter, including its Annexes, Chapter Five (Rules of Origin) applies to textile and apparel goods. 2. For greater certainty, the rules of origin set forth in this Agreement shall not apply in determining the country of origin of a textile or apparel good for non-preferential purposes. 4-4 Consultations 3. On the request of either Party, the Parties shall consult to consider whether the rules of origin applicable to a particular textile or apparel good should be revised to address issues of availability of supply of fibers, yarns, or fabrics in the territories of the P arties. 4. In the consultations referred to in paragraph 3, each Party shall consider all data presented by the other Party that demonstrate substantial production in its territory of a particular fiber, yarn, or fabric. The Parties shall consider that there is substantial production if a Party demonstrates that its domestic producers are capable of supplying commercial quantities of the fiber, yarn, or fabric in a timely manner. 5. On request of an exporting Party, the Parties shall consult to consider revising the rules of origin applicable to originating textile and apparel goods described in HS 6207, 6208, and 6212, with a view to furthering the objectives of the Agreement, if: (a) at any time beginning one year after the date of entry into force of this Agreement, the requesting Party’s annual exports of such goods to the other Party are not significantly higher than its annual exports of such goods before the date of entry into force of this Agreement, or (b) at any time after this Agreement enters into force, either Party enters into an agreement that establishes a rule of origin for such goods that differs from the rule of origin provided for under this Agreement. 6. The Parties shall endeavor to conclude the consultations referred to in paragraphs 3 and 5 within 60 days after delivery of a request. If the Parties agree in the consultations to revise a rule of origin, the agreement shall supersede that rule of origin when approved by the Parties in accordance with Article 22.2 (Amendments). De Minimis 7. A textile or apparel good that is not an originating good because certain fibers or yarns used in the production of the component of the good that determines the tariff classification of the good do not undergo an applicable change in tariff classification set out in Annex 4-A, shall nonetheless be considered to be an originating good if the total weight of all such fibers or yarns in that component is not more than seven percent of the 4-5 total weight of that component.1 Notwithstanding the preceding sentence, a good containing elastomeric yarns in the component of the good that determines the tariff classification of the good shall be considered to be an originating good only if such yarns are wholly formed in the territory of a Party. Treatment of Sets 8. Notwithstanding the specific rules of origin set out in Annex 4-A, textile or apparel goods classified under General Rule of Interpretation 3 of the Harmonized System as goods put up in sets for retail sale shall not be regarded as originating goods unless each of the goods in the set is an originating good or the total value of the non-originating goods in the set does not exceed 10 percent of the value of the set determined for purposes of assessing customs duties. Preferential Tariff Treatment for Non-Originating Fabric and Apparel Goods (Tariff Preference Levels) 9. Subject to paragraph 11, each Party shall accord preferential tariff treatment to fabric goods provided for in Chapters 51, 52, 54, 55, 58, and 60 of the Harmonized System that are wholly formed in the territory of a Party, regardless of the origin of the fiber or yarn used to produce the goods, and that meet the applicable conditions for preferential tariff treatment under this Agreement other than the condition that they be originating goods. 10. Subject to paragraph 11, each Party shall accord preferential tariff treatment to apparel goods provided for in Chapters 61 and 62 of the Harmonized System that are cut or knit to shape, or both, and sewn or otherwise assembled in the territory of a Party, regardless of the origin of the fabric or yarn used to produce the goods, and that meet the applicable conditions for preferential tariff treatment under this Agreement other than the condition that they be originating goods. 11. A Party shall accord preferential tariff treatment to the goods described in paragraphs 9 and 10 up to the combined annual quantities specified in the following schedule: 1 For greater certainty, when the good is a yarn, fabric, or group of fibers, the “component of the good that determines the tariff classification of the good” is all of the fibers in the yarn, fabric, or group of fibers. 4-6 Year Following Date Combined Annual Quantities of Entry into Force of his Agreement in Square Meters Equivalent Year One: 30,000,000 Year Two: 30,000,000 Year Three: 30,000,000 Year Four: 30,000,000 Year Five: 25,714,0000 Year Six: 21,428,000 Year Seven: 17,142,000 Year Eight: 12,856,000 Year Nine: 8,571,000 Year Ten: 4,285,000 12. An importing Party, through its competent authorities, may require that an importer claiming preferential tariff treatment for a fabric or apparel good under paragraph 9 or 10 present to the competent authorities at the time of entry a declaration of eligibility for preferential tariff treatment under that paragraph. The declaration shall be prepared by the importer and shall consist of information demonstrating that the good satisfies the requirements for preferential tariff treatment under paragraph 9 or 10. An exporting Party may require the exporter to prepare a declaration of eligibility for preferential tariff treatment under paragraph 9 or 10 in order to monitor the use of tariff preference levels. 13. To determine the quantity in square meters equivalent that is charged against the annual quantity set out in paragraph 11, the importing Party shall apply the conversion factors listed in, or utilize a methodology based on, the Correlation: U.S. Textile and Apparel Category System with the Harmonized Tariff Schedule of the United States of America, 2003 (“The Textile Correlation”), U.S. Department of Commerce, Office of Textiles and Apparel, or successor publication. 14. Paragraphs 9 through 13 shall cease to apply beginning on the first day of the eleventh twelve-month period following the date of entry into force of this Agreement. Treatment of Certain Cotton Goods 15. Each Party shall accord preferential tariff treatment to a textile or apparel good listed in Annex 4-A that is not an originating good solely because cotton fibers used in the production of the good do not undergo an applicable change in tariff classification as set 4-7 out in Annex 4-A if the cotton fibers, classified in HS heading 5201.00, used in the good originate in one or more of the least-developed beneficiary sub-Saharan African countries designated in Article 6 of the Bulletin Officiel, No. 4861 bis – 6 chaoual 1421 (1.1.2001), Exoneration du droit d’importation en faveur des produits originaires et en provenance de certains pays d’Afrique, as of the date of entry into force of this Agreement, and provided the cotton fibers are carded or combed in the territory of a Party or of a designated least- developed country. The total quantity of goods that may be accorded preferential tariff treatment based on this paragraph shall be limited to 1,067,257 kilograms annually. On request of either Party, the Parties shall consult on whether to adjust this quantity, or on any other matter related to this paragraph. ARTICLE 4.4: CUSTOMS AND ADMINISTRATIVE COOPERATION 1. The Parties shall cooperate for purposes of: (a) enforcing or assisting in the enforcement of their measures affecting trade in textile and apparel goods; (b) verifying the accuracy of claims of origin; (c) enforcing or assisting in the enforcement of measures implementing international agreements affecting trade in textile and apparel goods; and (d) preventing circumvention of international agreements affecting trade in textile and apparel goods. 2. On the request of the importing Party, the exporting Party shall conduct a verification for purposes of enabling the importing Party to determine that a claim of origin for a textile or apparel good is accurate. The exporting Party shall conduct such a verification, regardless of whether an importer claims preferential tariff treatment for the good. The exporting Party also may conduct such a verification on its own initiative. 3. Where the importing Party has a reasonable suspicion that an exporter or producer of the exporting Party is engaging in unlawful activity relating to trade in textile or apparel goods, the exporting Party shall conduct, on the request of the importing Party, a verification for purposes of enabling the importing Party to determine that the exporter or producer is complying with applicable customs measures regarding trade in textile and apparel goods, including measures that the exporting Party adopts and maintains pursuant 4-8 to this Agreement and measures of either Party implementing other international agreements affecting trade in textile or apparel goods, or to determine that a claim of origin regarding textile or apparel goods exported or produced by that enterprise is accurate. For purposes of this paragraph, a reasonable suspicion of unlawful activity means a suspicion based on relevant factual information of the type set forth in Article 6.5.5 (Cooperation) or information that indicates: (a) circumvention by the exporter or producer of applicable customs measures regarding trade in textile and apparel goods, including measures adopted to implement this Agreement; or (b) conduct that facilitates the violation of measures relating to any other international agreement regarding trade in textile or apparel goods. 4. The exporting Party, through its competent authorities, shall permit the importing Party, through its competent authorities, to assist in a verification conducted pursuant to paragraph 2 or 3, including by conducting, along with the competent authorities of the exporting Party, visits in the territory of the exporting Party to the premises of an exporter, producer, or any other enterprise involved in the movement of a textile or apparel good from the territory of the exporting Party to the territory of the importing Party. The importing Party shall notify the exporting Party in advance of any such visits. 5. Each Party shall provide to the other Party, consistent with the Party’s law, production, trade, and transit documents and other information necessary for the exporting Party to conduct a verification under paragraph 2 or 3. Each Party shall treat any documents or information exchanged in the course of such a verification in accordance with Article 6.6 (Confidentiality). 6. While a verification is being conducted, the importing Party may, consistent with its law, take appropriate action, which may include suspending the application of preferential tariff treatment to: (a) the textile or apparel good for which a claim of origin has been made, in the case of a verification under paragraph 2; or (b) any textile or apparel good exported or produced by the person subject to a verification under paragraph 3, where the reasonable suspicion of unlawful activity relates to that good. 4-9 7. The Party conducting a verification under paragraph 2 or 3 shall provide the other Party with a written report on the results of the verification, which shall include all documents and facts supporting any conclusion that the Party reaches. 8. (a) If the importing Party is unable to make the determination described in paragraph 2 within 12 months after its request for a verification, or makes a negative determination, it may, consistent with its law, take appropriate action, including denying preferential tariff treatment to the textile or apparel good subject to the verification, and to similar goods exported or produced by the person that exported or produced the good. (b) If the importing Party is unable to make a determination described in paragraph 3 within 12 months after its request for a verification, or makes a negative determination, it may, consistent with its law, take appropriate action, including denying preferential tariff treatment to any textile or apparel good exported or produced by the person subject to the verification. 9. (a) The importing Party may deny preferential tariff treatment or entry under paragraph 8 only after notifying the other Party of its intention to do so. (b) If the importing Party takes action under paragraph 8 because it is unable to make a determination described in paragraph 2 or 3, it may continue to take appropriate action under paragraph 8 until it receives information sufficient to enable it to make the determination. 10. On the request of either Party, the Parties shall consult to resolve any technical or interpretive difficulties that may arise under this Article or to discuss ways to improve the effectiveness of their cooperative efforts. In addition, either Party may request technical or other assistance from the other Party in implementing this Article. The Party receiving such a request shall make every effort to respond favorably and promptly. 4-10