[WPRT 105-11]
[From the U.S. Government Publishing Office]


105th Congress                                                    WMCP:
2nd Session                 COMMITTEE PRINT                      105-11
_______________________________________________________________________

                                     


                         SUBCOMMITTEE ON TRADE

                                 OF THE

                      COMMITTEE ON WAYS AND MEANS

                     U.S. HOUSE OF REPRESENTATIVES

                               __________

                            WRITTEN COMMENTS

                                   ON

 
   H.R. 4526, A BILL WHICH WOULD CHANGE CUSTOMS RULES-OF-ORIGIN FOR 
                        CERTAIN TEXTILE PRODUCTS





                                     
[GRAPHIC] [TIFF OMITTED] TONGRESS.#13

                                     
                            DECEMBER 9, 1998

  Printed for the use of the Committee on Ways and Means by its staff






                      COMMITTEE ON WAYS AND MEANS

                      BILL ARCHER, Texas, Chairman

PHILIP M. CRANE, Illinois            CHARLES B. RANGEL, New York
BILL THOMAS, California              FORTNEY PETE STARK, California
E. CLAY SHAW, Jr., Florida           ROBERT T. MATSUI, California
NANCY L. JOHNSON, Connecticut        BARBARA B. KENNELLY, Connecticut
JIM BUNNING, Kentucky                WILLIAM J. COYNE, Pennsylvania
AMO HOUGHTON, New York               SANDER M. LEVIN, Michigan
WALLY HERGER, California             BENJAMIN L. CARDIN, Maryland
JIM McCRERY, Louisiana               JIM McDERMOTT, Washington
DAVE CAMP, Michigan                  GERALD D. KLECZKA, Wisconsin
JIM RAMSTAD, Minnesota               JOHN LEWIS, Georgia
JIM NUSSLE, Iowa                     RICHARD E. NEAL, Massachusetts
SAM JOHNSON, Texas                   MICHAEL R. McNULTY, New York
JENNIFER DUNN, Washington            WILLIAM J. JEFFERSON, Louisiana
MAC COLLINS, Georgia                 JOHN S. TANNER, Tennessee
ROB PORTMAN, Ohio                    XAVIER BECERRA, California
PHILIP S. ENGLISH, Pennsylvania      KAREN L. THURMAN, Florida
JOHN ENSIGN, Nevada
JON CHRISTENSEN, Nebraska
WES WATKINS, Oklahoma
J.D. HAYWORTH, Arizona
JERRY WELLER, Illinois
KENNY HULSHOF, Missouri

                     A.L. Singleton, Chief of Staff

                  Janice Mays, Minority Chief Counsel

                                 ______

                         Subcommittee on Trade

                  PHILIP M. CRANE, Illinois, Chairman

BILL THOMAS, California              ROBERT T. MATSUI, California
E. CLAY SHAW, Jr., Florida           CHARLES B. RANGEL, New York
AMO HOUGHTON, New York               RICHARD E. NEAL, Massachusetts
DAVE CAMP, Michigan                  JIM McDERMOTT, Washington
JIM RAMSTAD, Minnesota               MICHAEL R. McNULTY, New York
JENNIFER DUNN, Washington            WILLIAM J. JEFFERSON, Louisiana
WALLY HERGER, California
JIM NUSSLE, Iowa


Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public 
hearing records of the Committee on Ways and Means are also published 
in electronic form. The printed hearing record remains the official 
version. Because electronic submissions are used to prepare both 
printed and electronic versions of the hearing record, the process of 
converting between various electronic formats may introduce 
unintentional errors or omissions. Such occurrences are inherent in the 
current publication process and should diminish as the process is 
further refined.


                            C O N T E N T S

                               __________

                                                                   Page

Text of H.R. 4526................................................    iv
Advisory of Monday, September 14, 1998, announcing the request 
  for written comments on H.R. 4526, a bill which would change 
  Customs rules of origin for certain textile products...........     1

                                 ______

American Apparel Manufacturers Association, Stephen Lamar, letter     2
American Textile Manufacturers Institute, statement..............     3
Fashion Accessories Association:
    Gail T. Cumins, letter.......................................     4
    Gail T. Cumins, letter and attachments.......................     5
Joint Industry Group, Evelyn Suarez, letter......................     5
Mead Corporation, statement......................................     6
National Retail Federation, Erik O. Autor, letter................     8
Pakistan, Islamic Republic of, Farrakh Qayyum, letter............     9
United States Association of Importers of Textiles and Apparel, 
  Laura E. Jones, statement......................................    10


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[GRAPHIC] [TIFF OMITTED] T2054.002

[GRAPHIC] [TIFF OMITTED] T2054.003

      

ADVISORY

FROM THE 
COMMITTEE
 ON WAYS 
AND 
MEANS

                         SUBCOMMITTEE ON TRADE

                                                CONTACT: (202) 225-6649
FOR IMMEDIATE RELEASE

September 14, 1998

No. TR-30

              Crane Announces Request for Written Comments

                on H.R. 4526, a Bill Which Would Change

                      Customs Rules-of-Origin for

                        Certain Textile Products

    Congressman Philip M. Crane (R-IL), Chairman, Subcommittee on Trade 
of the Committee on Ways and Means, today announced that the 
Subcommittee is requesting written public comments for the record from 
all parties interested in H.R. 4526, a bill which would restore a pre-
existing rule-of-origin for certain dyed and printed fabrics, and 
certain silk accessory products.
      

BACKGROUND:

      
    Section 334, the so-called ``Breaux-Cardin'' amendment, of the 
``Uruguay Round Agreement Act'' (P.L. 103-465) directed the U.S. 
Department of the Treasury to prescribe new regulations for determining 
the country-of-origin of textile and apparel products. As a result, 
certain fabrics, silk handkerchiefs and scarves are considered to 
originate where the base fabric is knit and woven, notwithstanding any 
further processing. H.R. 4526 would revert the rule-of-origin for these 
products to the rule that existed prior to enactment of P.L 103-465. 
The original rule permitted the processes of dyeing and printing to 
confer origin, when accompanied by two or more finishing operations.
      
    As part of the settlement of a complaint brought by the European 
Union (EU) against the new ``Breaux-Cardin'' rules-of-origin, the 
United States and the EU agreed to a ``proces-verbal'' prepared on July 
15, 1997. H.R. 4526, which was introduced by Rep. Benjamin Cardin (D-
MD) on September 9, 1998, at the Administration's request, is intended 
to implement this agreement.
      
    Because of the short time remaining in the legislative session, 
Chairman Crane requests that all comments be filed with the Committee 
by no later than Monday, September 28, 1998.
      

DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:

      
    Any person or organization wishing to submit a written statement 
for the printed record should submit six (6) single-spaced copies of 
their statement, along with an IBM compatible 3.5-inch diskette in 
WordPerfect 5.1 format, with their name, address, and comments date 
noted on label, by the close of business, Monday, September 28, 1998, 
to A.L. Singleton, Chief of Staff, Committee on Ways and Means, U.S. 
House of Representatives, 1102 Longworth House Office Building, 
Washington, D.C. 20515.
      

FORMATTING REQUIREMENTS:

      
    Each statement presented for printing to the Committee by a 
witness, any written statement or exhibit submitted for the printed 
record or any written comments in response to a request for written 
comments must conform to the guidelines listed below. Any statement or 
exhibit not in compliance with these guidelines will not be printed, 
but will be maintained in the Committee files for review and use by the 
Committee.
      
    1. All statements and any accompanying exhibits for printing must 
be submitted on an IBM compatible 3.5-inch diskette in WordPerfect 5.1 
format, typed in single space and may not exceed a total of 10 pages 
including attachments. Witnesses are advised that the Committee will 
rely on electronic submissions for printing the official hearing 
record.
      
    2. Copies of whole documents submitted as exhibit material will not 
be accepted for printing. Instead, exhibit material should be 
referenced and quoted or paraphrased. All exhibit material not meeting 
these specifications will be maintained in the Committee files for 
review and use by the Committee.
      
    3. A witness appearing at a public hearing, or submitting a 
statement for the record of a public hearing, or submitting written 
comments in response to a published request for comments by the 
Committee, must include on his statement or submission a list of all 
clients, persons, or organizations on whose behalf the witness appears.
      
    4. A supplemental sheet must accompany each statement listing the 
name, company, address, telephone and fax numbers where the witness or 
the designated representative may be reached. This supplemental sheet 
will not be included in the printed record.
      
    The above restrictions and limitations apply only to material being 
submitted for printing. Statements and exhibits or supplementary 
material submitted solely for distribution to the Members, the press, 
and the public during the course of a public hearing may be submitted 
in other forms.
      

    Note: All Committee advisories and news releases are available on 
the World Wide Web at `HTTP://WWW.HOUSE.GOV/WAYS__MEANS/'.
      

                                

                 American Apparel Manufacturers Association
                                                 September 28, 1998

The Hon. Philip Crane, Chairman
House Ways and Means Trade Subcommittee
1104 Longworth House Office Building
US House of Representatives
Washington, DC 20515

RE: Request for Written Comments (TR-30) on HR 4526

    Dear Chairman Crane:

    On behalf of the American Apparel Manufacturers Association (AAMA), 
I am writing in connection with the Subcommittee's recent request for 
written comments on legislation to change rule of origin requirements 
for certain textile products (HR 4526). Thank you for providing me an 
opportunity to submit AAMA's views on this important issue.
    As you know, AAMA is the national trade association for the apparel 
industry. Our members are located in every state and produce about 85 
percent of the apparel sold at wholesale within the United States each 
year. AAMA members produce products throughout the United States, in 
the Caribbean Basin and Mexico, and in many other parts of the world.
    AAMA has several concerns about the approach outlined in HR 4526, 
and would oppose enactment of this bill as it is currently drafted.
    First, the legislation does not appear to resolve fully the 
complaint brought by the European Union (EU) against the Breaux-Cardin 
rules-of-origin. To avoid dispute settlement proceedings on Breaux-
Cardin before the WTO, the United States reached an agreement in July 
1997 with the EU to restore the rule of origin requirements for certain 
dyed and printed fabrics and products. We understand, however, that the 
EU does not believe the legislation satisfies the commitments of that 
agreement and that it will seek further proceedings before the WTO if 
the legislation is left unchanged. Before the Congress approves this 
bill, it should assure itself that the legislation appropriately 
resolves the EU concerns. We expect our trading partners to swiftly 
implement the changes to which they agree in such agreements. We should 
do no less.
    Second, aspects of the legislation seem to have a regressive 
nature. For some silk products, origin is conferred in the country 
where dyeing and printing and two other finishing processes occur. For 
other silk products, even though they may undergo identical finishing 
processes, origin reverts to the country where the fabric was formed. 
We are unclear as to the logic driving this distinction and believe 
this flaw may trigger further confusion.
    Third, we are troubled over the possible precedent that may be set 
by the legislation, if enacted. With rule of origin harmonization talks 
expected to resume next year, we are concerned that this rule of origin 
change for a specific set of products might undermine negotiating 
positions in those future talks. To protect these negotiations, we 
would argue strongly that the legislative history of this provision 
clearly reflect that this change is intended as a one-time fix 
undertaken to implement a specific exception.
    Fourth, we applaud the Trade Subcommittee's recent decision to send 
a signal by approving draft legislation designed to implement the 
required marking changes called for in the 1997 decision with the EU. 
However, we would prefer that this change be considered as part of 
legislation that effects all the changes required by that agreement. 
Although piecemeal changes would demonstrate our good faith to the 
Europeans, such an approach only makes sense if it forestalls further 
action in the WTO.
    From time to time, AAMA has supported special rules of origin for 
individual products. However, we do so only when the product is or such 
complexity, unique design, or commercial significance that it demands 
an exemption. The NAFTA single transformation rule for bras is one such 
example that we strongly support. In such cases, we believe it is 
imperative that the Congress commit to and adhere to such rules lest 
their periodic review and modification be the source of consumer 
confusion and market disruption.
    If the Congress decides to enact a rule of origin change for these 
dyed and printed fabrics and products, it should do so only if it 
believes the exemption has merit and if it is willing to abide by the 
terms of the exemption for some years to come. To the greatest extant 
possible, rules of origin should reflect continuity, consistency, 
transparency, and predictability.
    Thank you for providing AAMA an opportunity to submit these views.

            Sincerely,
                                              Stephen Lamar
                                   Director of Government Relations
      

                                

Statement of the American Textile Manufacturers Institute

    This statement is submitted by the American Textile 
Manufacturers Institute (ATMI), the national association of the 
textile mill products industry. Our member companies consume 
nearly 80 percent of the textile fibers used in the U.S. 
Therefore, ATMI and its members have an on-going, vested and 
keen interest in rules of origin pertaining to imported textile 
and apparel products.
    ATMI wholeheartedly supports the rules of origin for 
imported textile and apparel products incorporated as Section 
334 of the Uruguay Round Agreements Act (``Breaux-Cardin''). 
These rules recognize and reflect the commercial reality of 
textile-apparel manufacturing and were obviously developed with 
a great deal of care in order to achieve that end.
    Legislation to amend ``Breaux-Cardin'' with respect to 
certain silk accessories and fabrics which have been dyed and 
printed has been presented as H.R. 4526. These proposed changes 
reflect an agreement reached between the United States and the 
European Union (EU), which claimed that the adoption of Breaux-
Cardin had unfairly and illegally impaired its trade and was 
actionable under the Uruguay Round Agreement.
    In ATMI's view, the EU's claims of trade impairment are 
overstated and unsupported by evidence of such impairment and, 
furthermore, the country of origin of the affected silk 
accessories and dyed and printed fabrics ought to be and is as 
stated in Breaux-Cardin. Nevertheless, ATMI does not object to 
this proposed amendment of Breaux-Cardin.
      

                                

            Sharretts, Paley, Carter and Blauvelt, P.C.    
                                         New York, NY 10004
                                                 September 25, 1998

A.L. Singleton
Chief of Staff, Committee on Ways and Means
U.S. House of Representatives
1102 Longworth House Office Building
Washington, DC 20515

    Dear Mr. Singleton:

    The Subcommittee on Trade of the Committee on Ways and Means has 
issued a request for written comments for the record from all parties 
interested in HR 4526, a bill which would restore the pre-existing 
rules of origin for, among other items, imported silk accessory 
products.
    This submission in support of the proposed legislation is submitted 
on behalf of the Fashion Accessories Association (FAA). The FAA is a 
non-profit trade association comprised of importers and distributors of 
silk handkerchiefs, shawls, scarves, mufflers and like articles 
classified in subheadings 6117.10, 6213.10, and 6214.10 of the 
Harmonized Tariff Schedule of the United States. In most instances, the 
members of the association purchase the finished silk handkerchiefs and 
scarves in a country other than the country from which the greige 
fabric was produced.
    Since the enactment of PL 103.465, the Uruguay Round Agreements 
Act, the country of origin for handkerchiefs and scarves is based 
solely upon the place where the fabric is woven or knit. Further 
processing in a second country can not change the origin of the 
accessories produced from the raw material--the greige fabric. Thus, 
the concept of substantial transformation, the key stone for origin 
determinations in this country for the previous ninety-five years of 
this century, was swept away to be replaced by a simplistic test of 
origin which fails to acknowledge reality. We submit that HR 4526 
corrects this situation.
    Only by returning to the pre PL-103.465 origin rules for 
handkerchiefs and scarves will we recognize importance of the 
processing of silk greige fabric in a second country. Such processing 
not only adds significant value to the raw material (in most instances 
more than twice the value of the greige) but also subjects the material 
to significant manufacturing operations resulting in the creation of a 
new and different article of commerce. Indeed, such operations are 
neither minimal in nature nor insufficient to confer country of origin. 
These manufacturing operations define what the article is and determine 
its appeal to the consumer. Accordingly, the FAA believes that the 
proposed legislation will b beneficial to the consumer since this 
legislation will result in a more realistic representation of correct 
country of origin.
    Any approach to country of origin which does not recognize the 
importance of operations which take place in a second country, will 
result in the continued distortion of international trade by refusing 
to acknowledge that transforming a starting material into a new and 
different commodity which has no resemblance to the finished article is 
insufficient to determine origin.
    The restoration of the previous rule of origin for these products 
will return us to the agreed upon purpose of the Uruguay Round 
Agreement of Rules of Origin, to create impartial and neutral rules of 
origin which eliminate restrictive or distorting effects on 
international trade. Clearly, this is a situation which the members of 
this committee can and should address if we are to create harmonized 
origin rules in accordance with the mandate of the WTO.
    It is for these reasons that the FAA urges that favorable action be 
taken on HR 4526.
    We thank the committee for providing us with the opportunity to 
submit these comments and we look forward to seeing this bill enacted 
during this session of Congress.

            Respectfully,
                                             Gail T. Cumins
      

                                

            Sharretts, Paley, Carter and Blauvelt, P.C.    
                                       Washington, DC 20036
                                                 September 29, 1998

A. L. Singleton
Chief of Staff, Committee on Ways and Means
U.S. House of Representatives
1102 Longworth House Office Building
Washington, DC 20515

    Dear Mr. Singleton:

    On September 28, 1998, the Fashion Accessories Association (FAA) 
filed written comments in support of the passage of HR 4526, a bill to 
restore pre-existing rules of origin for, among other items, imported 
silk accessory products. In order to enhance your understanding of 
those comments, attached are samples of: greige silk fabric (usually of 
Chinese origin) and a scarf that is created from greige silk fabric 
(usually in Italy or Japan). Under the country of origin rules which HR 
4526 is intended to change, the country of origin of the attached 
finished scarf is China. We submit that these samples are worth a 
thousand words in explaining why the current country of origin rule, as 
it applies to silk scarves, should be changed back to the prior rule, 
as is proposed by HR 4526.
    If you have any questions please do not hesitate to contact us.

            Very truly yours,
                                             Gail T. Cumins

[Attachments are being retained in the Committee's files.]
      

                                

                                       Joint Industry Group
                                                 September 28, 1998

Mr. A. L. Singleton
Chief of Staff
Committee on Ways and Means
US House of Representatives
1102 Longworth House Office Building
Washington, DC 20515

    Dear Mr. Singleton,

    The Joint Industry Group (JIG) thanks you for this opportunity to 
comment on H.R. 4526, a bill to amend section 334 of the Uruguay Round 
Agreements Act to clarify the rules of origin with respect to certain 
textile products.
    JIG is a coalition with more than 130 members including Fortune 500 
companies, trade associations, professionals and businesses actively 
involved in international trade. We both examine and reflect the 
concerns of the business community relative to current and proposed 
international trade-related policies, actions, legislation, and 
regulations, and undertake to improve them through dialogue with 
several Executive Branch departments and agencies and the Congress. JIG 
membership represents more that $250 billion in trade.
    JIG recommends that H.R. 4526 be amended. In its current form, the 
bill appears to create an illogical rule of origin for textile products 
that will not resolve the dispute between the United States and the 
European Union. Therefore, passage of the bill in its current form 
would not be a useful exercise. Instead, the Subcommittee should focus 
its attention on assuring that a logical origin rule is established and 
that enactment of legislation supports the resolution of the US-EU 
dispute.
    H.R. 4526 reinstates the origin rule that was in effect for fabrics 
other than wool before July 1996. However, the bill does not cover all 
``dyed and printed textile and apparel products,'' which appears to 
have been the agreement under the proces verbal negotiated between the 
United States and the European Union. That is, the bill omits from its 
scope products made from fabrics, such as bedsheets, pillowcases, 
quilts, curtains, and tablecloths. Unless these products are included 
in the amendment, the bill would establish a rule of origin that cannot 
be defended.
    An example makes this point very clear. As H.R. 4526 is currently 
worded, the following situation would occur:
    Assume that a fabric is woven in Country A. The origin of that 
fabric is therefore Country A, under the terms of the Breaux-Cardin 
rules, which states that where a fabric is knit or woven determines its 
origin.
    Assume that fabric is then printed, dyed and finished in Country B. 
Under H.R. 4526, the origin of the fabric would become Country B 
because H.R. 4526 states that printing plus dyeing plus two finishing 
operations constitutes an origin-conferring process.
    Assume that printed, dyed and finished fabric is then cut and sewn 
in Country B to make a fitted sheet. Under Breaux-Cardin, the origin of 
the fitted sheet would be Country A. H.R. 4526 does not address bed 
linens, leaving that portion of Breaux-Cardin unchanged, and Breaux-
Cardin requires that where the fabric is knit or woven determines the 
origin for goods classifiable in HTSUS Chapter 63. (Fitted sheets are 
classified in HTSUS Chapter 63.)
    Such a result--requiring that origin go backwards when non-origin-
conferring operations such as cutting or simple sewing are performed--
simply does not make sense. How can a country, which adds further value 
to a product, lose the origin that it had already gained by a prior 
manufacturing operation? That is not how origin rules work. JIG cannot 
believe that the US and EU negotiators involved in drafting the proces 
verbal intended such a result.
    JIG strongly recommends that the Subcommittee revise H.R. 4526 to 
avoid this problem, especially since doing so would appear to eliminate 
the objections being voiced by the EU. An amendment to H.R. 4526 would 
not be difficult. The amendment should allow for the continuing 
recognition of printing, dyeing and finishing operations as origin 
conferring for products that are made from such fabrics. It is JIG's 
view that this can be accomplished by simply adding the words ``and 
goods of these fabrics'' after ``fabric of silk, cotton, man-made 
fiber, or vegetable fiber'' in Line 19 of the bill.
    That amendment would ensure that both fabrics and products that are 
made from the named fabrics, but which do not undergo any other origin 
conferring operations, will have their origin determined by where the 
fabric was printed and dyed and finished. The origin of all other 
products will be unaffected. That amendment would create (actually, 
reinstate the prior) logical origin rule and would allow the dispute 
between the United States and the European Union to be resolved once 
and for all.

            Sincerely,
                                              Evelyn Suarez
                         Chairperson, JIG Rules of Origin Committee
      

                                

Statement of the Mead Corporation

    Section 334 of the Uruguay Round Agreement Act (``Section 
334'') amended the Customs country of origin marking statute 
(Section 304 of the Tariff Act of 1930, 19 U.S.C. 1304) by 
modifying the rules of origin applicable to textile and apparel 
products. As part of these revisions to the rules of origin, 
Section 334 stipulated that certain textile articles shall be 
considered to originate in the country in which the fabric 
comprising the article is produced.
    This fabric-based rule of origin was, logically, generally 
applied to ``flat'' goods, such as handkerchiefs, scarves, 
sheets, etc.--all goods where the finished product required 
relatively little fabrication beyond the fabric itself. 
However, through oversight or inadvertence, the tariff 
classification applicable to miscellaneous textile articles, 
not elsewhere specified in the Harmonized Tariff Schedule of 
the United States (``HTSUS''), was also included among the 
HTSUS subheadings made subject to the fabric-based rule of 
origin. More specifically, Section 334 includes HTSUS 
subheading 6307.90 (Other Made up [textile] articles, other) 
among the HTSUS subheadings subject to the fabric-based rule of 
origin. Included within this subheading is the residual 
``basket'' category for all textile articles, HTSUS subheading 
6307.90.9989, which covers all remaining textile articles not 
specifically described in any of the preceding subheadings 
within the HTSUS textile chapters. Such miscellaneous textile 
articles are classified under this residual basket category, 
regardless of the amount of processing of the fabric component 
required to produce the finished article. In fact, it is likely 
that a majority of products included in this residual category 
are fabricated articles, rather than flat goods, since most 
flat goods are specifically described under preceding 
subheadings of the HTSUS.
    It should also be noted that the products classified under 
this subheading are not subject to textile import quotas, as 
are most flat goods. Accordingly, these residual, made up 
textile goods are not generally regarded to be import 
sensitive.
    The application of a fabric-based rule to fabricated 
products has caused considerable difficulties for the School 
and Office Products Division of the Mead Corporation (``Mead'') 
with respect to the country of origin marking of certain 
foreign-produced components and finished school and office 
products imported into the United States. It has been 
impossible to reconcile the U.S. textile rules of origin with 
the otherwise universally-applied country of manufacture or 
assembly rule of origin, imposed by those foreign countries in 
which Mead manufactures such products.
    As an example, Mead produces nylon zipper school binder 
covers in China, which are fabricated from fabric produced in 
Taiwan. These covers are imported into the United States, where 
they are finished and used to produce three-ring binders, 
notebooks, and other school and office products for sale in 
this country and abroad. The binder covers are produced through 
a relatively complex fabrication process. The fabric is first 
cut into various pieces. The sides and spine of the binder are 
made from two layers of fabric, between which polyethylene foam 
is inserted as a stiffening agent. A zipper is attached and the 
sides and spine are sewn and formed into a binder cover. The 
finished covers are not flat, but three dimensional objects, 
with internal space for in insertion of three ring binder 
mechanisms and paper documents. The binder cover is a product 
fabricated well beyond the characteristics of the fabric used 
to produce the product.
    The fabricated binders are deemed to be produced in China 
or, in other words, to originate in China for purposes of the 
Customs laws of China. In fact, these products would be deemed 
to be made in the country of fabrication by most other 
countries other than the United States. However, under the U.S. 
textile rules of origin, these products are deemed to originate 
in Taiwan, since the fabric is produced in that country, even 
though the fabric is subject to significant processing in 
China. Under the general U.S. country of origin marking 
regulations, the fabric is clearly ``substantially 
transformed'' in the process of fabricating zipper binder 
cover.
    The Customs authorities in China refuse, for understandable 
reasons, to permit the binders to be exported from China if 
they are labeled as made in any country other than China. On 
the other hand, the U.S. Customs country of origin marking 
rules, as amended by Section 334, require the binders to be 
labeled as Made in Taiwan upon importation into the United 
States. Such inconsistent marking requirements add costly 
complications to Mead's production processes. Further 
complications arise when Mead exports zipper binders from the 
United States to other countries. In such case, the binders 
must be relabeled as Made in China, since, again, essentially 
all other countries would consider these fabricated items to 
originate in China, where the binder covers are manufactured. 
The inconsistencies of the U.S. textile marking rules and the 
difficulties which they create for Mead are not unique, but 
must certainly affect many other U.S. companies which produce 
and sell made up textile articles in the United States with 
components sourced abroad.
    Mead would urge the Subcommittee to modify H.R. 4526 so 
that miscellaneous textile articles, not elsewhere specified in 
the HTSUS, that are fabricated beyond the flat state of the 
original fabric are deemed to originate in the country in which 
the fabric for the article is cut into parts and assembled into 
a completed good. One way of accomplishing this goal would be 
to adding ``subheading 6307.90.9989 (along with a reference to 
other made up textile articles)'' to subparagraphs (C)(i) and 
(C)(ii) of Section 334(b)(2), as set out in H.R. 4526. This 
modification of H.R. 4526 would insure that miscellaneous 
textile articles which were not cut into parts and assembled in 
a single country would continue to be considered to originate 
in the country in which the fabric for the article originates.
      

                                

                                 National Retail Federation
                                                 September 29, 1998

The Honorable Philip M. Crane
Chairman
Trade Subcommittee
Committee on Ways and Means
U.S. House of Representatives
1104 Longworth H.O.B.
Washington, D.C. 20515

    Dear Mr. Chairman:

    On behalf of America's retailers, the National Retail Federation 
(NRF) respectfully submits the following comments on H.R. 4526, a bill 
to modify the rule of origin with respect to certain dyed and printed 
fabrics and silk accessory products.
    The rule of origin provisions included in H.R. 4526 would make 
specific changes to the so-called ``Breaux-Cardin'' origin rule in 
order to resolve a dispute with the European Union (E.U.) over the 
origin of certain dyed and printed textile and apparel products. When 
Breaux-Cardin went into effect in July 1996, it stipulated that the 
origin of these products is the country where the fabric is knit or 
woven, rather than where final assembly occurs. Thus, for example, 
products such as fine silk scarves cut, printed, and sewn in France and 
Italy are considered under Breaux-Cardin to be products of China, where 
the silk fabric is made.
    The E.U. requested consultations with the United States regarding 
this new rule of origin under the dispute settlement rules of the World 
Trade Organization (WTO). In a proces-verbal prepared in July 1997, 
however, the E.U. agreed to withhold further action at the WTO if the 
U.S. would change Breaux-Cardin before the end of 1998.
    U.S. retailers strongly opposed Breaux-Cardin when it was 
originally proposed in 1994 for inclusion in the Uruguay Round 
Agreements Implementation Act. The industry argued that the change in 
the rule of origin effected by Breaux-Cardin was not required by the 
Uruguay Round Agreement, would be too disruptive to textile and apparel 
importers, was unwarranted because of the initiative at the WTO to 
harmonize rules of origin, and would create a host of needless 
problems, such as the subsequent dispute with the E.U. Now that 
Congress is considering changing the Breaux-Cardin rule of origin to 
address some of these problems, U.S. retailers urge Congress to act 
quickly to resolve the dispute with the E.U. within the time frame 
stipulated in the proces-verbal.
    While consistency with the terms of the proces-verbal may be an 
important consideration in determining what changes to the rule of 
origin may be warranted, a more important consideration is to ensure 
that any change is logical and avoids creating new problems in 
administering the rule of origin.
    Unfortunately, the proces-verbal is no model of clarity with 
respect to what the agreement between the two parties covers. The 
United States points to subparagraph 6(i) to support its claim that the 
commitment was to modify the rule of origin for silk scarves and 
fabric, which are the only products covered in H.R. 4526. The E.U. 
points to language in paragraph 2 of the proces-verbal to argue that 
the change in the rule of origin must cover all ``dyed and printed 
textile and apparel products'' (emphasis added) rather than just silk 
scarves and fabric.
    Even if the United States is correct that the agreement in the 
proces-verbal to change the country of origin does cover only silk 
scarves and fabric, the United States should not restrict itself to 
such a limited legislative change if doing so would only create 
additional problems and fail to address the underlying problem 
sufficiently to resolve the dispute with the E.U. Specifically, a 
legislative change that focuses only on silk scarves and fabric and 
does not include all dyed and printed textile and apparel products, 
would have some absurd and illogical consequences. For example, under 
the proposed legislative modification, Chinese silk shipped to France 
would be exempt from the country of origin marking requirement if is 
printed, dyed, and undergoes two finishing operations in France. 
However, if the same piece of silk is further processed in France by 
cutting and sewing to make a handkerchief or a tie, it must still be 
marked as a product of China. Moreover, the exemption from the country-
of-origin marking requirement would not apply to a scarf (or any other 
textile product) made from any fabric other than silk. In other words, 
if the fabric from China is satin or cotton, which is printed, dyed, 
and made into a scarf, bed sheet, or table cloth in France, it must 
still be marked as a product of China. Finally, the E.U. has stated 
that it would continue its action at the WTO if the United States 
implements such a limited change to Breaux-Cardin.
    To avoid these problems, it is NRF's recommendation that Congress 
not limit the modifications to the current rule of origin only to silk 
scarves and silk fabric. Rather, Congress should address the problem in 
a more comprehensive manner by modifying the rule of origin with 
respect to all dyed and printed textile and apparel products as 
requested by the E.U.
    The National Retail Federation (NRF) is the world's largest retail 
trade association with membership that includes the leading department, 
specialty, discount, mass merchandise, and independent stores, as well 
as 32 national and 50 state associations. NRF members represent an 
industry that encompasses over 1.4 million U.S. retail establishments, 
employs more than 20 million people--about 1 in 5 American workers--and 
registered 1997 sales of more than $2.5 trillion.

            Sincerely,
                                              Erik O. Autor
                        Vice President, International Trade Counsel
      

                                

                    [BY PERMISSION OF THE CHAIRMAN]

                                        Embassy of Pakistan
                                                 September 28, 1998

Subcommittee on Trade
Ways & Means Committee
U.S. House of Representatives
Washington, D.C. 20515

Re: Public Comments on H.R. 4526

    On behalf of the Government of Pakistan, the following comments are 
respectfully submitted with regard to H.R. 4526, legislation to amend 
the Uruguay Round Agreement Act to clarify the Rules of Origin for 
certain textile products.
    The Government of Pakistan maintains a keen interest in this matter 
as both a fellow member of the World Trade Organization (WTO), as an 
active participant in that body's Committee on Rules of Origin, as well 
as in the World Customs Organization (WCO)'s Technical Committee on 
Rules of Origin.
    As a major textile exporting country, the Government of Pakistan 
has watched with great interest the dispute settlement process between 
the European Union (EU) and the United States (US) over the Breaux-
Cardin Rules of Origin. Indeed, Pakistan formally joined the 
consultations on this issue in Geneva as the matter has potential 
implications for Pakistan's textile exports to the United States.
    As introduced, the language of H.R. 4526 does not address the 
impact of those rules on flat goods such as bed and table linens, nor 
does it resolve the origin issues affecting accessories made of fabrics 
other than silk. Like the EU, the Government of Pakistan believes the 
language of the bill should be broadened to include these products.
    In addition, the Government of Pakistan has consistently taken the 
position before the WTO and the WCO that any one--not two--of the 
processes such as bleaching, dyeing or printing should be origin-
conferring. From a commercial perspective, companies in the trade do 
not always dye and print fabrics. Fabrics could be dyed in solid colors 
or printed without dyeing. The proposed legislation clearly does not 
take into account the actual operations of the fabric industry. It is 
important to note that this is not only Pakistan's position but is 
shared by other major textile exporting countries who are members of 
the WTO.
    The provisions of H.R. 4526 as currently worded, also present a 
problem for international trading partners in the area of made-up and 
miscellaneous products. For example, if fabric is woven in Country A, 
and then printed, dyed and finished in Country B, the origin of the 
fabric would be Country B. However, if that same fabric was used to 
manufacture a made-up product such as bedspreads, the origin would 
return to Country A. Such a result cannot be intentional since it 
requires that origin go backwards when cutting or simple sewing take 
place.
    The Government of Pakistan is certain that the experienced 
negotiators from the US and the EU did not intend to introduce the 
concept of moving origin back to the original country of origin into 
the WTO's concurrent negotiations to establish internationally 
harmonized Rules of Origin. Under traditional origin rules, once it is 
determined that a manufacturing process is origin-conferring, the 
origin remains unchanged until another origin-conferring process takes 
place. H.R. 4526 is completely contrary to this long-accepted 
principle.
    The Government of Pakistan appreciates this opportunity to provide 
comments to the House Ways & Means Committee. Our purpose is to ensure 
that when considering H.R. 4526, the Committee understand the broader 
implications of the proposed language.
    We appreciate the efforts of the Committee to resolve the 
international dispute over the Breaux-Cardin Rules of Origin. However, 
H.R. 4526 falls short of achieving that goal.

                                             Farrakh Qayyum
                                                   Minister (Trade)
      

                                

Statement of United States Association of Importers of Textiles and 
Apparel, USA-ITA

H.R. 4526 Should Be Revised to Properly Restore the Pre-existing Rule 
of Origin For Dyed and Printed Fabrics

                                Summary:

    The U.S. Association of Importers of Textiles and Apparel, 
USA-ITA, opposes H.R. 4526 in its current form. USA-ITA was 
extremely disappointed to see that H.R. 4526, and its companion 
bill in the Senate, S. 2394, were introduced at the request of 
the Administration to ``clarify'' the rules of origin with 
respect to certain fabrics and silk accessories. The bill is 
not a clarification. The bill fails to properly reinstate the 
pre-Breaux-Cardin rule of origin for fabrics and in fact 
creates a bizarre and indefensible rule. Moreover, enactment of 
this bill will not resolve the underlying dispute that it 
purports to address.
    H.R. 4526 reinstates the pre-July 1996 ``printing plus 
dyeing plus two finishing operations'' rule for fabrics other 
than wool. However, it fails to properly modify Breaux-Cardin 
to cover all ``dyed and printed textile and apparel products'' 
as required under the proces verbal negotiated between the 
United States and the European Union. Thus, the bill does not 
cover products made from fabrics, such as bedsheets, 
pillowcases, quilts, curtains, and tablecloths.
    This omission is significant. As H.R. 4526 is currently 
worded, the following situation would occur:
    If a drapery fabric is woven in Country A, and then 
printed, dyed and finished in Country B, the origin of the 
fabric would be Country B. But if that fabric were then cut and 
sewn to make draperies, the origin of the draperies would 
return to Country A.
    Such a result--requiring that origin go backwards when non-
origin conferring operations such as cutting or simple sewing 
are performed--cannot be defended and cannot have been intended 
by experienced negotiators obviously cognizant of the World 
Trade Organization's concurrent negotiations to establish 
internationally harmonized rules of origin. Under traditional 
origin rules, once it is a determined that a manufacturing 
process is origin-conferring, the origin of the product remains 
unchanged until another origin-conferring process takes place. 
H.R. 4526 is completely contrary to this long-accepted 
principle.
    The anomalous result is based solely upon the wording of 
Breaux-Cardin, which currently applies the same origin rule to 
bed and table linens that is applied to fabric--that is, origin 
is where the fabric is knit or woven. The problem can be easily 
avoided, and an international dispute diffused. The 
Subcommittee can revise H.R. 4526 to maintain the parallel 
treatment for fabrics and goods made of those fabrics, so that 
the origin for both is either where the fabric is knit or woven 
or where it is printed, dyed and finished.
    H.R. 4526 can and should be revised 1) to comport with the 
terms of the proces verbal, 2) to ensure the establishment of a 
rational rule; and 3) to correct rather than exacerbate one of 
the wrongs done when the Breaux-Cardin rules were rushed 
through the legislative process without sufficient 
consideration and analysis.

                              Discussion:

    USA-ITA, founded in 1989, represents some 200 importers, 
manufacturers, distributors, retailers, and related service 
providers, such as shipping lines and customs brokers. USA-ITA 
member companies account for over $54 billion in U.S. sales 
annually and employ more than one million American workers. 
USA-ITA members have a strong interest in the establishment of 
rational, commercially enforceable rules of origin for textile 
and apparel products.

Historical Context

    The poorly considered Breaux-Cardin rules have already cost 
the United States dearly in terms of credibility within the 
international trading community. The rules change was put 
forward by the Administration to soften the blow to the U.S. 
textile industry of the liberalization required under the World 
Trade Organization's Agreement on Textiles and Clothing (ATC). 
The U.S. industry had wanted a 15-year phase-out of the long-
standing international quota regime. When the U.S. 
Administration could deliver only a 10-year phase-out, the 
Administration perceived a need for an offsetting benefit.
    The revised rules were sprung on the U.S. importing 
community during the House Ways and Means Committee ``mark-up'' 
of the Uruguay Round implementing bill in mid-1994. Although 
almost defeated when the Senate Finance Committee reached a 
tie-vote on the plan and a ``mock-conference'' between the 
Senate and the House failed to reach a resolution about the 
provision, the Administration nevertheless insisted upon 
including Breaux-Cardin as Section 334 in its final version of 
the implementing bill, which became law in December 1994.
    No hearing was ever held on the now infamous Breaux-Cardin 
rules; no careful review or evaluation of the practical impact 
and workings of the rules was ever conducted prior to their 
enactment. The import community, and manufacturers abroad, were 
given a mere 18 months to adjust their operations. And in fact, 
they were given much less time than that since it took the U.S. 
Customs Service until September 5, 1995 to issue regulations 
interpreting Section 334. Then companies had to wait months, in 
many instances until well after the effective date of July 1, 
1996, to obtain rulings specific to their products.
    Breaux-Cardin replaced the textile and apparel origin rules 
that had been in place for more than a decade as regulations, 
19 C.F.R. section 12.130. Besides marking the first time that 
any non-preference U.S. origin rules were codified into law, as 
opposed to being administratively set, Section 334 constituted 
a drastic change in practice:
     Under the old rules, the origin of fabrics was 
determined either by where the fabrics were formed or if the 
fabrics were subject to both dyeing plus printing plus two 
finishing operations, where the fabric was so finished. Breaux-
Cardin eliminated recognition of dyeing plus printing plus two 
finishing operations as an origin conferring process. Notably, 
this change in practice moved the U.S. farther away from the 
European Union's rules, which consider either printing or 
dyeing alone to be origin conferring.
     The origin of ``made ups'' or ``flat goods,'' such 
as bed linens, quilts, table cloths, draperies, and clothing 
accessories such as scarves, was changed from where either the 
fabric was formed or finished or the fabric was subject to 
substantial sewing operations to where the fabric was knit or 
woven. Thus, under section 12.130, silk scarves printed in 
Italy were products of Italy even though virtually all silk 
fabric is made in China. Also, under section 12.130, a fitted 
sheet was a product of the country in which it was cut and 
sewn. Under Breaux-Cardin, those value-added operations are 
irrelevant; all that matters is where the fabric is woven. As a 
result of the change, very often the country that last 
processed a product is no longer considered by the U.S. to be 
the country of origin; quota and visa requirements applicable 
to products of the country in which the fabric was formed are 
imposed on products that have long since left the fabric-making 
country.
     The U.S. change in its apparel rules created the 
greatest stir at the time that Breaux-Cardin became law, but in 
retrospect this change was relatively less shocking than the 
change in the rules for fabrics and other non-apparel goods. 
Under the old U.S. rules, the origin of a garment depended upon 
whether it was a tailored garment or a simple assembly item, 
such as a t-shirt, or a skirt. Section 12.130 provided that 
sewing was origin conferring only for tailored clothes. For 
simple assembly items, section 12.130 stated that the place of 
cutting to shape was the country of origin. Breaux-Cardin 
applies an assembly rule to all apparel. Given the substantial 
amount of multi-country assembly programs in place, confusion 
reigned while the Customs Service considered on a case-by-case 
basis which assembly operations were ``most important'' and 
therefore origin-conferring. One saving grace of the change in 
the apparel rules is that Breaux-Cardin arguably moved the U.S. 
rules closer to those applied by most other countries. Other 
major countries, such as the European Union only recognize 
assembly as origin-determinative.

Practical Ramifications of Breaux-Cardin

    The change in the U.S. rules of origin caused an 
international uproar. As an obvious attempt to undermine the 
liberalization required under the ATC, by moving the origin to 
countries that either were not participating in the ATC or had 
very tight quotas, the balance of trade was greatly upset. In 
addition, many (properly, we believe) viewed the U.S. action as 
contrary to the standstill obligation inherent in the origin 
rules harmonization program also agreed upon as part of the 
Uruguay Round Agreements.
    The practical consequences of the rules change soon became 
clear. African factories producing bed linens from Pakistani-
made fabric were forced to shut down, because the product they 
were making was no longer considered African; it was now 
Pakistani. (Of course they could not obtain a quota allocation 
or an export license (visa) from the Pakistani fabric mill.) 
Philippine makers of fine embroidered table linens faced the 
loss of their livelihood, since much of the base fabric was 
woven elsewhere. Canadian quilt makers were furious when they 
realized that their extensive cutting, sewing and stuffing 
operations would be rendered irrelevant under the new U.S. 
rules. [In fact, in July 1996, this Committee heard from an 
irate American quilt maker, who could not believe that because 
he was using Chinese-made shell fabrics, the quilts being cut, 
stuffed and sewn in the U.S. with union labor were going to 
have to be marked ``Made in China.''] And, European makers of 
silk scarves bearing status labels were incensed by the notion 
that the U.S. thought their products should be marked ``Made in 
China.'' German fabric finishers and Spanish makers of bed 
linens also had to face the threat to their businesses if they 
were not using European made fabrics. These European makers 
were furious that they, who had been safely doing business in 
the U.S. market without the hassles of quotas or visas, were 
suddenly supposed to obtain visas and quotas from the countries 
from which they obtained their fabrics, a practical 
impossibility.
    Not surprisingly, a steady line of governments approached 
U.S. textile negotiators, seeking quota adjustments and 
compensation. Citing a provision of the ATC that calls for 
consultations ``with a view to reaching a mutually acceptable 
solution regarding appropriate and equitable adjustment'' if 
there are administrative changes that ``adversely affect the 
access available to a Member,'' (ATC Article 4) each sought to 
undo the damage presented by the new rules. For a long while, 
the U.S. successfully resisted the demands, saying that it was 
incumbent upon supplier governments to provide specific proof 
of the square meters and dollars impacted by the new rules.
    Eventually, the U.S. began to relent, albeit in small ways 
and, in some cases, without conceding that it was providing 
compensation or with large price tags attached. Thus, the U.S. 
agreed to increase Pakistan's cotton sheets and pillowcases 
quotas to account for the additional trade that would be 
assigned to Pakistan under the new rules, but Pakistan had to 
agree to a new quota on man-made fiber sheets and pillowcases 
for the remainder of the ATC. To offset the losses to the 
Philippine embroidery industry, the U.S. agreed to drop the 
Philippine quota on babies' garments in 1997, a year before 
that category was scheduled to be removed from the quota 
system, and to provide additional flexibility in other quotas. 
To mollify Canada, the U.S. dropped the Pakistan visa 
requirement that applied to quilts made from Pakistani-made 
shell fabrics. That way, Canadians would not have to seek a 
visa from Pakistan to export their quilts to the U.S. market.

U.S.-EU Negotiations Over the Rules Change

    The EU also came forward to defend the interests of its 
silk scarf manufacturers, as well as its fabrics and home 
furnishings producers. The EU demanded that the U.S. exempt its 
products from the new fabric rule in order to ensure that 
European processed goods would remain immune from the U.S. 
quota program. The U.S. repeatedly offered partial solutions. 
For example, at first the U.S. proposed to create special 
provisions in the U.S. tariff schedule to identify certain dyed 
and printed woven man-made fiber staple fabrics and to then 
remove those items from the U.S. quota program.
    A partial deal was reached between the U.S. and EU in 
September 1996. Under that deal, the U.S. agreed that three 
categories of man-made fiber fabrics that are dyed and printed 
with a ``discharge printing process'' would be placed outside 
any visa requirements, if the fabrics were woven in Thailand, 
Malaysia and Indonesia. The U.S. apparently insisted upon the 
discharge printing limitation based upon its understanding that 
such a manufacturing process is performed only in Europe and 
Japan.
    However, the larger issues remained unresolved and in 
November 1996 the EU Commission initiated an investigation 
under its domestic trade barriers law to determine whether 
there was a basis for the EU to challenge the U.S. origin rules 
before the WTO. At the conclusion of that investigation, with 
the EU apparently prepared to initiate WTO dispute settlement 
proceedings, the U.S. stepped forward with another proposal. 
This time, the U.S. offered to permit labels indicating that 
silk scarves were produced in a European country from Chinese 
silk, but the EU continued to press for full resolution of the 
issues.
    In May 1997, the EU formally requested consultations with 
the U.S. under WTO dispute settlement rules. Within weeks, 
Japan, India, Pakistan, Hong Kong, Honduras, Switzerland, the 
Dominican Republic, Canada, and Costa Rica, had each filed 
letters with the WTO requesting to join in the consultations. 
Shortly thereafter, the U.S. for the first time proposed to 
exempt from quota requirements some cotton fabrics, if they 
were produced in Turkey or Egypt, but that was apparently not 
sufficient to convince the EU to suspend its WTO action.

The Proces Verbal

    On July 15, 1997, the eve of the scheduled formal WTO 
consultations, a deal was struck, in the form of a ``process 
verbal.'' The terms of that agreement reveal that two matters 
were uppermost on the minds the negotiators: the fact that 
legislation would be necessary to make any significant changes 
in the Breaux-Cardin rules and the concurrent harmonization 
negotiations, which neither side wanted to upset or unbalance.
    The process verbal noted: 1) Returning to the rules of 
origin in place before July 1996 would require an amendment to 
U.S. law; and 2) the two countries were both involved in the 
WTO's negotiations to harmonize internationally the rules of 
origin for all products. The note therefore stated, in 
Paragraph 2, that it was agreed that it would be best if any 
legislative change by the U.S. awaited the conclusion of those 
harmonization talks, which were scheduled to end July 20, 1998.
    The scope of the proces verbal is set forth in the first 
sentence of Paragraph 2: ``dyed and printed textile and apparel 
products.''
    Also in Paragraph 2, the U.S. promised that it would put 
forward in the WTO harmonization forum its pre-July 1996 origin 
rules for silk accessories and silk fabrics, and for dyed and 
printed cotton, man-made fiber, and vegetable fiber fabrics.
    In Paragraph 3 it was provided that the U.S. Administration 
would propose to the U.S. Congress an amendment to the law 
either reinstating the old origin rules ``for the above 
products'' or implementing whatever rules had been agreed upon 
in the WTO exercise. The reference to ``the above products'' 
has, unfortunately, turned out to be an unclear statement, as 
will be discussed in greater detail below.
    In any event, whether it was an internationally harmonized 
rule, or simply reinstatement of section 12.130 as a statutory 
rule in place of Breaux-Cardin, Paragraph 3 further provided 
that the legislation was to be introduced in time for it to be 
considered and acted upon before the Congress adjourned for the 
year.
    In another part of the proces verbal (Paragraph 6(i)) the 
U.S. also agreed to immediately seek legislation exempting from 
U.S. marking requirements silk scarves and silk fabrics. Also 
included in the proces verbal was confirmation that the U.S. 
would create new provisions in the U.S. tariff schedule 
covering discharge printed cotton fabrics and then exempt from 
quotas any such fabrics, if the fabrics were woven in Egypt, 
Turkey, Thailand, and Indonesia (Paragraph 6(ii)). And the 
proces verbal confirmed the provision agreed to for man-made 
fiber discharge printed fabrics made in Malaysia, Indonesia or 
Thailand (Paragraph 6(iii)).
    In early 1998, the U.S. Administration took two actions to 
meet its responsibilities under the proces verbal. First, in 
the WTO harmonization talks, USA-ITA understands that the U.S. 
did put forward a proposal to recognize dyeing plus printing 
plus two finishing operations as an origin conferring process 
for all fabrics except wool. That constituted a change in 
position for the U.S., which had before that time limited its 
offer to an origin rule based solely upon the weaving or 
knitting of the fabric. In that context, the U.S. did not 
appear to limit its offer to goods that would enter another 
market as fabrics and gave no indication that its proposal 
should be interpreted that narrowly. Under traditional rules of 
origin concepts, origin rules are cumulative. That means that 
origin is assigned to a product by virtue of certain processing 
having occurred until such time as another origin-conferring 
process occurs. The U.S. proposal remains ``on the table,'' and 
the issue of the proper rule of origin for fabrics remains 
outstanding, with participants in the negotiations continuing 
to debate whether printing or dyeing alone should be considered 
origin conferring, and whether certain finishing processes also 
should be required.
    Second, the Administration put forward a bill to exempt 
silk scarves and silk fabrics from U.S. marking requirements. 
That bill, H.R. 3294, was introduced by Mr. Matsui, by request. 
It appears to conform to that aspect of the proces verbal.
    Legislative action by the Administration on the origin 
rules for fabrics was postponed pending completion of the WTO 
harmonization talks. Unfortunately, the WTO harmonization talks 
failed to meet the July 20, 1998 deadline for completion. No 
resolution is likely on that front through 1999, if then.

How H.R. 4526 Fails To Honor the Proces Verbal

    The U.S. Administration then put forward the legislation 
that is the subject of this request for comments by the 
Subcommittee. H.R. 4526 reinstates the printing plus dyeing 
plus two finishing operations rule for fabrics other than wool. 
However, it fails to properly modify Section 334 either to 
cover all ``dyed and printed textile and apparel products'' or 
to ensure that once such an origin conferring operation takes 
place, origin stays with the fabric until another origin 
conferring process takes place. That failure means that the 
legislation does not conform to the terms of the proces verbal.
    Section 334 currently specifies a weaving or knitting rule 
of origin for home furnishings (HTSUS chapter 63), that is, 
where the fabric is knit or woven determines the origin of a 
bedsheet or a quilt. That rule for home furnishings is workable 
when the fabric rule also specifies weaving or knitting as 
solely origin conferring for fabrics. But it does not make 
sense when fabrics are subject to a more ``liberal'' rule, such 
as when printing, dyeing and finishing are also recognized as 
constituting an origin conferring process. That is the 
situation created by the current wording of H.R. 4526.
    H.R. 4526 would result in a situation in which the 
following absurd conclusions would be required: If a fabric 
were printed, dyed and finished in Italy, it would be Italian, 
but if that same fabric were then cut and sewn to produce a 
tablecloth or a bedsheet, it would become a product of the 
country in which the fabric had been woven. In effect, H.R. 
4526 would require origin to go backward if additional, non-
origin-conferring, operations were performed after printing and 
dyeing.
    Clearly, that is contrary to all common understandings 
about origin rules and could not have been the intent of the 
negotiators.
    The text of the proces verbal makes clear that the EU had 
good reason to believe that adoption of the printing plus 
dyeing plus two finishing operations rule would suffice to 
address most but not all of its concerns about fabrics and home 
furnishings. Thus, sentence one of Paragraph 2 refers to a 
``return to the rules of origin set forth in 19 C.F.R. section 
12.130 for dyed and printed textile and apparel products.'' 
Sentence two of Paragraph 2 refers to what the U.S. committed 
to propose in the harmonization talks--the prior rules for silk 
accessories and fabrics other than wool. Paragraph 3 then 
refers to the commitment of the U.S. to ``propose to Congress . 
. . an amendment to the US rules of origin for the above 
products.'' The Administration now contends the ``above 
products'' refers only to those for which it would propose its 
prior rules in the harmonization talks (the second sentence). 
The EU, and USA-ITA, believes that the reference had to be to 
all of the products mentioned in Paragraph 2 (both sentences), 
including ``dyed and printed textile and apparel products,'' 
the more inclusive product description in Paragraph 2.
    The fact that the U.S. committed to propose the old section 
12.130 origin rules in the harmonization exercise indicates 
that the U.S. could not have expected to have those rules apply 
only to goods that entered the U.S. market as fabrics. As noted 
above, origin rules are cumulative, and no experienced 
negotiator in origin rules would assume that origin 
``disappears'' or ``evaporates'' if further non-origin 
conferring operations are performed after an origin-conferring 
operation has taken place. Thus, in the context of the WTO 
harmonization talks, the proposal by the U.S. that printing 
plus dyeing plus two finishing operations equals an origin-
conferring process meant that the U.S. also agreed that other 
products made from those fabrics would bear the origin of the 
country in which those processes occurred, unless another 
later-in-time origin-conferring process was performed.
    The only reason that this issue is arising is because of 
the unique terms of Section 334. In order to eliminate the 
section 12.130 rules for home furnishings, which recognized 
cutting and substantial sewing as origin conferring operations, 
Section 334 contains specific language addressing HTSUS Chapter 
63 products (among a few others). These rules, set forth in 
Section 334(b)(2)(A) states that instead of the ``assembly'' 
rules, the products in the specified list of tariff 
classifications are subject to the fabric rule. To implement 
the proces verbal faithfully and logically, this aspect of 
Section 334 also must be addressed. All products subject to the 
fabric rule under Section 334 should be--must be--subject to 
the revised, or reinstated, fabric rule. H.R. 4526 fails to do 
this and for that reason must be revised.
Proposed Revision of H.R. 4526

    Correcting H.R. 4526 to properly reinstate the pre-Breaux-
Cardin rules of origin for fabrics and establish a logical 
origin rule is simple. The words ``and goods of these fabrics'' 
should be added to the paragraph describing ``certain other 
textiles,'' proposed paragraph (B) of the ``special rules.'' 
Specifically, USA-ITA recommends that the proposed paragraph 
(B) of the special rules read as follows:

``(B) CERTAIN OTHER TEXTILES.--Fabric
of silk, cotton, man-made fiber, or vegetable
fiber and goods of these fabrics shall be considered to 
originate in, and be
the growth, product, or manufacture of, the
country, territory, or possession in which the
fabric is dyed and printed if at least 2 of the
following finishing operations are performed in

    By adding the words ``and goods of these fabrics,'' both 
fabrics and products that are made from the named fabrics, but 
which do not undergo any other origin conferring operations, 
will have their origin determined by where the fabric was 
printed and dyed and finished. The origin of all other products 
will be unaffected. The intent of the proces verbal will be 
fulfilled. The relevant portions of section 12.130 will be 
reinstated. Logical and credible origin rules will be 
established--which means that the law is less likely to have to 
be changed again later as a result of the international 
harmonization process. And an unnecessary dispute between the 
United States and the European Union (and the many other 
countries waiting in the wings, hoping to participate in the 
WTO dispute settlement action against the U.S.) will be 
resolved.

                              Conclusion:

    USA-ITA respectfully urges the Subcommittee to amend H.R. 
4526 as recommended above and to promptly enact H.R. 4526, as 
amended, into law.

            Respectfully submitted,
                                             Laura E. Jones
                                                 Executive Director

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