[Federal Register Volume 75, Number 148 (Tuesday, August 3, 2010)]
[Notices]
[Pages 45603-45605]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-19065]


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DEPARTMENT OF COMMERCE

International Trade Administration


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

July 29, 2010.
AGENCY: Department of Commerce, International Trade Administration.

ACTION: Notice.

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

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

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

DATES: Effective Date: August 3, 2010.

Background

    On December 1, 2008, the Department of Commerce implemented 
provisions under the Andean Trade Preference Extension Act of 2008 
(Pub. L. 110-436, 122 Stat. 4976) (ATPEA or implementing legislation). 
Section 2 of the ATPEA amends Title IV of the CAFTA-DR FTA 
Implementation Act (Pub. L. 109-53; 119 Stat. 495). Specifically, Title 
IV of the CAFTA-DR FTA Implementation Act is amended by adding Section 
404, creating a benefit for eligible apparel articles wholly assembled 
in the Dominican Republic that meet the requirements for a ``2 for 1'' 
earned import allowance. Section 2 of the ATPEA requires the Secretary 
of Commerce to establish a program to provide earned import allowance 
certificates to any producer or entity controlling production of 
eligible apparel articles in the Dominican Republic, such that apparel 
wholly assembled in the Dominican Republic from fabric or yarns, 
regardless of their source, and imported directly from the Dominican 
Republic, may enter the United States duty-free, pursuant to the 
satisfaction of the terms governing issuance of the earned import 
allowance certificate. The Secretary of Commerce has delegated his 
authority under the CAFTA-DR FTA Implementation Act to implement and 
administer the Earned Import Allowance Program to the International 
Trade Administration's Office of Textiles and Apparel (``OTEXA'').
    On January 21, 2009, OTEXA published interim procedures, 74 FR 
3563, implementing Section 2 of the ATPEA. These procedures set forth 
the provisions OTEXA will follow in implementing the DREIAP. In 
accordance with these procedures, OTEXA issues certificates to 
qualifying apparel producers to accompany imports of eligible apparel 
articles wholly formed in the Dominican Republic and exported from the 
Dominican Republic. Such certificates will be issued as long as there 
is a sufficient balance of square meter equivalents available as a 
result of the purchase of qualifying woven fabric. ``Qualifying woven 
fabric'' is defined in Section 2 of the ATPEA and in OTEXA's interim 
procedures as ``woven fabric of cotton wholly formed in the United 
States from yarns wholly formed in the United States'' and intended for 
production of apparel in the Dominican Republic. See Section 2(e) of 
the Interim Procedures; Section 404(c)(4) of the CAFTA-DR FTA 
Implementation Act, as amended by Section 2 of the ATPEA. Neither the 
ATPEA nor the interim procedures define the term ``wholly formed'' as 
it is used in the definition of ``qualifying woven fabric.''
    OTEXA received inquiries regarding the interpretation of ``wholly 
formed'' as a requirement under the definition of ``qualifying woven 
fabric.'' Accordingly, on April 3, 2009 (74 FR 15254), OTEXA requested 
public comment on the intended meaning of the ``wholly formed'' 
requirement in the definition of ``qualifying woven fabric'' for the 
purposes of the DREIAP. In that request for public comment, OTEXA 
explained that it ``currently interprets `wholly formed' within the 
definition of `qualifying woven fabric' to require that all production 
processes and finishing operations, starting with weaving and ending 
with a fabric ready for cutting or assembly without further processing, 
take place in the United States.'' Id., 74 FR at 15255.
    OTEXA received ten comments and has carefully analyzed the points 
raised in each submission. These comments are available on OTEXA's Web 
site at http://web.ita.doc.gov/tacgi/otexa_dr_eiap_publiccomments.nsf/504ca249c786e20f85256284006da7ab?OpenView&Start=1. 
Department officials have also discussed this matter on several 
occasions with interested stakeholders to ensure that all points have 
been considered.
    Commentators that support OTEXA's current interpretation contend 
that the DREIAP was intended to improve the competitiveness of 
Dominican apparel producers and create new export opportunities for 
United States manufacturers of qualifying fabrics. These commentators 
suggest that from the beginning, it was clear that the intent was to 
base the program on the delivery of qualifying fabric ready for cutting 
and sewing into trousers. There was never any discussion of permitting 
greige fabric (raw fabric that has yet to be bleached or dyed) to be 
shipped to another country for finishing and allowing such fabric to 
qualify for benefits under the program because it was understood that 
support from United States industry was dependent on the requirement 
that fabric be produced and finished in the United States so that it 
would be ready for cutting and sewing upon arrival in the Dominican 
Republic. These commentators argue that effective enforcement of the 
program would be more difficult if third countries were able to 
participate as finishers. They also contend that the dyeing and 
finishing stage imparts distinct characteristics that only then make 
the fabric suitable for a specific apparel application as envisaged by 
the legislation. Unfinished fabric can be used for applications other 
than the assembly of trousers and similar garments. The commentators 
contend that although the program was enacted as an amendment to the 
CAFTA-DR FTA Implementation Act, it could have been implemented as a 
stand-alone bill or as an amendment to other relevant legislation. 
These commentators suggest that the connection between the program and 
the vehicle to which it was attached is one of legislative convenience. 
These commentators state that at no time was there an expression

[[Page 45604]]

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

Analysis and Determination

    After careful consideration of the interested party comments, OTEXA 
has determined it will continue to interpret ``wholly formed'' within 
the definition of ``qualifying woven fabric'' to require that all 
production processes and finishing operations, starting with weaving 
and ending with a fabric ready for cutting or assembly without further 
processing, take place in the United States under the DREIAP.
    Neither the ATPEA nor the interim procedures define the term 
``wholly formed'' as it is used in the definition of ``qualifying woven 
fabric.'' Additionally, there is no legislative history regarding this 
term as it is used in this program. Although not controlling, OTEXA 
considered testimony given by former Special Textile Negotiator for the 
United States Trade Representative, Scott Quesenberry. See Testimony 
before the United States International Trade Commission on the matter 
of the Earned Import Allowance Program: Evaluation of the Effectiveness 
of the Program for Certain Apparel from the Dominican Republic 
(Investigation No.: 332-503) (Nov. 18, 2009). Mr. Quesenberry testified 
``through the course of many years of hard negotiation on this issue, 
plus several months of hard work on the legislative language, this 
issue never came up, so I can tell you that it was not the intent of 
the negotiator that finishing would be allowed from outside of the 
United States at the Dominican Republic. This was designed to be a 
program between those two countries.''
    Without any legislative history, OTEXA considered the 
interpretation of ``wholly formed'' in light of other programs it 
administers. The CBTPA, which was enacted pursuant to the Trade and 
Development Act of 2000 (Pub. L. 106-200, 114 Stat. 251, 2766), 
included the phrase ``wholly formed,'' but did not define that term. In 
implementing the CBTPA, CBP promulgated regulations (United States-
Caribbean Basin Trade Partnership Act and Caribbean Basin Innitiative, 
65 FR 59650, October 5, 2000) which did not require finishing, dyeing, 
or printing to occur within the region for preferential treatment. 
Subsequent to the promulgation of the regulations implementing CBTPA, 
Congress enacted the Trade Act of 2002 (Pub. L. 107-210), which amended 
and extended the CBTPA and established the ATPDEA. In that Act, 
Congress amended the CBTPA and provided in the ATPDEA the wholly formed 
requirement that all dyeing, printing and finishing of fabrics be 
carried out in the United States (Pub. L. 107-210, 116 Stat, 1035-
1036):

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

    Further, the CAFTA-DR FTA uses the term ``wholly formed'' in two 
provisions, footnote 6 to Article 3.25(8) and footnote 7 to Article 
3.26. In both provisions, the definition of ``wholly formed'' includes 
dyeing and finishing. Although the terminology is used in different 
instances in the DREIAP Implementation Act and the CAFTA-DR FTA, OTEXA 
considers it persuasive in defining the term here.
    OTEXA agrees with the commentators who stated that the dyeing and 
finishing stages impart distinct characteristics which only then make 
the fabric suitable for a specific apparel application; i.e., intended 
for production of apparel in the Dominican Republic as stated in the 
DREIAP Implementation Act. Unfinished fabric can be used for other 
applications beyond the assembly of trousers and similar garments 
covered by DREIAP. OTEXA does not believe that dyeing and finishing 
outside the United States would preserve or promote the use of United 
States fabrics as intended by the DREIAP. Furthermore, in OTEXA's 
experience administering trade preference programs, OTEXA understands 
that often over 50 percent of the value of a fabric is attributable to 
the dyeing, finishing and printing process. Thus, allowing offshore 
finishing undercuts critical benefits to the United States textile 
sector, contrary to an aim of the DREIAP.
    OTEXA is also mindful of the manner in which Congress directed it 
to administer the program. Permitting finishing outside the United 
States prior to the fabric being shipped to the Dominican Republic 
would potentially involve one or more countries and companies involved, 
and it would be difficult if not impossible to verify that the fabric 
was eventually exported to the Dominican Republic from the United 
States for cutting and assembly. This is a critical determination for 
fabric to qualify for duty free importation into the United States. See 
Sections 4 and 6 of the Interim Procedures, 74 FR at 3565-66.
    Based on the foregoing, OTEXA has determined it will continue to 
interpret the term ``wholly formed'' within the definition of 
``qualifying woven fabric'' to require that all production processes 
and finishing operations, starting with weaving and ending with a 
fabric ready for cutting or assembly without further

[[Page 45605]]

processing, took place in the United States under the DREIAP.

Kim Glas,
Deputy Assistant Secretary, Office of Textiles and Apparel.
[FR Doc. 2010-19065 Filed 8-2-10; 8:45 am]
BILLING CODE 3510-DS-P