The Central America – Dominican Republic Free Trade Agreement (CAFTA-DR) is the first agreement of this nature between the United States and a group of smaller developing economies which include our Central American neighbors: Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua, as well as the Dominican Republic. The CAFTA-DR promotes stronger trade and investment ties, prosperity, and stability throughout the region and along our Southern border.
Implementation dates, depending upon the country, ranged from March 1, 2006 through January 1, 2009. Information for U.S. Exporters is available through the Department of Commerce.
Most CAFTA-DR goods currently enter the United States free of duty and the merchandise processing fee (MPF), and virtually all will enter free by the time the Agreement is fully implemented on January 1, 2025.
Combined, the countries in the CAFTA-DR represent the United States’ 18th largest trading partner, with $57.4 billion in total (two way) of goods traded in 2018. Exports totaled $32.2 billion while imports totaled $25.2 billion. According to the Department of Commerce, U.S. goods exports to CAFTA-DR supported an estimated 134 thousand jobs in 2014 (as per the Office of the US Trade Representative).
CAFTA-DR General Rules of Origin
Section 203 of the CAFTA-DR Implementation Act specifies the general rules of origin to be used in determining if a good qualifies for preferential tariff treatment under the Agreement. The HTS (Harmonized Tariff Schedule) has been amended to include specific rules of origin, definitions and other provisions to determine whether a good originates under the CAFTA-DR. The CAFTA-DR employs a similar methodology to determine whether a good qualifies for preferential tariff treatment that is found in previous agreements such as the U.S.- Chile and Australia Free Trade Agreements. Another notable similarity is that the responsibility for providing information to substantiate the claim is on the importer.
A non-textile good can only qualify for CAFTA-DR treatment and tariff protection if it meets for the following requirements:
- The good must be wholly obtained or produced within a participating country or territory. This means it must explicitly be made not just in the country of origin, but with parts sourced from the same territory. This typically applies to goods that are harvested or mined, and typically only covers a small percentage of exports.
- The good is produced wholly within the territory of at least one participating country using non-originating material. The goods must have undergone an applicable change (as specified in the rules of origin), and they must also satisfy any applicable regional value content (RVC) or listed requirements.
- The good is produced exclusively in a participating territory, using material originating from the territory. The goods must meet the qualification specified in the agreement or rules of origin.
CAFTA-DR and the Textile Industry
One of the biggest winners of this trade agreement has been the textile industry, including manufacturers in the CAFTA-DR countries as well big retailers and Department Stores in the US.
The program qualifies for “duty free treatment” garments that comply with the rule of origin which is commonly known as the “yarn-forward” standard, that requires that the yarn production and all operations “forward” (i.e., fabrics and fabric materials production through apparel assembly) occur in either the United States and/or the CAFTA-DR region. Fabrics materials include fabrics, pocketing, elastics, interlining, sewing thread. If any of the fabric materials are not made in the US or DR-CAFTA region, the garments will be disqualified from duty free treatment (exceptions and more details can be found on the Otexa website).
In order to claim “duty free treatment” under this program, the importer must have records of the following documents (but not limited to):
- Affidavits of origin, for each fabric and fabric material and the yarns they are made of.
- The records of purchase orders, payments and receiving of all relevant fabric materials.
- The records of cutting tickets and fabric pull sheets with roll numbers.
- Record of shipments of all relevant fabric material and finished products.
- Record of orders for finished garments and proof of payment.
- Value Statements detailing the following (in case the commercial invoice does not show the full value of the garments): – Style number that will be use enter the product in the US – Body Fabric information (mill, style, content & type) – Name of Importer and Manufacturer – Type of garment, HTS Classification Number and Category Number – Detail cost of all fabrics, components & transportation and insurance (except the ones from the country of export into de US).
- Any record or document related to the production of the garments.
Navigating Trade With Central America and the Dominican Republic
If your business is looking into doing importing or exporting within any of the countries in the CAFTA-DR agreement, it may be beneficial to hire a licensed US Customs Broker to help you navigate the process!
At Promptus LLC, our team is expertly-trained and has over 15 years of experience working with the U.S. Customs and Border Protection agency and helping clients navigate rules, tariffs, and regulations. We can also help organize transportation and freight forwarding solutions to ensure your goods travel safely to and from their destination country, regardless of size! Contact us today to get a free quote for our services.