The key provisions of the Central American Free Trade Agreement, which will eliminate tariffs on qualifying goods that flow between the U.S., Guatemala, Honduras, Nicaragua, El Salvador, Costa Rica and the Dominican Republic, are:
- Yarn-forward rule of origin: Apparel assembled in the region must use U.S. or regional yarn and fabric to qualify for duty-free treatment when it is exported back to the U.S.
- Cumulation: Preferential trading partners Mexico and Canada are allowed to take part in the agreement, in a sense folding in the North American Free Trade Agreement, with a limited amount of woven apparel, denim apparel and wool apparel made in the CAFTA countries from Mexican and Canadian fabric qualify for duty-free treatment in the U.S.
- Tariff Preference Level: An allowance for Nicaragua to use 100 million square meters equivalent of foreign fabrics and yarn.
- Single transformation: Special rules for bras, boxers, pajamas and woven dresses that make them eligible for duty-free treatment in the U.S. if they are cut and sewn in the region using U.S. or regional thread. Fabric may be sourced from anywhere in the world.
- Wool: CAFTA countries assembling wool apparel must use fabric made in the U.S. or the region, but can source yarn from anywhere in the world.
- Intellectual Property: Strengthens protections for U.S. patents, trademarks and trade secrets.
- Labor: Designed to protect workers’ rights through programs that support the enforcement of domestic labor laws and work to improve those laws.