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U.S. Textiles and Apparel in the U.S.-Panama Trade Promotion Agreement

U.S. textiles and apparel exports to Panama have increased over 60 percent since 2007, reaching nearly $50 million in 2010. Many U.S. yarns, fabrics, and apparel currently face tariffs up to 15 percent upon entering Panama, whereas Panamanian textile and apparel goods enjoy duty-free preferential entry into the U.S. market. Panama remains a vital international shipping hub for textiles and apparel goods entering and exiting the U.S. market.

The U.S.-Panama Trade Promotion Agreement (the “Agreement”) opens new market access opportunities for U.S. textiles and apparel manufacturers and strengthens customs enforcement mechanisms to verify claims of origin and deny illegal customs circumvention. Upon entry into force of the Agreement, tariffs on U.S. textiles and apparel entering Panama that meet the Agreement’s rules of origin are eliminated.

KEY ELEMENTS:

• Tariffs: Panama currently has average duties of 6.7 percent on U.S. textiles and apparel goods. The Agreement immediately eliminates tariffs on all U.S. textiles and apparel that meet the “yarn-forward” rule of origin.

• Textile Specific Safeguard: As a transitional measure, a textile specific safeguard mechanism allows the United States to re-impose tariffs on certain goods if a surge in imports causes or threatens to cause serious damage to the domestic producers.

• Rule of Origin: The Agreement contains a stringent “yarn-forward” rule of origin, where qualifying textile and apparel products must be made using U.S. or Panamanian yarns and fabrics, which ensures that the benefits of the Agreement go to U.S. and Panamanian producers. Certain textile products, including elastomeric yarns, narrow elastic fabrics, pocketing fabric, thread, and visible linings must be sourced from the United States or Panama for textile and apparel products to qualify for duty-free entry. The Agreement also provides a streamlined commercial availability (“short supply”) determination process which allows fabrics, yarns, or fibers that are not commercially available in a timely manner in the United States and Panama to be sourced from third countries and used in the production of apparel qualifying for duty-free treatment.

• Enforcement: The Agreement contains strict enforcement provisions, including special customs cooperation commitments between the United States and Panama that provide for verification of claims of origin or preferential treatment, and denial of preferential treatment or entry for suspect goods if claims cannot be verified. As Panama is a major international shipping hub, the strong customs cooperation and enforcement provisions will help ensure that unlawful transshipping or customs circumvention through Panama does not occur.