CAFTA-DR Rules On Pocketing And Cumulation To Take Effect

US Trade Representative Ambassador Susan C. Schwab has announced the implementation of two
amendments to the Central America-Dominican Republic Free Trade Agreement (CAFTA-DR) that should
help US textile and other regional textile manufacturers.

In announcing the action, Schwab said, “The implementation of the CAFTA-DR textile cumulation
provisions and a pocketing amendment makes another important step forward in the integration of
apparel manufacturing in the region.” She added that the action will strengthen the economic
relations between the CAFTA-DR countries and “create new opportunities for the use of US fabric and
yarn in apparel production in the region.”

When the CAFTA-DR agreement was pending in Congress, textile-state members of Congress were
able to secure commitments from the Bush administration and CAFTA-DR countries that changes would
be made in the pocketing provisions of the agreement to require that pocketing used in trousers
that enjoys the benefits of the agreement would have to be formed and finished in the region.
Because most pocketing made in the region is made by US manufacturers, they should benefit from the
implementation of the amendment.

With respect to cumulation, the rules will permit 100 million square meters of woven apparel
containing Mexican or Canadian inputs to enter the United States duty-free. US manufacturers would
have been happier if there were no cumulation from Mexico and Canada. Schwab said that before the
Canadian and Mexican provisions with respect to cumulation can enter into force, several conditions
remain to be fulfilled.

She said the United States anticipates that each of Mexico’s free trade agreements with
CAFTA-DR partners will be amended, effective August 15, to provide on a reciprocal basis for
preferential treatment of Central American goods containing US inputs that are exported to Mexico.
In addition, she said, an agreement between Mexico and the United States on customs cooperation and
enforcement is expected to enter into force by August 15. These steps will allow the cumulation
rule to enter into force with respect to materials from Mexico.

July 29, 2008