2. colombia fta short supply - august 2014


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2. colombia fta short supply - august 2014

  1. 1. Short Supply: Procedures and Strategies under the US-Colombia TPA August 13, 2014
  2. 2. “Yarn Forward” Rule of Origin Yarn Fabric Apparel 2
  3. 3. Commercial Availability or “Short Supply” • Benefits bilateral (FTA) trade • Fibers, yarns or fabrics “not commercially available” in the FTA region (US and Colombia) can be sourced from outside the region and used in qualifying textile and apparel goods 3
  4. 4. Short Supply Provisions under other FTAs: NAFTA….1995 CAFTA…2003 (2006) Peru/Colombia…2012 4
  5. 5. Level of Trade under ATPDEA and Colombia TPA ($US millions) 5 Imports 2010 2011 2012 2013 2014 (Jan-June) All Textiles & Apparel $292 $264 $259 $281 $131 Textiles & Apparel: TPA/ATPDEA $242 $50 $198 $246 $114 Apparel using Short Supply $0.2 $0.01 $5.5 $7.7 $1.7 Percent of imports 0.1% 0.01% 2.8% 3.1% 1.49%
  6. 6. Hallmarks of the Colombia TPA Short Supply Process • You can use a fiber, yarn or fabric from a third county and still get duty- free treatment on the apparel. • Once a request has been accepted, CITA can make a decision within 30 business days. • Requestors and Suppliers have to provide evidence. CITA does not collect information – it only reviews information submitted on the record. • Any textile producer, apparel producer and importer/brand or retailer can use short supply to their advantage. • It can be a powerful tool, if used strategically! 6
  7. 7. CAFTA Short Supply: What Doesn’t Matter! • PRICE: CITA does NOT consider whether the product is available outside the region at a lower price. As long as a potential supplier can demonstrate that it can produce the subject product or one substitutable, price is irrelevant. • NON-MEASUREABLE CRITERIA: As long as a supplier can meet all physical specifications included in a description, CITA does not consider a customer’s preference or other non-measureable criteria (eg hand and feel) as reasonable requirements. • TERMS OF SALE: Issues regarding samples, financing and means of delivery are considered terms of sale, and are not relevant. 7
  8. 8. Short Supply Strategies: Factors to Consider Whether you want to Add a product, or object to a Request to Add a product, think carefully! • How critical is this product for you and your customer? • What are the opportunities/threats for US and Colombian suppliers and existing/potential customers? • How much flexibility is there in product specifications? • What are the critical price points and extent of foreign competition? 8
  9. 9. • A carefully crafted product description is often the key to having a request approved. • Reasonable due diligence with US and Colombian suppliers is also a must. • But how well you know your suppliers and how flexible you can be in terms of product specifications can make or break a request. • ITS ALL ABOUT RELATIONSHIPS – with your customers and your suppliers. 9 Adding a Product: Product Description and Due Diligence are CRITICAL!
  10. 10. Adding a Product: How do you start? If you think that a product isn’t available, you must compile evidence to support your claim. • Describe the product: – Reasonable specifications (industry standards) – Reasonable deadline and quantities – Is there a substitutable product? • Identify potential suppliers, and contact them to confirm whether they can or cannot supply the product. • Collect documents to support your claim. 10
  11. 11. Product Descriptions: • You don’t have to include all the specifications that you would for a mill. Only use the specifications that are relevant, but include ranges. • You can start due diligence with a broader description, but if you learn that a supplier can make some part of the range, you can narrow the description in your Request. • You can’t include non-measurable criteria (for example, hand and feel), but you may be able to get the same effect using performance criteria. • If you add performance criteria, you must cite the industry standard test used to measure performance (ASTM, AATCC) 11
  12. 12. Don’t forget TOLERANCES! • Some physical parameters can change after construction. Dyes and other finishing processes can affect yarn size, thread count, colorization, and weight. • Even though you provide specifications based on construction parameters, take into account how post-construction processes can affect physical characteristics. • Customs tests the entered apparel, NOT the fiber, yarn or fabric. If test results fall outside specifications, they will deny duty-free treatment. • CITA CANNOT MAKE ANY CHANGES to a product description once its been submitted by a requestor. Expansion of specifications must be made in a new Request. 12
  13. 13. Example of Product Description: Certain Cotton/Polyester three thread circular knit fleece fabric: HTS: 6001.21 Fiber content: 70—90% cotton and 10-30% polyester Yarn description: Face yarn - 100% ring spun combed cotton yarn Tie yarn - 100% multifilament polyester yarn Fleece yarn - cotton and staple polyester yarn of no less than cotton Machine gauge: 21 Weight: 232-271 grams/meter squared (6.85 - 8.0 ounces per square yard) Finish: napped on one side. Performance Criteria: 1. Torque must not exceed 4% (must meet AATCC 179) 2. Vertical and horizontal shrinkage must be under 5% 3. Must meet a class-1 flammability rating 13
  14. 14. Downstream Products and Finishing • CITA will not accept a Request if it finds that it is only an “upstream input” and not the “downstream” product that is unavailable. • For example, if the inquiry is for a fabric that calls for a specific yarn, if a supplier can make the fabric but the yarn isn’t available in the CAFTA region, a supplier will say so in its response to the requestor. • Confirm with the supplier, but be prepared to modify your Request to ask for the upstream input. • In the same way, CITA also does not accept Requests where the only aspect of the product that’s “unavailable” is a finishing process. 14
  15. 15. Tips for Product Descriptions • Choose your Description Carefully: Craft a product description that gets you what you need, but is likely to get approved. • Be flexible: Consider flexibilities of both your suppliers and your customers. • Tolerances: Consider obtaining independent lab tests on garment samples to determine reasonable tolerances. 15
  16. 16. Due Diligence: Contacting Potential Suppliers • Do your homework – find out as much about potential suppliers as you can, before you contact them. • US and Colombian suppliers have a stake in whether you can use third-country (cheaper) inputs and still get duty-free treatment. Understand suppliers’ concerns, and be willing to address them. • Remember: suppliers don’t have to currently make the product – all they have to show is that they’re capable of making the product. • They don’t have to make the entire range of specifications, or the entire quantity, as long as they can demonstrate what they can do. • Be flexible when working with suppliers – they can be a partner or a roadblock to your success. 16
  17. 17. Due Diligence: What must the Potential Supplier provide? • An offer to supply the specified product or one substitutable. • Detailed information on its production capacity and capability, and, if applicable, information about the substitutable product. • Must identify all sub-contractors, with information about the contractor’s capability. • While a requestor may ask for certain information and/or a sample (free or otherwise), suppliers are NOT required to provide business proprietary information, or provide samples. 17
  18. 18. Due Diligence: Substitutable Products • Suppliers may propose another product as a substitute for the purposes of the end use, and explain why it’s substitutable. • If you don’t think it’s a good substitute, you must tell the supplier why it is not substitutable, using measurable criteria. • “Customer Preference” or other non-measureable criteria (e.g. hand and feel) are not acceptable arguments. 18
  19. 19. Due Diligence: What if I don’t think the Supplier is capable? If you don’t think a supplier has demonstrated its ability to supply the product as specified, be sure to: • Tell the supplier why you don’t think they’re capable. • Give the supplier an opportunity to respond, and to provide information that supports their claim. • Address the supplier’s arguments, and answer all questions. 19
  20. 20. Tips on Due Diligence with Suppliers: • Know your supply chain – Get a feel for what suppliers are capable of. Don’t assume they’re not capable just because its not currently being produced. • Work With Potential Suppliers – Most existing suppliers will work with good customers. Many potential suppliers are eager to build new business relationships. Be sensitive to their concerns and find ways to address them. • Act In Good Faith – Play it straight with suppliers and they’ll (usually) play it straight with you. • DON’T LEAVE QUESTIONS UNANSWERED. 20
  21. 21. Responding to Due Diligence Inquiries: What must a Supplier provide? REMEMBER: A requestor may ask anything they like, but…. • No business confidential information (i.e. details about equipment names, current customers, current production schedule). • You don’t have to supply a sample, but if you do, make sure you clearly state if its to spec – it can be tested! • Don’t forget about using sub-contractors! 21
  22. 22. Responding to Due Diligence Inquiries: Tips for Suppliers • Think about whether you want to make an Offer – is it strategically important? • Make sure you respond to the initial inquiry. • Clarify any questions about the product’s specifications and criteria, its substitutability, and requirements for quantity and deadlines. • Answer ALL outstanding questions from the requestor regarding production capability and normal business practice. • You may consult with other suppliers about the inquiry. 22
  23. 23. Filing a Request: What do I need? • Complete product description, no broader than was presented during due diligence. • Explanation of how you identified potential suppliers. • Summary of your due diligence communications with suppliers. • Explanation whether the product may or may not be substituted with another product. 23
  24. 24. How to File a Request under CAFTA: • Submit electronic and original signed hard copy versions. • If you want to hold certain information as “Confidential” you must also prepare a “Public” version. • You must submit an electronic copy of the “Public” version, but are not required to submit an electronic copy of the “Confidential” version. • Official Receipt date is the date all required versions have been received. 24
  25. 25. So I submitted a Request….. • Once you submit a Request, CITA has two business days to review the Request to see if it meets requirements. • CITA will “Reject” a submission if its deficient in terms of – Inadequate Due Diligence – Improper Product Description • If rejected, CITA will send requestor an explanation of each deficiency. • If accepted, CITA issues email notice to all interested parties. 25
  26. 26. The Request was Accepted. Now what? • If a Request is accepted, CITA allows potential suppliers 8 business days to submit a Response with an Offer to Supply. • The supplier must provide information demonstrating their capability to supply the product. • If a requestor doesn’t think the supplier has met their burden, they can file a Rebuttal. • Usually, if Responses and Rebuttals are filed, CITA will extend the deadline by 14 business days, and will call a public meeting for the parties to present their case. 26
  27. 27. 27 http://otexa.ita.doc.gov/
  28. 28. For More Information: Maria Dybczak Direct Phone: (202) 482-3651 Email: Maria.Dybczak@trade.gov www.OTEXA.trade.gov 28