FABRIC

o RULES OF ORIGIN

The rule of origin for fabric is yarn-forward (Yarn must originate in a NAFTA country), with the following exceptions:

• Fiber forward (Fiber forward requires NAFTA-origin fiber) is required for cotton and man-made fiber knit fabrics and man-made fiber non- woven and specialty fabrics;

• Coated fabric is under a fabric-forward rule (Fabric must originate within a NAFTA country), except tire cord and belting which are under a fiber forward rule for man-made fiber and a yarn forward rule for cotton, and man-made fiber hose which is under a fiber forward rule for man-made fiber filament; and

• Silk and linen products are subject to a single substantial transformation rule. (Fabric must be knitted or woven within a NAFTA country).

o TARIFFS

Mexico's duties on 89 percent of U.S. fabric exports will be eliminated after five years for NAFTA-qualifying goods. U.S. duties on 95 percent of Mexico's fabric exports will be eliminated after five years. Duties between the United States and Mexico will be eliminated immediately for key items of export interest for U.S. producers, such as blue denim, twills and textured polyester filament fabric. All duties between the United States and Canada will be eliminated on January 1, 1998 (as set out in the U.S. - Canada Free Trade Agreement).

During the transition period, tariffs can temporarily be increased to MFN rates if imports of qualifying products cause or threaten serious damage to domestic producers.

o QUOTAS

Quotas will be eliminated immediately upon implementation of NAFTA for qualifying fabric exports from Mexico to the U.S. Quotas on Mexico's exports of non-qualifying fabrics will be eliminated after the sixth year except for those on woven wool fabric (category 410) and woven fabric containing 85 percent or more artificial staple (category 611). Quotas on these categories will remain in place for ten years. Quotas on trade between the United States and Mexico can be imposed under a "safeguard" mechanism during the transition period if imports of non-qualifying goods cause or threaten serious damage to domestic producers.

o TARIFF PREFERENCE LEVELS (TPLs)

Non-qualifying cotton and man-made fiber fabric will be allowed access to each NAFTA market at the preferential rate of duty, up to specific quantities. TPLs were developed primarily to alleviate short supply problems, especially as they relate to manufacturers inputs. (See Annex II)

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