California Senator Dianne Feinstein (Democrat) introduced legislation on 21 May that would provide duty-free treatment through 31 December 2019 to apparel imports from least-developed countries that do not receive benefits under other U.S. preferential duty programmes, namely Afghanistan, Bangladesh, Bhutan, Cambodia, Kiribati, Laos, Maldives, Nepal, Samoa, Solomon Islands, Timor-Leste, Tuvalu, Vanuatu and Yemen. Sri Lanka would also be eligible to receive duty-free treatment under this legislation even though that country is not an LDC.

To qualify for duty-free treatment, apparel would have to comply with certain requirements that are similar, and in some aspects identical, to those set forth under the African Growth and Opportunity Act, which is a programme that provides duty-free access to apparel from sub-Saharan African countries. A summary of these requirements is provided below.

• Apparel articles sewn or otherwise assembled in one or more beneficiary countries from fabrics wholly formed and cut, or from components knit-to-shape, in the United States from yarns wholly formed in the U.S., or both (including fabrics not formed from yarns if such fabrics are classifiable under HTSUS heading 5602 or 5603 and are wholly formed and cut in the U.S.) that (1) are entered under HTSUS 9802.00.80, or (2) are entered under HS chapter 61 or 62, if, after such assembly, the articles would have qualified for entry under HTSUS 9802.00.80 but for the fact that the articles were embroidered or subjected to stone-washing, enzyme-washing, acid washing, perma-pressing, oven-baking, bleaching, garment-dyeing, screen printing or other similar processes.
• Apparel articles sewn or otherwise assembled in one or more beneficiary countries with thread formed in the U.S. from fabrics wholly formed in the U.S. and cut in one or more beneficiary countries from yarns wholly formed in the U.S., or from components knit-to-shape in the U.S. from yarns wholly formed in the U.S., or both (including fabrics not formed from yarns, if such fabrics are classifiable under heading 5602 or 5603 and are wholly formed in the U.S.).

Apparel articles wholly assembled in one or more beneficiary or former beneficiary countries, or both, from fabric wholly formed in one or more beneficiary or former beneficiary countries, or both, from yarn originating either in the U.S. or one or more beneficiary or former beneficiary countries, or both (including fabrics not formed from yarns if such fabrics are classifiable under heading 5602 or 5603 and are wholly formed and cut in the U.S., in one or more beneficiary or former beneficiary countries, or any combination thereof), subject to a tariff preference level during calendar year 2009 of 11 percent of total U.S. apparel imports during the most recent 12-month period for which data is available (this amount would total 2,444 million square metres equivalent if data for the year ending 31 March 2009 were used). This percentage would be gradually increased to a maximum of 14 percent during calendar year 2019.

• Apparel articles wholly assembled in one or more beneficiary countries regardless of the country of origin or the yarn or fabric used to make such articles, subject to the annual limitation specified in the paragraph above. This benefit would be available through 31 December 2016. Beneficiary countries with a share of less than one percent of the U.S. import market for apparel would be allowed to increase their shipments entered under this provision in any single year to a maximum of 1.5 percent of total U.S. apparel imports. For their part, beneficiary countries with a share of at least one percent of the U.S. apparel import market would be allowed to increase their imports entered under this provision in any single year by an amount no higher than 0.33 percent of total U.S. apparel imports.

The legislation would also allow the president to provide duty-free treatment to certain other articles that do not currently qualify for such treatment under the Generalised System of Preferences, provided those articles (1) are the growth, product or manufacture of a beneficiary country and (2) are not deemed to be import sensitive. These articles include watches, certain electronic articles, certain steel articles, footwear, handbags, luggage, flat goods, work gloves, leather wearing apparel, and certain semi-manufactured and manufactured glass products. These products would have to comply with the following conditions to qualify for duty-free treatment.

• Be imported directly from a beneficiary country into the customs territory of the United States.
• The sum of (i) the cost or value of the materials produced in the beneficiary country plus (ii) the direct costs of processing operations performed in such beneficiary country would have to be not less than 35 percent of the appraised value of such article at the time it is entered.
• If the cost or value of materials produced in the U.S. is included with respect to that article, an amount not to exceed 15 percent of the appraised value of the article at the time it is entered that is attributed to such U.S. cost or value could be applied towards the 35 percent value-added requirement.
• The cost or value of the materials that are produced in one or more beneficiary countries or former beneficiary countries under this legislation would be applied in determining compliance with the 35 percent value-added requirement.

In practical terms, the single most important benefit provided under this legislation is clearly the extension of duty-free treatment to imports of apparel wholly assembled in Bangladesh, Cambodia or Sri Lanka from foreign fabrics made from foreign yarns. This could present both an opportunity and a challenge to Hong Kong and mainland Chinese exporters. On the one hand, the enactment of this legislation would most likely stimulate demand in beneficiary countries for mainland Chinese textile inputs for apparel production, particularly fabrics. At the same time, these three countries, especially Bangladesh and Cambodia, would probably increase their apparel exports to the United States to the detriment of Hong Kong and mainland Chinese suppliers. Then again, the legislation includes a clause that would effectively prevent these suppliers from increasing their shipments of apparel made with mainland Chinese and other foreign inputs by more than 0.33 percent of total U.S. apparel imports, thereby reducing the attractiveness of this programme. Laos, on the other hand, is currently a marginal supplier and would be allowed to substantially increase its apparel exports to the U.S. until it reaches a one percent share of the market (its share was only 0.07 percent during the year ending 31 March 2009).

Bangladesh, Cambodia and Sri Lanka would be expected to immediately increase their exports to the U.S. market in products that are subject to high most-favoured-nation duty rates and where they already ship substantial quantities. For Cambodia and Bangladesh these products may include, among others, men's and boys' cotton woven trousers and shorts (HTSUS 6203.42.40 - 16.6 percent MFN duty), women's and girls' cotton woven trousers and shorts (HTSUS 6204.62.40 - 16.6 percent MFN duty ), cotton t-shirts and tank tops (HTSUS 6109.10.00 - 16.5 percent MFN duty), cotton knitted pullovers (HTSUS 6110.20.2069 and 6110.20.2079 - 16.5 percent MFN duty), and men's and boys' cotton knitted shirts (HTSUS 6105.10.00 - 19.7 percent MFN duty).

Bangladesh would also be expected to increase its shipments of men's and boys' cotton woven shirts (HTSUS 6205.20.20 - 19.7 percent MFN duty), babies' cotton woven trousers and shorts (HTSUS 6209.20.30 - 14.9 percent MFN duty), and men's and boys' synthetic fibre knitted trousers and shorts (HTSUS 6103.43.15 - 28.2 percent MFN duty), while Cambodia could do well in women's and girls' man-made-fibre knitted pullovers (HTSUS 6110.30.3059 - 32 percent MFN duty), women's and girls' man-made fibre knitted nightdresses and pyjamas (HTSUS 6108.32.00 - 16 percent MFN duty) and women's cotton knitted trousers (HTSUS 6104.62.20 - 14.9 percent MFN duty).

Sri Lanka, for its part, would be expected to excel in such products as women's and girls' cotton woven trousers and shorts (HTSUS 6204.62.40 - 16.6 percent MFN duty), men's and boys' cotton woven trousers and shorts (HTSUS 6203.42.40 - 16.6 percent MFN duty), women's and girls' cotton knitted pullovers (HTSUS 6110.20.2079 - 16.5 percent MFN duty) and man-made fibre brassieres classified under HTSUS 6212.10.9020 (16.9 percent MFN duty).

Hong Kong and mainland Chinese suppliers may also want to keep aware of the potential opportunities to produce certain clothing in Laos if the legislation is eventually enacted into law, including most notably men's and boys' cotton knitted underpants and briefs (HTSUS 6107.11.00 - 7.4 percent MFN duty) and cotton t-shirts and tank tops (HTSUS 6109.10.00 - 16.5 percent MFN duty).