House Committee Issues Report on U.S.-Morocco FTA Implementing Legislation

(In order for the U.S.-Morocco FTA to be implemented, H.R. 4842 must now be approved (enacted) by the President, which is expected. The President must also issue a proclamation for its implementation. According to H.R. 4842 and USTR sources, the U.S. and Morocco must exchange notes on the FTA prior to the issuance of this proclamation.)

Highlights of House Ways and Means Committee Report on H.R. 4842

Prior to the House's passage of H.R. 4842, the House Ways and Means Committee issued a report (H. Rept. 108-627) on the measure, which is highlighted below:

U.S.-Morocco FTA rules of origin. Under the general rules, there are four basic ways for a good of Morocco to qualify as an "originating good" and therefore be eligible for preferential tariff treatment when it is imported into the U.S.

A good would be an originating good if it is imported directly from Morocco to the U.S. and it:

is wholly the growth, product, or manufacture of Morocco, the U.S. or both;

is a new or different good that has been grown, produced, or manufactured in Morocco, the U.S., or both and the value of the materials produced and the direct cost of processing operations performed in Morocco, the U.S., or both is not less than 35% of the appraised value of the good;

satisfies certain rules of origin for textile or apparel goods specified in Annex 4-A of the U.S.-Morocco FTA; or

satisfies certain product-specific rules of origin specified in Annex 5-A of the U.S.-Morocco FTA.

Under the rules of U.S.-Morocco FTA Article 4.3 and Annex 4-A, an originating apparel product must generally meet a tariff shift rule that implicitly imposes a "yarn forward" requirement. Thus, to qualify as an originating good imported into the U.S. from Morocco, an apparel product must have been cut (or knit to shape) and sewn or otherwise assembled in Morocco from yarn, or fabric made from yarn, that originates in Morocco or the U.S., or both.

However, there is a limited exception to this general rule that would allow access for 30 million square meter equivalents (SMEs) of apparel that does not meet the yarn forward rule of origin in the first year of the U.S.-Morocco FTA, phasing down over a ten-year period.

There is also a de minimis exemption providing that in most cases a textile or apparel good would be considered originating if the total weight of all nonoriginating fibers or yarns is not more than 7% of the total weight of the good.

Morocco would lose its GSP benefits when U.S.-Morocco FTA enters into force. President Bush would be directed to terminate the designation of Morocco as a Generalized System of Preferences (GSP) beneficiary developing country on the date of entry into force of the U.S.-Morocco FTA.

Agricultural market access. Morocco tariffs on most U.S. agricultural exports would be phased out over the following periods: immediate, five years, eight years, ten years, 12 years, 15 years, and 18 years. Certain sensitive products would have phase out periods of as long as 25 years. U.S. tariffs would be phased out over the following periods: immediate, five years, eight years, ten years, 12 years, 15 years, and 18 years.

Agricultural safeguards. The U.S. would be permitted to impose an agricultural safeguard measure, in the form of additional duties, on imports from Morocco of certain

horticultural goods listed in the U.S. schedule to Annex 3-A of the U.S.-Morocco FTA.

Import relief when increased imports cause/threaten injury to domestic industry. The President would be authorized, after an investigation and affirmative determination by the International Trade Commission, to impose specified import relief when, as a result of the reduction or elimination of a duty under the U.S.-Morocco FTA, a Moroccan product is being imported into the U.S. in such increased quantities and under such conditions as to be a substantial cause of serious injury or threat of serious injury to the domestic industry. (Such relief would be a suspension of further reductions for the article, or an increase to a level that does not exceed the lesser of the existing normal trade relations (NTR) rate or the NTR rate imposed when the U.S.-Morocco FTA entered into force.)

Import relief when textile or apparel imports cause/threaten damage to domestic industry. An interested party would be able to file a request for safeguard relief with the President. If he decides that the request meets the necessary requirements, the President would determine whether, as a result of the reduction or elimination of a duty under the U.S.-Morocco FTA, a Moroccan textile or apparel article is being imported into the U.S. in such increased quantities, in absolute terms or relative to the domestic market for that article, and under such conditions as to cause serious damage, or actual threat thereof, to a domestic industry producing an article that is like, or directly competitive with, the imported article. (Such relief would be an increased duty rate that does not exceed the lesser of the column 1 general rate of duty at the time the import relief is provided or the column 1 general rate of duty imposed on the day before the date on which the U.S.-Morocco FTA enters into force.)

Special textile and apparel enforcement provisions. In order to ensure that only qualifying textile and apparel goods receive preferential treatment under the U.S.-Morocco FTA, special textile enforcement provisions have been included under which the U.S. could request that the Moroccan government conduct a verification to determine that (a) an exporter or producer in Morocco is complying with applicable customs laws, regulations, etc. affecting trade in textile or apparel goods; or (b) a claim that a textile or apparel good exported or produced by such exporter or producer qualifies as an originating good or is a good of Morocco, is accurate. The President would be allowed to direct that specified actions be taken (1) while the verification is being conducted and (2) if the information obtained by the verification is insufficient to make such a determination.

Committee comments on duty phase-out for textiles and apparel, short supply list. Unlike the practice in most previous FTAs, duties on textile and apparel products satisfying the U.S.-Morocco FTA rule of origin are not eliminated upon entry into force of the U.S.-Morocco FTA and are instead, phased out over a ten-year period.

(These provisions were included to respond to a unique situation in which Morocco raised concerns about increased imports from the European Union and it is not the U.S. Trade Representative's (USTR's) intention to replicate these provisions in future agreements.)

In addition, the House Ways and Means Committee makes the same types of comments regarding the short supply list under the U.S.-Morocco FTA as it did regarding the U.S.-Australia FTA. (See ITT's Online Archive or 07/20/04 news, 04072015, for BP summary of short supply comments for U.S.-Australia FTA.)

(See ITT's Online Archives or 07/27/04 news, 04072705, for previous BP summary on Congress' passage of H.R. 4842.)

H.R. 4842 (H. Rept. 108-627) available at http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=108_cong_reports&docid=f:hr627.108.pdf.