Sourcing apparel from Central America can be daunting without a basic understanding of the rules of the Dominican Republic–Central American Free Trade Agreement, also known as DR-CAFTA or CAFTA. CAFTA was signed on Aug. 5, 2004. It has gone into effect in all of the countries except Costa Rica. It is widely expected that Costa Rica will be implementing it in the near future.

To ensure that your goods qualify for CAFTA status, you should have each garment reviewed by a customs specialist. Doing this also fulfils your basic requirements as an importer to exercise “reasonable care” when you import, as well as following “informed compliance.”

CAFTA has been implemented in different phases over the past four years. The duty-free provisions go back to the date of signing the agreement. It is therefore possible that you’ve imported goods from Central America and paid duties that could be refunded back to you. This is especially the case if you have been importing apparel from Costa Rica.

What do you need to qualify for CAFTA duty-free status? Generally speaking, the fabric needs to originate in CAFTA countries. CAFTA has a “yarn forward” rule that says the fabric has to be made from yarn from the CAFTA countries. Can you use foreign fabric and still qualify for duty-free status? The answer is yes, no and maybe.

Right now, Nicaragua is the only country that can use foreign fabric (without special and approved circumstances). Nicaragua is limited by a “tariff rate quota,” also known as a “tariff preference level” (TPL). This TPL for Nicaragua is limited to 100 million-square-meter equivalents (SMEs) a year. Any production beyond the quota will not be allowed into the United States duty-free. The TPL currently is more than 28 percent filled.

If you wish to produce a garment from a fabric that is hard to find from a qualifying process, or is not available, you can still possibly qualify your garment for duty-free status. You can do this by filing a “short-supply petition.” If it is accepted, you will be able to enjoy the benefits of CAFTA while producing your garment in any of the CAFTA countries (with the current exception of Costa Rica).

CAFTA also has a provision for “cumulation” of woven fabrics. Cumulation allows for a limited amount of NAFTA-qualified fabric (e.g., fabric produced in Canada or Mexico) to be transformed into garments in any of the CAFTA countries (again, with the current exception of Costa Rica.) While cumulation is currently not in effect, it is expected to go into effect in the very near future. (See related story, here.)