NCTO Advisory to the Trade — April 18, 2019
The Berry Amendment

The Berry Amendment

 Background

The Berry Amendment is a statutory requirement that restricts the Department of Defense (DoD) from using funds appropriated or otherwise available to DoD for procurement of food, clothing, fabrics, fibers, yarns, other made-up textiles, and hand or measuring tools that are not grown, reprocessed, reused, or produced in the United States. The Berry Amendment has been critical to maintaining the safety and security of our armed forces, by requiring covered items to be produced in the United States. Further, the Berry Amendment has been critical to the viability of the textile and clothing production base in the United States. Some NCTO member companies are direct contractors to DoD and have first-hand knowledge of the Berry Amendment. Others are subcontractors subject to the Berry rules. Others may be interested in learning more about the opportunities that Berry creates for U.S. fiber, yarn, fabric, apparel, and sewn products manufacturers. This brief paper is provided solely for educating the general public about the Berry Amendment as it relates to textiles and clothing. It is not intended to give specific advice in relation to the terms of military contracts.

 

The History of the Berry Amendment

Since 1790, when President George Washington told the first session of Congress that the “safety and interest” of a free people “require that they should promote such manufactures as tend to render them independent of others for essential, particularly military supplies,” Congress has taken a special interest in the health of the manufacturing sector.

A military domestic sourcing requirement for uniforms was passed by Congress in 1941, as part of the Fifth Supplemental DoD Appropriations Act. Prior to World War II Congress understood war was on the horizon and the original intent of the restriction was to ensure U.S. troops wore uniforms produced in the United States.

In 1952 Congressman Berry of South Dakota introduced an amendment to the DoD’s Buy American restrictions. Prior to Congressman Berry’s amendment only food and certain clothing products were covered in the restrictions. Berry’s amendment expanded the DoD’s Buy American restrictions to cover all clothing, cotton and wool (man-made fibers were subsequently added). The Amendment was included in annual defense spending bills until it was made permanent in Fiscal Year 1994 by section 8005 of Public Law 103-139. It was subsequently codified as 10 U.S.C. 2533a in 2002 by section 832 of Public Law 107-107.

 

Common Questions about the Berry Amendment

Q. Wouldn’t the taxpayers of the U.S. benefit from giving DoD freedom to acquire textile and clothing from the lowest cost source, even if that means using foreign textiles and clothing?

A. The question is aimed at misdirecting attention away from the reason for the Berry Amendment. As the history above points out, from the founding of our nation, wise leaders have understood that a free people will be free only as long as they can supply their military to maintain that freedom. The 1941 law, which later became the Berry Amendment was passed in recognition of the fact that the U.S. would only be able to win monumental conflicts, such as WWII, if it is not dependent on foreign sources for critical defense materials.

Q. Does the Berry Amendment require the U.S. government to always buy American-made textiles and clothing.

A. No, the Berry Amendment applies to the U.S. Department of Defense only. There is a similar domestic sourcing requirement for the Department of Homeland Security (DHS), it is called the Kissell Amendment. Other U.S. government agencies have more flexibility with regard to acquisitions.

Q. Why just those two, DoD and DHS?

A. Under international trading rules as governed by the World Trade Organization (WTO), countries are normally required to make government procurement contracts open to supply from both domestic and foreign sources. However, these same WTO rules allow countries to restrict military and security procurement to domestic sources, only. Due to their national security role, DoD and DHS qualify for this exception. It is also important to note that in future trade agreements the U.S. needs to continue to reserve the right to require domestic sourcing in the case of the departments that are vital to our national defense — DoD and DHS.

Q. What about textile and clothing articles that DoD purchases for use by foreign defense agencies?

A. The Berry Amendment applies to all funds “made available” to the Defense Department. That includes Department of Defense procurement for a Foreign Military Sale (FMS) where the funds were provided by the customer country. So, for example, when the Afghan government provides money to DoD to acquire uniforms for the Afghan National Police, those uniforms are subject Berry Amendment U.S. sourcing requirements.

Q. Are there any exception to Berry?

A. There are two significant exceptions.

The SAT, or Simplified Acquisition Threshold, sets the base monetary amount at which Berry applies. Acquisitions below the SAT are exempt from Berry. Section 807 of the Ronald W. Reagan National Defense Authorization Act (NDAA) for Fiscal Year 2005 requires an adjustment every 5 years of acquisition-related thresholds for inflation using the Consumer Price Index (CPI). The last such adjustment was in 2010, raising the SAT to $150,000. No inflation-related adjustment has since been implemented. However, the 2018 NDAA ignored the current low rate of inflation and increased the SAT to $250,000.

A DNAD, or Domestic Non-Availability Determination, to the Berry Amendment may be granted if DoD determines that items grown, reprocessed, reused, or produced in the United States cannot be acquired as and when needed in a satisfactory quality and sufficient quantity at U.S. market prices. There is language in the legislative history of the Berry Amendment indicating that Congress intended for Defense agencies to exercise extreme caution in granting waivers, a fact that has been noted by the Government Accountability Office (GAO).

Q. Who can make Domestic Non-Availability Determinations?

A. The seriousness of Congress and the DoD in maintaining the Berry Amendment and protecting it from a proliferation of DNADs is the fact that just a limited number of officials have the authority to issue a DNAD, including The Under Secretary of Defense (Acquisition, Technology and Logistics), The Secretary of the Army, The Secretary of the Navy, and The Secretary of the Air Force.

Q. Where can I find a list of DNADs?

A. There is no list as such, as each determination relates to a particular set of circumstances and does not create a blanket exception to Berry with regard to some input. Questions about DNADs are best directed to the contracting officer.

 

Conclusion.

Since the days that the Greatest Generation fought to preserve our freedom from threats around the globe, our fighting men and women have been assured that whatever other hardships they may have to bear while protecting us, they would, at least, be assured of clothing, tents, shelters, and other textile products necessary to get the job done. Through all this time, the U.S. textile industry has worked with our military to equip those brave men and women with the highest quality textile products incorporating emerging smart textile technology.

NCTO Advisory to the Trade — April 4, 2019
Free Trade Agreement Benefits and YOU

Free Trade Agreement Benefits and YOU

Background

The United States has 14 free trade agreements (FTAs) with 20 nations. Two — NAFTA with Mexico and Canada, and DR-CAFTA with six Central American/Caribbean partners — are regional.  The rest are bilateral, meaning they each are between the U.S. and one partner nation. All but two — the agreements with Israel and with Jordan — contain a yarn forward rule of origin that promises, and delivers, potential benefits to U.S. fiber, yarn, and fabric producers who understand the complex rules of each agreement.

This brief paper is intended to give an overview of U.S. free trade agreements as they relate to textile and apparel products. The information presented is meant to serve as a guide. Only the agreement text and the customs regulations issued to implement the agreement are definitive. For complex issues or where interpretation is required, U.S. exporters or importers should seek professional assistance or an advanced ruling from the customs administration in the country to which they are exporting.

Understanding and Benefiting from FTAs

1. First, you must understand that each agreement has its own set of rules, and even within a regional agreement such as NAFTA, the rules may vary slightly from nation to nation. When considering participation in an FTA sourcing program do not assume that because a particular model works within one FTA that it will work in another. For example, say you have been shipping U.S.-made fabric to Colombia for assembly into apparel that will enter the U.S. duty-free. You have been using third-country rayon filament yarn, which is exempt from the yarn forward requirement because no one makes it in the region. Now, say your customer wants to move that operation to Mexico. The apparel would not quality for duty-free entry under NAFTA, because NAFTA has no such exemption for rayon filament. (By the way, the new USMCA, which NCTO supports, amends the rule to reflect the current state of unavailability of filament rayon in the region.)

2. Next, understand that each agreement is a “silo,” with limited exceptions; there is no “mix and match.” For example, you may ship U.S.-made fabric of U.S.-made yarn to Mexico for assembly into tailored apparel containing a lining fabric made in Canada, and that apparel will enter the U.S. duty free. But if you try to do that in, say, the Dominican Republic, the apparel will not qualify for DR-CAFTA because Canada is not part of that agreement.

3. Setting aside the agreements with Israel and Jordan, all the rest of the U.S. FTAs have the yarn forward rule of origin. However, it is important to know (a) how the yarn forward rule applies and (b) what, if any, exceptions there are.

(a) In all cases the yarn forward rule applies to the single fabric component that determines the tariff classification of the article in question. This is referred to as the essential character fabric.  Beyond that, some agreements have additional requirements relating to secondary textile components such as linings, narrow elastic fabrics, pocketing, and sewing thread. These rules can vary from agreement to agreement, so never assume that what is permissible in one agreement will be permissible in another. Further, as agreements are revisited to update them for changes in trade flow, and to reflect knowledge gained from seeing how other agreements have worked, these rules may be modified. For example, NCTO was successful in improving the USMCA over NAFTA by adding narrow elastic, pocketing, and sewing thread requirements. These concepts were first introduced in later agreements like CAFTA and have proven to benefit the regional supply chair, including U.S. textile producers.

(b) Each agreement has its own, unique list of exceptions to the yarn forward rule. In “trade-speak” we call them “derogations.” Derogations from the rules of origin may include such things as a cut-and-sew rule for certain very specific articles of apparel, tariff preference levels for a limited quantity of otherwise non-qualifying trade, cumulation with non-partner countries for specific inputs (such as the rule allowing certain nylon filament yarn from Canada, Israel, or Mexico in some FTAs), and a de minimis allowance for a small amount of non-originating fiber or yarn.

Why all this Complexity?

While in some ways it might appear easier to have the same rules for each agreement, there are very sound reasons for this complexity. Each agreement is the result of the compromises reached between the U.S. and the member partner(s); perhaps the U.S. decided to grant a particular concession to one nation in order to bring the negotiation to completion, or as a reflection of historic bilateral trading patterns, that certainly does not justify granting the same concession in another FTA merely for the sake of uniformity. Uniformity would, almost certainly, result in settling on the lowest common denominator and would erode hard-fought gains to require, as much as practical, regional, including U.S.-made, textile inputs to products enjoying FTA benefits.

Conclusion.

The United States is especially well-positioned globally in fiber, yarn, fabric, and non-apparel sewn products markets; it was the world’s second largest individual country exporter of those products in 2018.  The most important U.S. export markets by region are our FTA partners, NAFTA ($11.7 billion in U.S. exports) and DR-CAFTA ($3.5 billion in U.S. exports).

NCTO has long supported the yarn forward rule for textiles and apparel, with extremely limited derogations, as the key to creating opportunities for producers throughout the supply chain and reserving the benefits of a given FTA for its signatories. The regional fiber, yarn, fabric, to finished product supply chain offers U.S. textile producers significant opportunities to sell U.S.-made product into FTA markets — provided U.S. textile manufacturers learn how to use these agreements to their advantage.