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The Way to Get the Most Out of Rules of Origin: Short Supply Petitions

The recent difficulties the U.S and Japan have experienced concluding the Trans-Pacific Partnership (TPP), once thought to be a foregone conclusion and now mired in contention, point to problems inherent in devising a sweeping agreement that accommodates all the special needs of its interested parties. A new free trade agreement must be broad enough to satisfy all its signatories but flexible enough to effectively absorb future revisions and respond to minute exemptions.

In order to learn more about the challenge free trade agreements face in combining grand scope and a sensitivity to particular issues as they arise, the Sourcing Journal interviewed Ronald J. Sorini, a partner with Sorini, Samet & Associates, a government and public policy consulting firm headquartered in Washington, D.C. When Sorini spoke with the Sourcing Journal, he had just learned that a short supply petition his firm filed under the Korea-U.S. free trade agreement (KORUS), the first of its kind, was approved. In the past, Sorini also filed the first short supply petitions under the AGOA, CBTPA, CAFTA-DR and the U.S.-Colombia free trade agreement.

Sorini contends that a basic limitation of any free trade agreement, that no set of rules, no matter how well crafted, could ever adequately cover every pertinent circumstance, makes short supply petitions absolutely necessary. In the instance of his own recently filed petitions, he said that the “yarn-forward rule” would be commercially impractical unless certain key exemptions were included. The purpose of the short supply petition is to propose a reasoned argument advocating for precisely such an exemption.

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Sorini explained, “What’s at stake in a case like this one is the flexibility regarding the rule of origin. When applied with the proper elasticity, taking into account that no one country produces every type of yarn or fabric, the rule is a tremendous boon to an agreement’s participants. But there must be substantial flexibility for it to be a workable rule.”

The elasticity built into rules of origin ultimately determine if it is a benefit to an agreement’s signatories or an ill-considered burden. Sorini said, “There is a real need for multiple countries of origin and multiple yarns. There are some products that are simply unavailable in the U.S., for example, and so requiring that they be procured in the U.S. obviously makes no sense.”

At first glance, it might seem like the articulation of such specific exemptions would be an impossible task, stymieing the already complex process of reaching consensus among multiple nations. Sorini, though, insisted that such short supply determinations needn’t be such an obstacle to eventual agreement. “Every country has its own protocols for making short supply decisions and petitions. Colombia, South Korea, the U.S., all know what kinds of products they produce and what they don’t. The best general procedure is to let each country decide what is in short supply in each of its own relevant markets, product by product. This is the only reliable way to guarantee that customization is achieved rationally.”

Also, Sorini argued that such models for short supply petitions are superabundant. For example, CAFTA provides ample precedent for other nations to follow. “Within CAFTA, there is enormous flexibility regarding a variety of garments and fabrics. That flexibility, that responsiveness to  the various needs of differing nations, makes it an excellent short supply blueprint for other nations. The TPP is the most complex trade agreement in  history but it needn’t be all that hard from the perspective of short supply issues.”

When asked about all the controversy surrounding the yarn-forward rule in general, Sorini assessed it broadly. “It has certainly encouraged investment in yarn spinning in the U.S. and South America. But, of course, it hasn’t helped all fabrics, nor was it really designed to. Something so complex can’t be judged in such black or white terms–you have to ascertain its value on a product-by-product basis. Obviously, it’s quite a big deal for T-shirts and denim.”

One of the most important features, Sorini emphasized, of any free trade agreement is that it is built to dynamically accept revisions to meet a changing future. “We need tailor made agreements and that means we have to construct living, breathing agreements. The world of tomorrow will, of course, differ in important regards from the world of today. An agreement rigidly designed, without room for some tinkering, will not stand the test of time.”

Sorini, Samet &Associates also filed a second short supply petition under KORUS, which Sorini expects will be approved next week.