The impact of item 807.0 of the tariff schedule of the United States: the case of the Costa Rican apparel industry

Wage rate disparities between industrialized and underdeveloped countries have increased competition in labor intensive industries. To remain cost competitive, U.S. firms have developed alternative production strategies such as relocating labor intensive processes in countries with lower wages and labor costs. This type of manufacturing is known as production sharing. Item 807.0 of the United States Tariff Schedule provides an incentive for U.S. firms to utilize the coproduction process because it offers reduced tariff costs on imported products assembled with U.S. components. The duty paid is lower because it applies only to the value added in the foreign country. Highly labor intensive products, such as apparel, are ideally suited to take advantage of the savings offered under Item 807.0.

The U.S. textile and apparel industry faces stiff import competition from low wage countries, and over the last fifteen years the volume of Item 807.0 apparel imports from the Caribbean has increased substantially. examines Item 807.0 and its effect of reducing This thesis the tariff base on an imported article such as apparel. Costa Rica, one of the leading Item 807.0 apparel suppliers, is used to study the relationship between Item 807.0 and the increased level of Caribbean sourcing of apparel production. The conclusion is that the tariff reductions of Item 807.0 should increase U.S. imports of Costa Rican apparel products made with U.S. components. However, Item 807.0 must be combined with low cost labor and competitive U.S. fabrics to be economically feasible.