Nicaragua-made apparel that qualifies under CAFTA-DR rules of origin will escape the new Section 301 tariff regime, the Office of the US Trade Representative confirmed, handing US apparel brands and sourcing teams a longer runway to manage cost exposure in one of the Western Hemisphere's key production hubs.

The tariff schedule, published following a Section 301 investigation into labour rights, human rights and rule-of-law concerns in Nicaragua, applies an additional duty only to Nicaraguan goods that do not qualify as originating under the Dominican Republic–Central America–US Free Trade Agreement. The additional tariff starts at zero on 1 January 2026, rises to 10% on 1 January 2027 and reaches 15% from 1 January 2028.

The new duties stack on top of existing charges. Nicaraguan imports already carry most-favoured-nation tariffs plus the 18% "reciprocal" tariff imposed earlier under the International Emergency Economic Powers Act. For sourcing directors, the practical effect is a phased cost escalation on non-qualifying goods, with roughly a year of grace before the first increment bites and two years before the full 15% applies.

USTR framed the carve-out as a calculated trade-off. The agency said its decision to take more limited measures "balances the need for action and the importance of limiting disruption for US businesses," including limiting "the impact on US exports to Nicaragua and US companies producing in Nicaragua."

Industry reaction

The American Apparel & Footwear Association (AAFA) welcomed the decision to keep CAFTA-DR qualifying goods out of the additional tariff's scope, arguing that broader measures would destabilise deeply integrated regional supply chains built on yarn-forward rules.

"We support the USTR's decision in choosing not to impose additional tariffs on CAFTA-DR qualifying goods as part of the section 301 investigation," said AAFA president and CEO Steve Lamar.

"This approach allows the US to hold trading partners accountable to address unfair practices that harm US workers and businesses, while still safeguarding free trade agreements that are essential to our economy. CAFTA-DR directly supports tens of thousands of American jobs in our industry, with Nicaragua playing a major role in the production of textiles and apparel."

AAFA had pressed the case in a joint submission to USTR alongside the National Retail Federation, Retail Industry Leaders Association and the United States Fashion Industry Association. The four groups warned that sweeping trade action against Nicaragua carried outsized risk for apparel and textile supply chains.

What the yarn-forward chain means here

The groups argued that CAFTA-DR's yarn-forward rules have created "deeply interconnected and complex" supply chains linking US cotton farmers, mills and manufacturers across Central America, with Nicaragua serving as a key production hub in the Western Hemisphere. Any tariff hitting CAFTA-DR qualifying goods would therefore ripple back into US farm and mill operations, not just offshore factories.

"In Nicaragua alone, we estimate that tens of thousands of jobs are directly connected to CAFTA-DR trade," the groups said in their submission, urging USTR to avoid measures that could disrupt sourcing networks and trigger significant job losses across the region.

The organisations did not oppose action on labour and human rights violations outright. Instead, they pushed for a "targeted approach" aimed at those responsible for abuses, paired with maximum lead time so companies could adjust sourcing strategies while minimising regional disruption — a position USTR's final design appears to reflect, at least on the timeline front.

For sourcing teams, the immediate compliance question is documentation: goods must qualify as CAFTA-DR originating to stay outside the new tariff, so origin paperwork and yarn-forward traceability will carry direct duty consequences from 2027 onward.

With the first 10% increment scheduled for 1 January 2027, brands sourcing non-qualifying product from Nicaragua now have a defined window to rebalance order books or shift production within the region.