The USTR June 2026 proposed Section 301 action, 91 FR 34272 describes reduced-rate treatment for specified textile volumes tied to U.S. fiber inputs. It does not yet establish a circular credit, define recovered material, or say how a claimant would prove that a bale of post-consumer textiles belongs to the region. The USTR July 9 Day 3 forced-labor Section 301 hearing transcript, which is subject to errata, records July 16 as the deadline for post-hearing rebuttal comments.
A circular program cannot use the address of a sorter or recycler as its only regional test. The same facility may receive U.S., Canadian, Central American, Asian, and unidentified garments. Sorting, washing, shredding, and re-spinning can occur in one place without showing where the feedstock entered the circular stream or whether it was still usable as clothing.
USTR would need a collection and disposition test. Collection identifies the point at which material entered an eligible regional stream. Disposition separates goods destined only for raw-material recovery from garments that remain fit for resale. Those two facts, supported by records from collector through claimant, would do work that a processor invoice cannot.
The choice determines which tons count, which imports receive special treatment, and whether companies can reproduce the claim during verification. If the final action uses the word circular without naming the controlling event, the incentive will reward paperwork location more reliably than regional recovery.
The agreements pair collection with fitness for recovery
USTR does not have to invent every concept. The USMCA Chapter 4 Rules of Origin already distinguish qualifying waste from ordinary used merchandise. Article 4.3 includes waste and scrap derived from production in a Party. It also includes used goods collected there when those goods are fit only for the recovery of raw materials. A good produced in a Party exclusively from those materials or their derivatives can also qualify as wholly obtained.
The CAFTA-DR Chapter 4 Rules of Origin use a comparable distinction in Article 4.22(j)(ii), read with Article 4.1(a). Waste and scrap from manufacturing or processing can qualify, as can used goods collected in the agreement countries when they are fit only for raw-material recovery. For used goods, the agreements pair the place of collection with a separate condition. The goods must be fit only for raw-material recovery.
Those provisions do not automatically govern a future Section 301 credit. USTR's proposed action is not an FTA preference claim, and the agency may choose a separate standard. The treaty language still exposes the weakness of a processing-only rule. A garment that can be worn again and a garment that can only be shredded may pass through the same sorting line. Under the agreement concepts, they are not the same input merely because the same company handled them.
Collection is observable. A rule could require intake locations and dates, disposition codes, weight tickets, and production records. Brands and importers may never know the original factory for each donated garment, but a program can require the chain showing when a lot was collected, how it was classified, and how much entered recovery. That is a realistic evidence file for material whose first manufacturing history is often lost.
USTR could borrow the agreement definitions, cross-reference them with changes, or create a credit-specific test. A broad reference to USMCA or CAFTA-DR origin would be incomplete because those agreements also contain product-specific textile rules. A circular credit needs its own answer on what fact establishes eligibility and which party must retain it.
Reusable clothing belongs in a different file
The American Circular Textiles Letter to the USTR on circular manufacturing, July 7, 2026 also asks for favorable or special tariff treatment for bona fide consumer-owned secondhand goods while preventing fraud and circumvention. That request cannot be administered through the same raw-material rule. A reusable coat is merchandise. A coat fit only for shredding is feedstock. Calling both circular would erase the distinction customs officers must make at entry.
CBP has confronted parts of this problem. In CBP Headquarters Ruling H329916 on worn donated clothing, clothing collected from donations in Canada was treated as Canadian for country-of-origin marking. Clothing sourced from U.S. donations retained U.S. origin. Grading, checking, scrubbing, washing, repair, overdyeing, and re-grading in a Canadian warehouse did not make that warehouse the manufacturer. CBP also rejected a proposed marking that could mislead buyers into treating Canadian processing as production.
The ruling is transaction-specific and concerns marking, not Section 301 credits. Its practical lesson is broader. Collection provenance and processing location answer different questions. A special rule for secondhand imports would need the former even when the latter is easy to document.
Classification supplies a boundary. CBP New York Ruling N340317 on worn clothing explains that heading 6309 requires qualifying articles to show appreciable wear and to be presented in bulk, such as bales, sacks, or similar packing. CBP could not decide classification until importation and was unable to issue a USMCA ruling because the sourcing and manufacturing histories of the donated garments were indeterminate. It also warned that an unsegregated mixture could fall to the applicable provisions carrying the highest duty rate.
A secondhand provision therefore needs an entry file built around condition, presentation, collection source, and segregation. A recovery credit needs a material file built around collection, disposition, weight, and transformation. One shipment may begin as a mixed donation stream, but its resale and recovery fractions should separate before either claim is made. Otherwise a rule intended to help legitimate reuse could become a route for new clothing to seek used-goods treatment, while a rule intended to support recycling could count resale inventory as recovered feedstock.
Commingled feedstock needs an accounting method
Physical segregation is possible, but it need not be the only credible control. Because a future rule may need to account for feedstock combined from multiple collection streams, USTR must decide whether controlled inventory accounting can substitute for physical segregation. Requiring every eligible fiber to remain physically separate from every other fiber could make a regional incentive unusable even when the operator has reliable mass-balance records.
The agreements again offer a useful model without dictating the answer. USMCA Article 4.13 inventory management permits producers to determine origin for fungible materials through physical segregation or an accepted inventory-management method. CAFTA-DR Article 4.7 inventory management also allows specified inventory methods for fungible goods and materials. These rules address essentially interchangeable material, not every mixed garment stream. They show that trade rules can accept controlled accounting when physical identity is impractical.
USTR would have to define the unit of account. It could require a batch, facility, and accounting period, then cap eligible output at documented eligible input after process loss. The rule would need a consistent method for moisture, contaminants, trim, rejected garments, and yield. Transfers between collectors, sorters, fiber processors, yarn makers, and apparel producers would need a common lot reference. Negative balances and double counting would have to be prohibited.
An inventory method would not excuse unknown provenance. It would allocate documented eligible and ineligible inputs after they enter a controlled pool. A recycler with 60 tons of eligible regional recovery material and 40 tons of unidentified material cannot turn the entire output regional by blending it. Nor should it have to mark every individual fiber. The credible middle is a reproducible ledger tied to source records and physical throughput.
That approach also limits the value of certificate trading detached from material. The separate industry-coalition account-and-credit proposal described by NCTO's Kim Glas in the USTR July 9 Day 3 forced-labor Section 301 hearing transcript is framed around qualifying regional apparel that uses U.S. yarn or fabric. A circular extension would add more upstream events and more opportunities for the same ton to support several claims. USTR should specify whether collection, recycled fiber, yarn, and finished apparel can each generate value, or whether the first claim consumes the eligible quantity. Without that rule, a circular multiplier could become an accounting multiplier.
Any circular provision must separate the customs tests
If USTR adds circular material, its final action must say whether that material is an input to the proposed textile mechanism, a separate category of qualifying production, or a basis for an independent credit. Each structure assigns the proof burden differently.
If circular material is simply another qualifying input, USTR must identify whose import receives the reduced rate and how recovered content converts into eligible quantity. If regional recycling activity generates a credit, the agency must decide when value is created and who owns it. If legitimate secondhand goods receive separate tariff treatment, customs entry criteria must stand apart from the credit ledger.
For geography, American Circular Textiles' July 7 submission asks USTR to recognize, where appropriate, recycled, recovered, and secondary raw materials processed in the United States, USMCA countries, and CAFTA-DR countries. The request leaves collection provenance undefined and does not say whether a final product must meet the relevant FTA rule. A company cannot build a claim from the label regional if the rule never identifies which regional event controls.
USTR should avoid importing agreement terminology by implication. Wholly obtained, originating, recovered material, fungible material, and manufacturer already have defined jobs in different customs settings. Using one of those terms in a Section 301 action without a cross-reference could invite claimants to choose the definition that gives the best result. The notice should either adopt a definition expressly or use new language and explain how it differs.
Recovered material is a particular trap. USMCA Article 1.5 definitions define recovered material as one or more individual parts resulting from the disassembly of a used good and processing needed to improve those parts to sound working condition. The agreement separately limits remanufactured goods to Harmonized System Chapters 84 through 90 and heading 94.02, subject to listed exclusions. Ordinary textile and apparel goods are outside that definition. Article 4.4 gives recovered materials derived in the territory of one or more Parties originating treatment when used in and incorporated into a remanufactured good. Material used elsewhere must independently satisfy Article 4.2. A separate rule covers used goods fit only for raw-material recovery. Using recovered material as a loose synonym for recycled textile feedstock could therefore point to the wrong rule.
USMCA Chapter 4 shows why qualifying an input does not by itself establish finished-good origin. Each finished good must independently satisfy the applicable agreement rule, including any textile-specific product rule. A Section 301 credit could set a different test, but USTR must say so. Regional input status, finished-good FTA origin, country-of-origin marking, and credit eligibility remain separate unless the final action connects them.
The agency should also keep forced-labor conditions visible. The proposed textile mechanism is part of an action responding to failures to prohibit forced-labor imports. Circular status should not replace any required forced-labor attestation or supply-chain control. Recovered feedstock can have an incomplete original manufacturing history. Any circular provision must state what the claimant attests about that history and what later collection records can, and cannot, cure.
The operating file begins before USTR acts
Collectors and sorters can start with a collection register. Each lot should identify intake date, collection country and site, supplier, gross and net weight, initial category, and a durable lot number. The record should distinguish consumer donations, commercial returns, production scrap, and other streams because the agreement texts do not treat every route into a facility as the same event.
Disposition needs a separate decision. A sorter should record the standard used to classify an article as reusable, repairable, or fit only for raw-material recovery. The file should identify who made that decision, when it was made, the quantity assigned to each path, and what happened to rejects. Photographs or sampling protocols can support a lot, but a broad sustainability declaration cannot replace the result.
Recyclers can connect intake lots to weight tickets, production batches, yield, loss, and outbound fiber. A mass-balance method should remain stable across accounting periods. Any allocation among eligible and ineligible inputs should be reproducible from the books and bounded by physical output. Downstream yarn, fabric, and apparel records should carry the lot reference far enough to prevent the same eligible quantity from being claimed twice.
Secondhand importers need a different packet. It should preserve evidence of collection source, the sorting method, visible wear, bulk presentation, and segregation from new or nonqualifying articles. Processing invoices may show where cleaning or repair occurred. For the marking issue decided in H329916, the listed Canadian operations did not make the warehouse the manufacturer or change the U.S. origin of U.S.-donated clothing.
No current rule guarantees that these records will earn Section 301 relief. Building them now has value because each field corresponds to a factual choice USTR must make. It also lets companies identify the expensive gaps before a final notice creates a short implementation window.
The next notice must name the controlling event
USTR's forced-labor Section 301 proceeding index is the official page to monitor. Any Federal Register notice announcing final action in docket USTR-2026-0265 is the next controlling document. It should define eligible material, the regional collection or production event, the line between recovery and reuse, the permitted segregation or inventory method, and the claimant that owns and uses each eligible quantity. It should also state whether a deficient source, disposition, or throughput record disqualifies the affected quantity or the entire claim.
Until then, companies can build two distinct files. Recovery claims should preserve collection-site and date records, disposition codes, lot IDs, weight tickets, batch yields, transfers, and mass-balance ledgers. Secondhand entries should preserve collection source, sorting criteria, evidence of appreciable wear, bulk presentation, repair records, and segregation from new goods. The group's job scenarios can support the policy case, but they do not establish eligibility.
The controlling event should be collection and documented disposition, not processor location. Under that design, material fit only for recovery would enter the feedstock ledger, while goods still fit for use would enter the resale file.