Earned Import Allowance Program for Haiti
Gao ID: GAO-12-204R November 30, 2011The United States has historically provided assistance to support development in Haiti. Over the last several years, Congress has attempted to promote Haiti's economic development through the use of trade preferences for Haitian products. In 2000, Congress extended preferences under the Caribbean Basin Economic Recovery Act to allow for duty-free treatment of apparel through the Caribbean Basin Trade Partnership Act (CBTPA). In 2006, Congress passed the Haitian Hemispheric Opportunity through Partnership Encouragement (HOPE) Act, giving preferential access to U.S. imports of Haitian apparel. In 2008, Congress amended HOPE (now known as HOPE II), expanding trade preference provisions already in place and creating new ones to further support the growth of the apparel industry in Haiti. It was the intent of Congress that HOPE II would help Haiti attract new investment and create jobs while simultaneously providing incentives to encourage the use of inputs manufactured by U.S. companies. Most recently, in an effort to support Haiti's recovery from the devastating earthquake that hit the country in January 2010, Congress passed the Haiti Economic Lift Program (HELP) Act of 2010, expanding and modifying several trade preference provisions under HOPE II. The various provisions included under HOPE II and CBTPA offer different avenues through which qualifying apparel goods produced in Haiti can be exported to the United States duty-free. One trade preference provision originally created under HOPE II was the "3-for-1" Earned Import Allowance Program (EIAP). The provision under Hope II established that for every 3-square-meter equivalent (SME) of qualifying fabric a firm imports to Haiti, the firm would be allowed to earn a credit to export 1 SME of apparel produced in Haiti to the United States, duty-free, regardless of the source of the fabric. In this way, EIAP was designed to both aid Haiti's apparel industry and encourage the use of U.S.-manufactured inputs. The HELP Act reduced the EIAP exchange ratio from 3-for-1 to 2-for-1. The change sought to encourage the use of EIAP, since no apparel from Haiti was exported to the United States under the original 3-for-1 model. This report responds to a mandate in the Food, Conservation, and Energy Act of 2008, which requires GAO to review EIAP annually and conduct an evaluation of the program. We issued our first report under this mandate in June 2010, focusing on EIAP as it existed during the period of our first review, from October 2009 to June 2010, at which time it featured the 3-for-1 exchange ratio. That report also included a more complete discussion of HOPE II and CBTPA preference provisions. In this report, we assess the extent to which EIAP has been used since it was amended under the HELP Act--signed into law on May 24, 2010.
In 2011, for the first time since the program was established in 2008, one company has opted to use EIAP to export apparel from Haiti to the United States. The value of these exports (about $350,000) represents 0.2 percent of total apparel exports under HOPE II, and only 0.07 percent of total apparel exports from Haiti to the United States under all preference programs based on year-to-date data as of August 2011. Total apparel exports from Haiti to the United States, for the same period, were valued at about $465 million--approximately $140 million were exported under various provisions of HOPE II, including EIAP, and about $313 million were exported under CBTPA. Three other companies have established EIAP accounts, but not all of these accounts are being used to earn credits, and those with credits have not used them to export apparel from Haiti to the United States. The level of EIAP use continues to be modest due to the availability of other more flexible provisions. Apparel producers stated that they did not expect participation in EIAP to increase significantly unless certain provisions of HOPE II and the CBTPA, which are subject to volume caps, begin to approach their limit. Furthermore, the use of the more flexible trade preferences under HOPE II and CBTPA has continued to increase, while little has been exported using EIAP. Exporters considered the other HOPE II provisions simpler and more advantageous because firms can import most types of apparel duty-free, regardless of the fabric's source, without being required to purchase any kind of qualifying inputs or to register for a program.
GAO-12-204R, Earned Import Allowance Program for Haiti
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GAO-12-204R:
United States Government Accountability Office:
Washington, DC 20548:
November 30, 2011:
The Honorable Max Baucus:
Chairman:
The Honorable Orrin G. Hatch:
Ranking Member:
Committee on Finance:
United States Senate:
The Honorable Dave Camp:
Chairman:
The Honorable Sander M. Levin:
Ranking Member:
Committee on Ways and Means:
House of Representatives:
Subject: Earned Import Allowance Program for Haiti:
The United States has historically provided assistance to support
development in Haiti. Over the last several years, Congress has
attempted to promote Haiti's economic development through the use of
trade preferences for Haitian products. In 2000, Congress extended
preferences under the Caribbean Basin Economic Recovery Act[Footnote
1] to allow for duty-free treatment of apparel through the Caribbean
Basin Trade Partnership Act (CBTPA).[Footnote 2] In 2006, Congress
passed the Haitian Hemispheric Opportunity through Partnership
Encouragement (HOPE) Act, giving preferential access to U.S. imports
of Haitian apparel.[Footnote 3] In 2008, Congress amended HOPE (now
known as HOPE II), expanding trade preference provisions already in
place and creating new ones to further support the growth of the
apparel industry in Haiti.[Footnote 4] It was the intent of Congress
that HOPE II would help Haiti attract new investment and create jobs
while simultaneously providing incentives to encourage the use of
inputs manufactured by U.S. companies. Most recently, in an effort to
support Haiti's recovery from the devastating earthquake that hit the
country in January 2010, Congress passed the Haiti Economic Lift
Program (HELP) Act of 2010,[Footnote 5] expanding and modifying
several trade preference provisions under HOPE II. The various
provisions included under HOPE II and CBTPA offer different avenues
through which qualifying apparel goods produced in Haiti can be
exported to the United States duty-free.
One trade preference provision originally created under HOPE II was
the "3-for-1" Earned Import Allowance Program (EIAP). The provision
under Hope II established that, for every 3-square-meter equivalent
(SME) of qualifying fabric a firm imports to Haiti,[Footnote 6] the
firm would be allowed to earn a credit to export 1 SME of apparel
produced in Haiti to the United States, duty-free, regardless of the
source of the fabric.[Footnote 7] In this way, EIAP was designed to
both aid Haiti's apparel industry and encourage the use of U.S.-
manufactured inputs. The HELP Act reduced the EIAP exchange ratio from
3-for-1 to 2-for-1. The change sought to encourage the use of EIAP,
since no apparel from Haiti was exported to the United States under
the original 3-for-1 model. This report responds to a mandate in the
Food, Conservation, and Energy Act of 2008, which requires GAO to
review EIAP annually and conduct an evaluation of the program. We
issued our first report under this mandate in June 2010, focusing on
EIAP as it existed during the period of our first review, from October
2009 to June 2010, at which time it featured the 3-for-1 exchange
ratio.[Footnote 8] That report also included a more complete
discussion of HOPE II and CBTPA preference provisions. In this report,
we assess the extent to which EIAP has been used since it was amended
under the HELP Act--signed into law on May 24, 2010.
To address this question, we reviewed data provided by the Department
of Commerce's (Commerce) Office of Textiles and Apparel (OTEXA), which
has responsibility for managing the Haitian EIAP. We interviewed
cognizant OTEXA officials responsible for managing trade data. We
discussed OTEXA's data collection and processing methods, and
determined the data to be sufficiently reliable for the purposes of
this report. For this report, we also conducted interviews with OTEXA
officials and obtained written information from a representative of
the one company that established an EIAP account since the program was
amended in 2010. Through these sources, we identified the key elements
of the program, the extent to which the program has been used, and
some of the factors influencing the program's use. In our previous
review of the Haiti EIAP, we met with EIAP account holders, Haitian
industry representatives and associations, U.S. apparel buyers and
associations, and a U.S. textile-manufacturing association; their
views are included in this review as appropriate. We conducted this
performance audit from September 2011 through November 2011 in
accordance with generally accepted government auditing standards.
Those standards require that we plan and perform the audit to obtain
sufficient, appropriate evidence to provide a reasonable basis for our
findings and conclusions based on our audit objectives. We believe
that the evidence obtained provides a reasonable basis for our
findings and conclusions based on our audit objectives.
Results in Brief:
In 2011, for the first time since the program was established in 2008,
one company has opted to use EIAP to export apparel from Haiti to the
United States. The value of these exports (about $350,000) represents
0.2 percent of total apparel exports under HOPE II, and only 0.07
percent of total apparel exports from Haiti to the United States under
all preference programs based on year-to-date data as of August 2011.
Total apparel exports from Haiti to the United States, for the same
period, were valued at about $465 million--approximately $140 million
were exported under various provisions of HOPE II, including EIAP, and
about $313 million were exported under CBTPA.[Footnote 9] Three other
companies have established EIAP accounts, but not all of these
accounts are being used to earn credits, and those with credits have
not used them to export apparel from Haiti to the United States. The
level of EIAP use continues to be modest due to the availability of
other more flexible provisions. Apparel producers stated that they did
not expect participation in EIAP to increase significantly unless
certain provisions of HOPE II and the CBTPA, which are subject to
volume caps, begin to approach their limit. Furthermore, the use of
the more flexible trade preferences under HOPE II and CBTPA has
continued to increase, while little has been exported using EIAP.
Exporters considered the other HOPE II provisions simpler and more
advantageous because firms can import most types of apparel duty-free,
regardless of the fabric's source, without being required to purchase
any kind of qualifying inputs or to register for a program.
Background:
At its peak in the 1980s, Haiti had a well-established garment
assembly industry that employed more than 100,000 people. However,
global economic forces and a series of violent internal political
struggles in the 1980s and 1990s nearly decimated the industry.
Nevertheless, production in the apparel sector in Haiti began
increasing steadily during the past decade, with Haitian apparel
exports to the United States growing from $251 million in 2000 to $518
million in 2010. The Haitian government considers the apparel industry
an engine of economic growth and job creation.
After the January 2010 earthquake, concerns arose that damage to
apparel production plants and an already poor infrastructure,
particularly Haiti's roads and port facilities, would be a major
setback for the country's progress in apparel production. However,
while the damage caused by the earthquake brought apparel production
in Haiti to a halt, by March 2010 there were signs that production had
been restored. U.S. imports of apparel from Haiti began to recover
soon after the earthquake, reaching $80 million in June 2011, as shown
in figure 1. Further, from 2009 to 2010, even with the damage from the
earthquake, U.S. imports of apparel from Haiti increased from $513 to
$518 million. Notably, during the 12 months ending in August 2011,
imports of textiles and apparel increased 50 percent over the same
period a year earlier.
Figure 1: U.S. Monthly Imports from Haiti, January 2009 through August
2011:
[Refer to PDF for image: stacked line graph]
Date: January 2009;
Textile and apparel goods: $19.3 million;
Other: $1.9 million.
Date: February 2009;
Textile and apparel goods: $39.1 million;
Other: $1.6 million.
Date: March 2009;
Textile and apparel goods: $43.0 million;
Other: $1.9 million.
Date: April 2009;
Textile and apparel goods: $39.7 million;
Other: $4.1 million.
Date: May 2009;
Textile and apparel goods: $44.5 million;
Other: $7.4 million.
Date: June 2009;
Textile and apparel goods: $53.4 million;
Other: $3.8 million.
Date: July 2009;
Textile and apparel goods: $50.2 million;
Other: $5.0 million.
Date: August 2009;
Textile and apparel goods: $46.3 million;
Other: $5.2 million.
Date: September 2009;
Textile and apparel goods: $47.7 million;
Other: $2.2 million.
Date: October 2009;
Textile and apparel goods: $42.6 million;
Other: $2.2 million.
Date: November 2009;
Textile and apparel goods: $44.4 million;
Other: $1.9 million.
Date: December 2009;
Textile and apparel goods: $44.4 million;
Other: $4.5 million.
Date: January 2010;
Textile and apparel goods: $59.8 million;
Other: $6.7 million.
[Earthquake, January 12]
Date: February 2010;
Textile and apparel goods: $27.4 million;
Other: $2.1 million.
Date: March 2010;
Textile and apparel goods: $43.2 million;
Other: $1.6 million.
Date: April 2010;
Textile and apparel goods: $44.7 million;
Other: $1.6 million.
Date: May 2010;
Textile and apparel goods: $43.5 million;
Other: $3.5 million.
Date: June 2010;
Textile and apparel goods: $54.5 million;
Other: $6.7 million.
Date: July 2010;
Textile and apparel goods: $45.7 million;
Other: $5.2 million.
Date: August 2010;
Textile and apparel goods: $48.6 million;
Other: $2.9 million.
Date: September 2010;
Textile and apparel goods: $58.3 million;
Other: $2.4 million.
Date: October 2010;
Textile and apparel goods: $49.9 million;
Other: $2.0 million.
Date: November 2010;
Textile and apparel goods: $44.2 million;
Other: $2.2 million.
Date: December 2010;
Textile and apparel goods: $53.7 million;
Other: $2.6 million.
Date: January 2011;
Textile and apparel goods: $32.5 million;
Other: $2.0 million.
Date: February 2011;
Textile and apparel goods: $56.2 million;
Other: $2.2 million.
Date: March 2011;
Textile and apparel goods: $62.0 million;
Other: $2.3 million.
Date: April 2011;
Textile and apparel goods: $55.2 million;
Other: $5.8 million.
Date: May 2011;
Textile and apparel goods: $62.2 million;
Other: $6.3 million.
Date: June 2011;
Textile and apparel goods: $72.1 million;
Other: $5.1 million.
Date: July 2011;
Textile and apparel goods: $67.2 million;
Other: $2.4 million.
Date: August 2011;
Textile and apparel goods: $69.6 million;
Other: $4.0 million.
Source: GAO analysis of OTEXA data.
[End of figure]
EIAP is one of several trade preference provisions created under HOPE
II and amended under HELP. As with other preferences, EIAP was meant
to help the industry by providing incentives for apparel production in
Haiti and encouraging the use of U.S.-manufactured inputs. In addition
to EIAP, HOPE II also includes five other provisions allowing for the
duty-free treatment of certain qualifying Haitian-produced apparel,
including the Value-Added Restraint Limit, Woven Apparel Restraint
Limit, Knit Apparel Restraint Limit, Certain Types of Apparel, and
Apparel Made with "Short Supply" yarns or fabrics. Under HOPE II,
these preferences were given a duration of 10 years and were set to
expire in 2018; HELP extended them until September 2020.
Commerce's OTEXA is responsible for the administration and management
of the Haiti EIAP. As amended by HELP, under the Haiti EIAP, producers
or other entities controlling production[Footnote 10] can qualify for
a credit to export 1 SME of apparel produced in Haiti to the United
Sates free of duty, if they import 2 SMEs of U.S. or other qualifying
fabric.[Footnote 11] EIAP is administered through an online account
mechanism in which firms can open an account, submit requests for
credits on qualifying purchases, and deposit the credits for
electronic storage. Subsequently, they can redeem those credits in the
form of a certificate qualifying future apparel exports from Haiti to
the United States for duty-free treatment, as shown in figure 2.
Figure 2: Example of EIAP Transaction Process as Amended under the
HELP Act:
[Refer to PDF for image: illustration]
Phase I: Credit earned by importing U.S. fabric to Haiti:
Step 1. Firm opens account and imports 2 SMEs of qualifying fabric.
Step 2. OTEXA confirms transaction and deposits 1 credit. This credit
can be banked and used at the firm's discretion.
Phase II: Credit used to export apparel to the United States:
Step 3. Firm imports non-U.S. fabric from third country, e.g., China.
Step 4. Non-U.S fabric is completely assembled into apparel in Haiti.
Step 5. Firm uses credit to export 1 SME of this apparel to U.S., not
normally given duty free treatment because it is made with non-U.S.
fabric.
Source: GAO analysis of information from OTEXA; Map Resources (maps).
[End of figure]
Exporters' Participation in EIAP Remains Modest Due to the
Availability of Other, More Flexible Trade Preferences:
The use of the Haiti EIAP continues to be modest, even after it was
amended by the HELP Act of 2010 to a more advantageous "2-for-1"
exchange ratio. To date, the Haiti EIAP has experienced little
activity. Four accounts have been opened with OTEXA, but only one was
opened after the program was amended under the HELP Act of 2010. Since
the program was established in 2008, more than 13 million SMEs of
qualifying fabric have been imported into Haiti under the program,
resulting in almost 6 million credits for duty-free exports of apparel
approved and deposited. However, according to OTEXA officials, not all
accounts are being used to earn credits. Moreover, they explained that
only one account holder has redeemed credits to export apparel under
the program. From January through August 2011, OTEXA reported that
about $350,000 in apparel had been exported from Haiti to the United
States under EIAP, out of a total of $465 million in apparel exported
from Haiti to the United States during the same period, including $140
million exported under HOPE II[Footnote 12]. Thus, Haitian apparel
exports under EIAP represented only about 0.07 percent of total
Haitian apparel exports to the United States, and 0.2 of apparel
exports under HOPE II.
According to OTEXA, the other three account holders may not be using
EIAP credits because they prefer to export their products under other
provisions of U.S. trade preference programs for Haiti, including HOPE
II and the CBTPA. OTEXA suggests that these companies may be using the
Woven and Knit Apparel Restraint Limit programs to export their
garments to the United States because these provisions allow Haitian
apparel made with third-country fabric to enter duty-free without the
need to earn or use credits. A representative from the company that
opted to use EIAP to export apparel from Haiti to the United States
explained that the company has a high volume of qualifying U.S.
exports to Haiti that allow it to earn credits under the program,
providing an incentive to use EIAP. Additionally, this individual
commented that the program, as it is administered by Commerce, is
transparent and ensures a predictable means of exporting to the United
States. He noted that the company expects to continue exporting under
the program. The other account holders have told us that they intend
to hold on to the credits until it becomes necessary to use them, for
instance, if certain provisions of HOPE II and the CBTPA, which are
subject to volume caps, begin to approach their limit. They have
continued exporting apparel duty-free to the United States under the
HOPE II provisions discussed above and have not needed to use credits
earned under EIAP.
Apparel Imports under Other Provisions of HOPE II and CBTPA Increased
Substantially Over the Past 5 Years:
While use of EIAP continues to be very modest, exports under other
HOPE and HOPE II provisions have increased substantially over the past
5 years and CBPTA continues to be the most common trade preference
used to export Haitian apparel to the United States. The primary
provisions used under HOPE II and CBTPA are the HOPE II Knit Apparel
and Woven Apparel Restraint Limit provision, and the CBTPA T-shirt
Restraint Limit program. The HOPE II Value-Added Restraint Limit rule
has also been used extensively, but its use has decreased in recent
years.[Footnote 13]
Exports under HOPE and subsequently HOPE II have grown steadily from
$13.7 million in 2007 to almost $160 million in 2010, and were about
$140 million from January to August, 2011. Producers consider Woven
Apparel Restraint Limit, and Knit Apparel Restraint Limit programs to
be simpler than EIAP and, more importantly, more flexible because they
allow for fabric inputs from any source without being required to
purchase any kind of qualifying inputs or to register for a program.
* Value-Added Restraint Limit: Most HOPE and HOPE II exports have
entered under the Value-Added Restraint Limit rule, but the share of
imports under this rule show a decreasing trend over the last 5 years.
Specifically, the percentage of apparel under HOPE and HOPE II that
was exported under the value-added rule has decreased from 89 percent
in 2007 to 46 percent in 2010, and is down to about 37 percent based
on year-to-date data through August 2011. This decrease occurred in
part because exporters have increasingly chosen to export apparel
under HOPE II's woven duty-free provisions, which do not have value-
added requirements, such as restrictions on the amount of inputs that
must be sourced from specified countries.
* Woven Apparel Restraint Limit: The woven apparel duty-free provision
of HOPE II accounts for a significant portion of apparel exports from
Haiti. Based on year-to-date figures through August 2011, 46 percent
of apparel exports under HOPE II entered the United States under the
woven apparel provision, which allows the use of third-country fabric,
without having to include any U.S. or regionally produced inputs.
Under HOPE II, the woven provision was limited by an annual cap known
as a Tariff Preference Level (TPL) that was set at 70 million SMEs;
the HELP Act of 2010 increased the TPL to 200 million SMEs. In the
period from January through August 2011, about 16 million SMEs of
woven apparel were exported under the Woven Apparel Restraint Limit,
thus far reaching only 8 percent of the 200 million SMEs limit.
* Knit Apparel Restraint Limit: Although the knit apparel duty-free
provision accounted for only 11 percent of apparel exports under HOPE
II in 2010, use of this provision experienced significant increase
since 2009. Exports under this provision almost tripled from $6.6
million in 2009 to $18.3 million in 2010, and during 2011 have already
exceeded last year's amount, reaching $22.6 million and accounting for
16 percent of exports under HOPE II through August. The knit provision
was also initially capped by an annual TPL of 70 million SMEs, and was
later increased by the HELP Act to 200 million SMEs. In the period
from January through August 2011 about 18 million SMEs of knit apparel
have been exported under the Knit Apparel Restraint Limit, thus far
reaching only 9 percent of the 200 million SMEs limit. Table 1 shows
the level of imports under various HOPE and HOPE II provisions.
Table 1: U.S. Imports of Apparel from Haiti under HOPE and HOPE II,
2007-August 2011:
Dollars in millions:
Provision: Value-Added Restraint Limit;
2007 (HOPE) Annual value: $12.2;
2007 (HOPE) Percent: 89;
2008 (HOPE II) Annual value: $47.8;
2008 (HOPE II) Percent: 64;
2009 (HOPE II) Annual value: $67.3;
2009 (HOPE II) Percent: 49;
2010 (HOPE II) Annual value: $74;
2010 (HOPE II) Percent: 46;
2011 (HOPE II) Annual value: $52;
2011(HOPE II) through August: Percent: 37.
Provision: Woven TPL;
2007 (HOPE) Annual value: $1.5;
2007 (HOPE) Percent: 11;
2008 (HOPE II) Annual value: $27;
2008 (HOPE II) Percent: 36;
2009 (HOPE II) Annual value: $63.9;
2009 (HOPE II) Percent: 46;
2010 (HOPE II) Annual value: $67.5;
2010 (HOPE II) Percent: 42;
2011 (HOPE II) Annual value: $65.1;
2011(HOPE II) through August: Percent: 46.
Provision: Knit TPL;
2007 (HOPE) Annual value: n/a;
2007 (HOPE) Percent: [Empty];
2008 (HOPE II) Annual value: $0.14;
2008 (HOPE II) Percent: 0.2;
2009 (HOPE II) Annual value: $6.6;
2009 (HOPE II) Percent: 5;
2010 (HOPE II) Annual value: $18.3;
2010 (HOPE II) Percent: 11;
2011 (HOPE II) Annual value: $22.6;
2011(HOPE II) through August: Percent: 16.
Provision: EIAP;
2007 (HOPE) Annual value: n/a;
2007 (HOPE) Percent: [Empty];
2008 (HOPE II) Annual value: $ 0;
2008 (HOPE II) Percent: Empty];
2009 (HOPE II) Annual value: $0;
2009 (HOPE II) Percent: [Empty];
2010 (HOPE II) Annual value: $0;
2010 (HOPE II) Percent: [Empty];
2011 (HOPE II) Annual value: $0.35;
2011(HOPE II) through August: Percent: 0.2.
Provision: Other[A];
2007 (HOPE) Annual value: n/a;
2007 (HOPE) Percent: [Empty];
2008 (HOPE II) Annual value: $ 0;
2008 (HOPE II) Percent: [Empty];
2009 (HOPE II) Annual value: $0.6;
2009 (HOPE II) Percent: 0.004;
2010 (HOPE II) Annual value: $0;
2010 (HOPE II) Percent: [Empty];
2011 (HOPE II) Annual value: $0;
2011(HOPE II) through August: Percent: [Empty].
Provision: Total U.S. HOPE and HOPE II imports;
2007 (HOPE) Annual value: $13.7;
2007 (HOPE) Percent: 100;
2008 (HOPE II) Annual value: $74.9;
2008 (HOPE II) Percent: 100;
2009 (HOPE II) Annual value: $137.9;
2009 (HOPE II) Percent: 100;
2010 (HOPE II) Annual value: $159.8;
2010 (HOPE II) Percent: 100;
2011 (HOPE II) Annual value: $140.1;
2011(HOPE II) through August: Percent: 100.
Source: GAO analysis of OTEXA calendar-year data.
Notes: Table includes data on imports under the initial HOPE program,
amended in 2008 and now referred to as HOPE II. "The Knit TPL,"
"EIAP," "Certain Articles," and "Short Supplies" provisions were
passed in 2008 under HOPE II, and were unavailable in 2007.
Some percentage totals do not add to 100 percent because of rounding.
[A] Includes duty-free treatment of "Certain Articles" and articles
made with materials in "Short Supply" from U.S. or other trade
partners.
[End of table]
While exports under HOPE II have grown significantly since its
inception in 2008, CBTPA continues to be the most common trade
preference used to export Haitian apparel to the United States. In
2010, more than $350 million in apparel was exported from Haiti to the
United States under CBTPA. Apparel exports under CBTPA reached more
than $313 million in the period from January through August 2011,
accounting for more than two-thirds of the value of all Haitian
apparel exported to the United States. CBTPA has played an important
role in sustaining the Haitian apparel industry, since it supports the
production of knits. CBTPA continues to be heavily used, in part
because certain men's and boys' T-shirts are specifically excluded
from the knit TPL under HOPE II. CBTPA allows T-shirts to be assembled
in Haiti with fabric produced in the Dominican Republic, or other
parts of the region, made with U.S. yarns. T-shirts and sweatshirts
are the most common garments produced in Haiti and exported to the
United States. Since the implementation of the Dominican Republic-
Central America-United States Free Trade Agreement, Haiti has become
the major beneficiary of preferences for apparel under the CBTPA.
[Footnote 14]
Agency Comments:
We requested comments on a draft of this report from OTEXA at the
Department of Commerce. The Department of Commerce generally concurred
with the draft report and stated that it is pleased by the growing
usage of the EIAP benefits, and that it anticipates greater interest
in the program from U.S. importers, brands and retailers. OTEXA also
provided technical comments, which were incorporated in the report as
appropriate.
We are sending copies of this report to appropriate congressional
committees and the Secretary of Commerce. This report will also be
available at no charge on GAO's Web site at [hyperlink,
http://www.gao.gov].
If you or your staffs have any questions about this report, please
contact me at (202) 512-4347 or yagerl@gao.gov. Contact points for our
Offices of Congressional Relations and Public Affairs may be found on
the last page of this report. Key contributors to this report were
Juan Gobel, Assistant Director; Francisco M. Enriquez; and Gezahegne
Bekele.
Signed by:
Loren Yager:
Director:
International Affairs and Trade:
[End of section]
Footnotes:
[1] In 1983, Congress passed the Caribbean Basin Economic Recovery Act
(Public Law 98-67, Title II) to allow for duty-free treatment of most
goods, including certain apparel, exported from Haiti and other
Caribbean Basin countries to facilitate the economic development and
export diversification of these economies.
[2] Public Law 106-200, Title II.
[3] Public Law 109-432, Div. D, Title V.
[4] Haitian Hemispheric Opportunity through Partnership Encouragement
Act of 2008 (HOPE II), Public Law 110-234, Title XV, Subtitle D, Part
I.
[5] Public Law 111-171 H.R. 5160, 111th Cong., 2d Sess.
[6] Qualifying woven fabric is wholly formed in the United States from
yarns wholly formed in the United States. Qualifying knit fabric, or
knit-to-shape components, are wholly formed or knit to shape in the
United States, specified Free Trade Agreement partner countries, or
countries designated as beneficiaries of certain trade preference
programs, from yarns wholly formed in the United States.
[7] For example, if a firm bought 300 SMEs of U.S.-woven fabric for
apparel production in Haiti, it would earn credits that would allow it
to export 100 SMEs of apparel made from fabric manufactured in another
country, such as China, to the United States duty-free.
[8] GAO, International Trade: Exporters' Use of the Earned Import
Allowance Program for Haiti Is Negligible because They Favor Other
Trade Options, [hyperlink, http://www.gao.gov/products/GAO-10-654],
(Washington D.C.: June 16, 2010).
[9] There were also about $12 million in apparel exports from Haiti to
the United States that did not enter under the trade preference
provisions of HOPE II or CBTPA.
[10] Entities eligible to use the program are referred to as
Qualifying Apparel Producers. Such an entity is defined as an
individual, corporation, partnership, association, or other entity or
group that exercises direct, daily operational control over the
apparel production process in Haiti, or an individual, corporation,
partnership, association, or other entity that is not a producer and
that controls the apparel production process in Haiti through a
contractual relationship or other indirect means.
[11] Qualifying woven fabric is wholly formed in the United States
from yarns also wholly formed in the United States. Qualifying knit
fabric, or knit to shape components, are wholly formed or knit to
shape in the United States, specified Free Trade Agreement partner
countries, or countries designated as beneficiaries of certain trade
preference programs, from yarns wholly formed in the United States.
[12] At the time of our review, August 2011 was the last month for
which OTEXA had recorded data on exports from Haiti to the United
States.
[13] In addition to EIAP, there are two other provisions of HOPE II
which were generally not used to export apparel from Haiti to the
United States in 2010. These two provisions are known as "Duty-Free
Treatment of Certain Articles" and "Short Supply." Duty-Free Treatment
of Certain Articles refers to articles, such as brassieres, luggage,
headwear, and certain sleepwear, that qualify for duty-free treatment
as long as they are wholly assembled or knit to shape in Haiti and
they are imported directly from Haiti or the Dominican Republic to the
United States. There are no restrictions on the source of inputs used
for these products. Short Supply refers to any apparel wholly
assembled or knit to shape in Haiti that is made of fabric,
components, or yarns deemed to be in short supply as defined in all
other preference arrangements and Free Trade Agreements of the United
States that qualify for duty-free treatment.
[14] Haiti's share of apparel exports to the United States under the
CBTPA provision for duty-free treatment of knit apparel has grown from
5.4 percent in 2005 to 100 percent in 2009. Similarly, Haiti's share
of apparel exports to the United States under the CBTPA provision for
duty-free treatment of T-shirts has grown from 3.1 percent in 2005 to
100 percent in 2009. The caps on these preferences are 970 million SME
for knit apparel, of which 14.8 percent was filled in 2009, and 12
million dozen T-shirts, of which of 63.5 percent was filled in 2009.
Haiti's dominance of apparel exports to the United States under CBTPA
since 2009 is due to the fact that former CBTPA beneficiaries have
joined the Dominican Republic-Central America-United States Free Trade
Agreement and no longer qualify for CBTPA preferences.
[End of section]
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