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Monday, June 21, 2010

The Haitian Economy and the HOPE Act

J. F. Hornbeck
Specialist in International Trade and Finance

In December 2006, the 109th Congress passed the Haitian Hemispheric Opportunity through Partnership Encouragement Act of 2006 (HOPE I), which included special trade rules that give preferential access to U.S. imports of Haitian apparel. These rules were intended to promote investment in the apparel industry as one element of a broader economic growth and development plan. HOPE I allowed for the duty-free treatment of select apparel imports from Haiti made from less expensive third-country inputs (e.g., non-regional yarns, fabrics, and components), provided Haiti met rules of origin and eligibility criteria that required making progress on worker rights, poverty reduction, and anti-corruption measures. Early assessments of the effectiveness of HOPE I, however, were disappointing. The 110th Congress responded by amending HOPE I in the Hemispheric Opportunity through Partnership Encouragement Act of 2008 (HOPE II). HOPE II extended the preferences for 10 years, expanded coverage of duty-free treatment to more apparel products, particularly knit articles, and simplified the rules, making them easier to use. Early evidence suggests that apparel production and exports are responding to these changes. 

HOPE II also amended the eligibility requirements by requiring Haiti to create a new independent Labor Ombudsman's Office and establish the Technical Assistance Improvement and Compliance Needs Assessment and Remediation (TAICNAR) Program. The TAICNAR program provides for the United Nations International Labor Organization (ILO) to operate a firm-level inspection and monitoring program to help Haitian apparel factories comply with meeting core labor standards, Haitian labor laws, and occupational health and safety rules. It would apply to those firms that agree to register for the program as a prerequisite for utilizing the tariff preferences. The TAICNAR program is also designed to help Haiti develop its own capacity to monitor compliance of apparel producers in meeting core labor standards. 

The earthquake that rocked Haiti on January 12, 2010, caused considerable damage to the apparel sector, although much has been done to return capacity to pre-earthquake levels. Estimates of rebuilding costs for the industry begin at $38 million to refurbish damaged buildings, replace machinery, and train new employees. The U.S. Congress has chosen to respond to Haiti's needs by amending the HOPE Act to enhance even further U.S. market access for Haitian apparel and other exports. Two important considerations guided congressional action in addition to a broadbased concern over Haiti's economic and social problems. First, legislation appeared to focus on enhancing those preference rules that have so far shown the most promise for promoting investment, production, and apparel exports. Second, Congress, in considering amendments to the preference rules, openly considered the possible negative effects on U.S. producers and workers. In so doing, Congress sought a policy coherence that attempts to balance domestic and foreign policy considerations. 

Major changes to the trade preferences include extending the Caribbean Trade Partnership Act (CBTPA) and the HOPE Act through September 30, 2020; allowing the value-added rule to remain at 50% through 2015; increasing the woven tariff preference level (TPL) to 200 million square meter equivalents (SMEs), with many exclusions to accommodate U.S. industry; expanding the knit TPL similarly; reducing the 3-for-1 earned import credit to 2-for-1; and expanding the list of products eligible for duty-free treatment under special assembly rules. The HELP Act requires U.S. Customs and Border Protection (CBP) to verify that apparel articles imported under the TPLs are not transshipped illegally into the United States. CBP is also to evaluate Haiti's customs requirements and set out a plan to improve their capabilities.

Date of Report: June 2, 2010
Number of Pages: 28
Order Number: RL34687
Price: $29.95

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