This is the accessible text file for GAO report number GAO-13-219R entitled 'Follow-up on the Haiti Earned Import Allowance Program' which was released on December 14, 2012. This text file was formatted by the U.S. Government Accountability Office (GAO) to be accessible to users with visual impairments, as part of a longer term project to improve GAO products' accessibility. Every attempt has been made to maintain the structural and data integrity of the original printed product. Accessibility features, such as text descriptions of tables, consecutively numbered footnotes placed at the end of the file, and the text of agency comment letters, are provided but may not exactly duplicate the presentation or format of the printed version. The portable document format (PDF) file is an exact electronic replica of the printed version. We welcome your feedback. Please E-mail your comments regarding the contents or accessibility features of this document to Webmaster@gao.gov. This is a work of the U.S. government and is not subject to copyright protection in the United States. It may be reproduced and distributed in its entirety without further permission from GAO. Because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately. GAO-13-219R: United States Government Accountability Office: Washington, DC 20548: December 14, 2012: 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: Follow-up on the Haiti Earned Import Allowance Program: 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).[Footnote 6] The provision under Hope II established that for every 3-square-meter equivalent (SME) of qualifying fabric a firm imports to Haiti, [Footnote 7] 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 8] 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 and a second report in November 2011.[Footnote 9] This review follows up on the extent to which the EIAP is currently being utilized, as well as trends and developments over the past year. To address the mandate, 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 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. To explore trends and developments since our 2011 review, we interviewed the lead OTEXA official responsible for managing the program. In our previous reviews 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 November 2012 through December 2012 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: Exports of Haitian apparel to the United States under EIAP have increased substantially since we last reported in 2011. Although only three account holders are actively earning credits and two have begun to use them, in the 12-month period ending November 19, 2012, the number of credits OTEXA issued increased to about 42 million SMEs from approximately 8 million SMEs during the same period 1 year earlier. Similarly, over this period, the number of credits redeemed, or used by account holders increased to about 25 million SMEs from approximately 6 million SMEs in 2011. In addition, exports of Haitian apparel to the United States under EIAP have grown faster than non- EIAP exports. Last year, we reported that about $350,000 in Haitian apparel had been exported to the United States under EIAP from January through August of 2011--about 0.07 percent of all Haitian apparel exported to the United States during that period. In contrast, from January through August of 2012, nearly $18 million in Haitian apparel was exported under EIAP--about 4 percent of Haitian apparel exported to the United States during this period. Increased use of the program may be due to the growing awareness of companies already producing apparel in Haiti that their ongoing trade activities may qualify for additional benefits under EIAP. 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. 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, as shown in figure 1. Figure 1: U.S. Monthly Imports from Haiti, January 2009 through September 2012: [Refer to PDF for image: stacked multiple line graph] Month: January 2009; Not Textile or Apparel: $1,907,460; Textile or Apparel: $19,297,882. Month: February 2009; Not Textile or Apparel: $1,569,100; Textile or Apparel: $39,157,662. Month: March 2009; Not Textile or Apparel: $1,791,992; Textile or Apparel: $43,136,766. Month: April 2009; Not Textile or Apparel: $3,993,517; Textile or Apparel: $39,811,654. Month: May 2009; Not Textile or Apparel: $7,288,917; Textile or Apparel: $44,558,606. Month: June 2009; Not Textile or Apparel: $3,725,869; Textile or Apparel: $53,387,419. Month: July 2009; Not Textile or Apparel: $4,971,963; Textile or Apparel: $50,265,085. Month: August 2009; Not Textile or Apparel: $5,201,827; Textile or Apparel: $46,332,865. Month: September 2009; Not Textile or Apparel: $2,027,239; Textile or Apparel: $47,854,452. Month: October 2009; Not Textile or Apparel: $2,151,840; Textile or Apparel: $42,641,189. Month: November 2009; Not Textile or Apparel: $1,810,331; Textile or Apparel: $44,494,318. Month: December 2009; Not Textile or Apparel: $4,480,526; Textile or Apparel: $44,483,946. Month: January 2010 (Earthquake: January 12); Not Textile or Apparel: $663,708; Textile or Apparel: $5,980,268. Month: February 2010; Not Textile or Apparel: $2,125,858; Textile or Apparel: $27,445,450. Month: March 2010; Not Textile or Apparel: $1,557,509; Textile or Apparel: $43,247,634. Month: April 2010; Not Textile or Apparel: $1,590,590; Textile or Apparel: $44,666,168. Month: May 2010; Not Textile or Apparel: $3,488,362; Textile or Apparel: $43,545,440. Month: June 2010; Not Textile or Apparel: $6,676,052; Textile or Apparel: $54,473,501. Month: July 2010; Not Textile or Apparel: $5,222,969; Textile or Apparel: $45,739,057. Month: August 2010; Not Textile or Apparel: $2,887,350; Textile or Apparel: $48,619,359. Month: September 2020; Not Textile or Apparel: $2,409,726; Textile or Apparel: $58,344,615. Month: October 2010; Not Textile or Apparel: $2,016,125; Textile or Apparel: $49,884,943. Month: November 2010; Not Textile or Apparel: $2,214,326; Textile or Apparel: $44,263,443. Month: December 2010; Not Textile or Apparel: $2,633,535; Textile or Apparel: $53,709,243. Month: January 2011; Not Textile or Apparel: $1,942,719; Textile or Apparel: $32,538,038. Month: February 2011; Not Textile or Apparel: $2,212,497; Textile or Apparel: $56,250,185. Month: March 2011; Not Textile or Apparel: $2,328,369; Textile or Apparel: $61,924,387. Month: April 2011; Not Textile or Apparel: $5,736,759; Textile or Apparel: $55,268,639. Month: May 2011; Not Textile or Apparel: $6,199,701; Textile or Apparel: $62,285,914. Month: June 2011; Not Textile or Apparel: $5,095,029; Textile or Apparel: $72,135,365. Month: July 2011; Not Textile or Apparel: $2,359,878; Textile or Apparel: $67,539,454. Month: August 2011; Not Textile or Apparel: $3,842,925; Textile or Apparel: $69,523,690. Month: September 2011; Not Textile or Apparel: $2,716,073; Textile or Apparel: $72,863,399. Month: October 2011; Not Textile or Apparel: $2,510,129; Textile or Apparel: $63,416,139. Month: November 2011; Not Textile or Apparel: $2,144,499; Textile or Apparel: $52,482,993. Month: Dedcember 2011; Not Textile or Apparel: $3,157,402; Textile or Apparel: $48,512,591. Month: January 2012; Not Textile or Apparel: $3,165,751; Textile or Apparel: $31,540,933. Month: February 2012; Not Textile or Apparel: $1,950,135; Textile or Apparel: $53,772,216. Month: March 2012; Not Textile or Apparel: $3,264,417; Textile or Apparel: $56,881,743. Month: April 2012: Not Textile or Apparel: $6,023,181; Textile or Apparel: $61,133,249. Month: May 2012; Not Textile or Apparel: $8,492,324; Textile or Apparel: $67,085,187. Month: June 2012; Not Textile or Apparel: $3,532,432; Textile or Apparel: $63,836,747. Month: July 2012; Not Textile or Apparel: $4,849,108; Textile or Apparel: $67,694,436. Month: August 2012; Not Textile or Apparel: $2,659,048; Textile or Apparel: $69,287,804. Month: September 2012; Not Textile or Apparel: $2,327,841; Textile or Apparel: $66,202,457. Source: GAO analysis of OTEXA data. [End of figure] 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] Haitian Exports under EIAP Substantially Increased in 2012: Although only a few companies have established accounts under EIAP, Haitian apparel exports to the United States under the program increased substantially in 2012. To date, five EIAP accounts have been opened with OTEXA, but not all accounts are being used to earn credits, according to OTEXA officials. Three account holders have earned credits to export apparel under EIAP and two are beginning to make substantial use of the program. As shown in figure 3, during the 12-month period ending November 19, 2012, the number of credits OTEXA issued under the program increased to about 42 million SMEs from approximately 8 million SMEs during the same period 1 year earlier. [Footnote 12] Similarly, over this period, the number of credits redeemed, or used by account holders under EIAP to export Haitian apparel to the United States, increased to about 25 million SMEs from approximately 6 million SMEs a year before. In addition, U.S. imports of Haitian apparel under EIAP have grown faster than other Haitian apparel exports. We reported in 2011 that apparel exports from Haiti to the United States under EIAP from January through August of 2011 amounted to about $350,000, or about 0.07 percent of total Haitian apparel exports to the United States for that period. In contrast, from January through August 2012, U.S. imports of Haitian apparel under EIAP rose to $18 million, representing about 4 percent of the total exports for that period. Figure 3: Credits Issued and Credits Redeemed under EIAP for Two Recent Time frames: [Refer to PDF for image: vertical bar graph] Credits issued by OTEXA: 10/20/2010-11/19/2011: 8.2 million SMEs; 11/20/2011-11/19/2012: 42.3 million SMEs. Credits redeemed by account holders: 10/20/2010-11/19/2011: 5.7 million SMEs; 11/20/2011-11/19/2012: 24.6 million SMEs. Source: GAO analysis of OTEXA data. Note: OTEXA issues credits and EIAP account holders redeem these credits based on SME units. [End of section] According to a Commerce official, these companies' increased use of the Haiti EIAP over the past year may be the result of increased awareness that the program can complement their ongoing export activities under other U.S. trade preference provisions. This official explained that OTEXA has continued to inform companies about the benefits of the program in various ways, including webinars and direct communications. However, the Commerce official also noted that the companies taking advantage of EIAP were already producing apparel in Haiti for export. They procure significant amounts of fabric from the United States and countries in the region, which, as noted above, qualifies them to earn credits under EIAP. These companies also produce certain apparel items in Haiti with fabric from outside the region, which precludes these goods from being imported into the United States duty-free under any other trade preference provision. However, the credits these companies earn under EIAP allow them to export those particular items to the United States duty-free. This is consistent with what a representative from one of the companies that opted to use EIAP to export apparel from Haiti to the United States told us in our prior review. He explained that the company has a high volume of qualifying U.S. exports to Haiti that allow it to earn credits under the program. According to OTEXA, the remaining two EIAP account holders may not be earning 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. In the course of our prior review, the other account holders told us that they intended to hold on to the credits until it became 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 limits. 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 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 202-512-4802 or evansl@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; Joshua Akery; and Gezahegne Bekele. Signed by: Lawrance L. Evans, Jr. Acting 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. [6] 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. [7] 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. [8] 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. [9] 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); and GAO, Earned Import Allowance Program for Haiti, [hyperlink, http://www.gao.gov/products/GAO-12-204R], (Washington D.C.: November 30, 2011). [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] November 19, 2012, is the most recent date for which data are available from OTEXA. [End of section] GAO’s Mission: The Government Accountability Office, the audit, evaluation, and investigative arm of Congress, exists to support Congress in meeting its constitutional responsibilities and to help improve the performance and accountability of the federal government for the American people. 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