Earned Import Allowance Program for Haiti

GAO-12-204R: Published: Nov 30, 2011. Publicly Released: Nov 30, 2011.

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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 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.

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