Haitian Textile Industry: Impact of Proposed Trade Assistance

Haitian Textile Industry: Impact of Proposed Trade Assistance

Order Code RS21839
Updated January 19, 2007
Haitian Textile Industry:
Impact of Proposed Trade Assistance
Bernard A. Gelb
Specialist in Industry Economics
Resources, Science, and Industry Division
Summary
Haiti suffers from extreme poverty, political unrest, insecurity, high illiteracy, and
eroding natural resources, among other problems. These factors contribute to low levels
of business investment, impeding development and leading to economic decline. In an
effort to improve Haiti’s economic conditions, Congress has been considering and, in
late 2006, passed legislation that (a) loosens existing restrictions on the origins of the
components of apparel sewn together in Haiti and exported to the United States, and (b)
effectively allows most of those exports to enter duty free. Such changes could have
large potential benefit for Haitian manufacturing, but poor conditions in the country and
some of the effects of the WTO January 2005 textile quota phaseout may well preclude
any significant near-term benefit. This report will be updated when warranted by events.
Haiti is a very poor country and it is getting poorer. Its per capita gross domestic
product is 195th in the Central Intelligence Agency’s (CIA) ranking of 233 countries;1 and
Haitian manufacturing value added per capita in 2003 was less than 3% of the average for
all Latin American and Caribbean countries.2 The country’s per capita gross domestic
product in constant dollars has fallen for at least two decades.3 Little or no change in
these conditions is expected in the near future.4
1 CIA, The World Factbook, [https://www.cia.gov/cia/publications/factbook/rankorder/2004
rank.html].
2 United Nations Industrial Development Organization, International Comparisons of Industrial
Performance [http://www.unido.org/data/Country/stats//StaTableA.cfm?c=HAI].
3 The World Bank, Haiti at a Glance, August 12, 2006 [http://devdata.worldbank.org/AAG/hti_
aag.pdf].
4 For more on Haiti, see CRS Report RL32294, Haiti: Developments and U.S. Policy Since 1991
and Current Congressional Concerns, by Maureen Taft-Morales.

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For the sake of clarity, it should be noted that this report defines the term textile
industry as including apparel manufacture/assembly — common, although not universal,
usage. Moreover, such a definition is essential in the present context inasmuch as apparel
making constitutes nearly all “textile” manufacturing in Haiti. Thus, in most cases, the
word “textiles” in this report includes apparel articles.
Proposed and Enacted Economic Assistance
Bills were introduced in the 108th and 109th Congresses that would (a) loosen existing
restrictions on the origins of the components of apparel sewn together in Haiti and
exported to the United States, and (b) allow some of those exports to enter the United
States duty free.
108th Congress. S. 489 and H.R. 1031, would have amended the Caribbean Basin
Economic Recovery Act (CBERA) to allow specified apparel articles made of cloth to be
imported from Haiti, subject to quantitative limitations, into the United States duty free
if Haiti satisfied the economic and democratic reforms required by the bills, which are
noted below. The substantive provisions of S. 2261 and H.R. 4889 were the same as
those in S. 489 and H.R. 1031, except for a key qualitative difference. That is, the
covered apparel included articles wholly assembled or knit-to-shape in Haiti from any
combination of fabrics, fabric components, components knit-to-shape, and yarns with no
regard to the country of origin of the fabrics, components, or yarns. All were called the
Haiti Economic Recovery Opportunity Act (HERO Act).
Following Senate passage of S. 2261 (July 2004), the House Ways and Means Trade
Subcommittee held a hearing on whether to provide special trade preferences for Haiti,
on the impacts on Haitian economic development and trade, and on the impacts on the
U.S. textile and apparel industries. U.S. textile producers contended that permitting duty-
free entry of Haitian-assembled apparel regardless of country of origin of the components
would result in Caribbean and Central American apparel makers moving to Haiti where
they would be able to use Chinese and other-nation yarn and fabrics, and access the U.S.
market duty-free. After the hearing, the Subcommittee produced a draft alternative (never
introduced), the “Haitian Hemispheric Opportunity through Partnership Encouragement
Act of 2004" (the HOPE Act), which required apparel components to originate in the
United States or in countries to which the U.S. grants trade preferences, with some
exceptions. U.S. importers objected, saying it would not provide enough benefits to
attract new business to Haiti. There was no further action on trade preferences for Haiti
before the session ended.
109th Congress. On and off attempts to develop compromise legislation in 2005
failed, and virtually identical bills S. 1937 and H.R. 4211 of the 109th Congress were
introduced that essentially were identical to S. 2261 and H.R. 4889 of the 108th Congress.
Also called HERO bills, they would have limited the quantity of articles to which such
preferential treatment would be extended in the initial 12-month period and seven
succeeding 12-month periods to amounts equal to increasing percentages of all apparel
articles imported into the United States.
The Haitian Hemispheric Opportunity through Partnership Encouragement (HOPE)
Act of 2006, Title III of H.R. 6142, was introduced September 21, 2006. Its principal
provisions would allow duty-free entry to specified apparel articles made and/or

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assembled in Haiti, the United States, a beneficiary country of a U.S. trade preference
program, or a country party to a U.S. free trade agreement — a tighter rule of origin than
in the HERO bills. The sum of material and production costs had to be a rising percentage
of the customs value over a five-year period, and import quantities were capped at a rising
percentage of all U.S. apparel imports. The bill did not advance.
Enactment. A significant variation of the HOPE Act bill was incorporated in a
multifaceted bill (H.R. 6111), passed by Congress in early December 2006, and signed
by the President on December 20, 2006 to become P.L. 109-432. In contrast to H.R.
6142, apparel articles that are wholly assembled or knit to shape in Haiti from any
combination of components regardless of country of origin and imported directly from
Haiti shall enter the United States duty free. However, in the first year, at least 50% of
the material and processing cost of the finished article must come from Haiti, the United
States, or a country that has a free trade agreement or a preference program with the
United States. The percentage requirement rises to 55% in the fourth year and 60% in the
fifth year. The quantity of articles to which such preferential treatment is applied is
limited in the initial 12-month period to an amount equal to 1% of the aggregate square
meter equivalents of all apparel articles imported into the United States in the most recent
12-month period for which data are available. This limitation rises by 0.25 percentage
points each of the following four years. The preferences end after the fifth year. U.S.
textile interests again objected strongly, asserting that the lenient rules of origin would
result in Caribbean and Central American apparel makers moving to Haiti where they
would be able to use Chinese and other-nation yarn and fabrics, and access the U.S.
market duty-free.
As with the HERO bills, Haiti qualifies for preferential treatment under the HOPE
Act only if the U.S. President certifies to Congress that Haiti has established or made
progress toward establishing a large number of economic, legal, and political institutions
and policies. These include a market-based economy, minimum government interference
that protects private property rights, the rule of law, the elimination of barriers to U.S.
trade and investment, economic policies to reduce poverty, a system to combat corruption
and bribery, and protection of internationally recognized human and worker rights. Haiti
has tried to enact such reforms over the past decade, but has had difficulty making or
maintaining progress in any of these areas.
Current Haitian Textile Manufacturing and Trade
There is too little quantitative information available on Haitian textile manufacturing
to provide a reasonably complete quantitative picture of the industry. However, it can be
said that, based upon value, about 80% of all Haitian exports went to the United States
in 2004.5 Also, in the first eleven months of 2006, textiles accounted for about 90% of
Haitian exports to the United States,6 99.6% of Haitian textile exports to the United States
were in the form of apparel,7 and about 80% of Haitian apparel exports to the United
5 International Monetary Fund, Direction of Trade Statistics, Yearbook 2005, p. 263.
6 U.S. International Trade Commission Dataweb (compiled from U.S. Departments of Commerce
and Treasury data), [http://dataweb.usitc.gov].
7 U.S. International Trade Commission Dataweb.

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States were assembled from U.S.-made fabric and/or yarn.8 Current employment in
Haitian textile manufacturing has been estimated at between 25,000 and 30,000.9
The industry was on an upswing before the violence and change in government in
early 2004 — as suggested by the 34% rise in exports to the United States between 2002
and 2003. A study prepared for the U.S. Agency for International Development reported
that some Haitian textile manufacturing companies are well managed — run by
individuals with “a strong U.S. background,” who use the latest computer technology.
The same source regards that management as capable of returning the industry to previous
higher levels of production.10
Notwithstanding any advantage that geographical proximity may provide, Haiti’s
industry probably is too small to be a major factor any time soon. In the first seven
months of 2006, U.S. imports of apparel from Haiti accounted for 0.6% of total U.S.
imports of apparel. Moreover, after increasing 24% between 2004 and 2005, Haitian
exports of apparel to the United States in 2006 are only 3% greater than the comparable
2005 period. In 2005, the value of U.S. apparel imports from Haiti equaled 0.2% of the
value of shipments by textile and apparel manufacturing in the United States.11
International Trade Law and Haitian Trade Preferences
In analyzing the impact that the HOPE Act could have on the Haitian and U.S. textile
industries, it is important to take into account existing international trade law and U.S.
trade preferences applicable to Haiti. With respect to international trade law, a key
negative development for Haiti was the final phasing out of quotas on textiles and apparel
on January 1, 2005. This was mandated by the Agreement on Textiles and Clothing,
concluded during the Uruguay Round of trade negotiations, and applicable to all member
nations of the World Trade Organization (Haiti is one). As widely expected, some
countries that were subject to quotas have increased their exports of apparel to the United
States. China and India are considered to be major threats to compete against, and
potentially crowd out, Haitian-made apparel.
Haiti is a beneficiary country of the Caribbean Basin Trade Partnership Act
(CBTPA) (Title II, P.L. 106-200). As amended, the CBTPA provides certain special trade
preferences to goods produced in qualifying Caribbean countries. These are among the
apparel categories that can enter the United States duty- and quota-free under the CBTPA:
8 Department of Commerce, Office of Textiles and Apparel, [http://otexa.ita.doc.gov/msrpoint.
htm], viewed January 19, 2007.
9 Hemlock, Doreen. “Dire Threat to Job Creation,” South Florida Sun-Sentinel, March 31, 2005,
Haiti Democracy Project [http://www.haitipolicy.org/printversions/2903.htm]; International
Labor Organization, Promoting fair globalization in textiles and clothing in a post-MFA
environment, Geneva, 2005, p. 48.
10 The Services Group. An Assessment of the Potential Impact of the Haitian Economic Recovery
Opportunity Act (Hero), May 26, 2003, pp. 16 and 25.
11 Bureau of the Census, Manufacturer’s Shipments, Inventories and Orders, July 2006;
International Trade Commission Dataweb;.

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(1) Apparel assembled in a CBTPA beneficiary country from U.S.-made fabric from
U.S.-made yarn, and cut in the United States; or from U.S.-made fabric from U.S.-made
yarn, cut in the CBTPA country, and sewn in a CBTPA country with U.S. thread.
(2) Apparel articles, except socks, knit-to-shape from U.S.-made yarn in a
beneficiary country, or articles (except non-underwear T-shirts) assembled from fabric
knit in the United States or in a beneficiary country from U.S.-made yarn, and cut in a
beneficiary country. U.S. knit-to-shape components and U.S.-cut fabric components are
treated the same. However, duty-free treatment of knit-to-shape articles (T-shirts and
socks excluded) is subject to annual quantity limits; there are limits for non-underwear
T-shirts; and all dyeing, printing, and finishing of components (except sewing thread)
must be done in the United States.
(3) Brassieres cut and assembled in the United States and/or one or more beneficiary
countries during the six-year period beginning with October 1, 2001, if the cost of the
U.S.-made fabric components used in their manufacture by their individual producer
during the preceding year is at least 75% of their customs value.
Potential Benefits of the HOPE Act
Given the allowance to use third country sources of components, trade preferences
provided to Haitian textiles under HOPE Act appear to be broader than those that would
have been provided by the early HERO bills and are provided under CAFTA. About half
of Haitian exports of apparel and accessories to the United States already enter duty free
under the CBTPA. The fact that the HOPE Act allows, subject to the quantitative
limitations and increasing “domestic” cost thresholds, duty-free imports of apparel made
from fabrics, components, or yarns originating in any country contrasts sharply with the
CBTPA rules of origin. Absent other considerations, the HOPE Act may have potential
benefit to the Haitian textile industry.
Based upon H.R. 6142, some have argued that significant relaxation of existing
restrictions of the country origin(s) of components used to assemble apparel in Haiti could
set the stage for tripling apparel production and employment in the initial years of the
proposed new regimen. This is derived from the fact that Haiti initially would be eligible
to export duty-free a quantity of apparel equal up to 1.5% of total U.S. apparel imports
in the previous year, whereas Haiti accounts for 0.5% of total U.S. apparel imports (value
basis). A tripling would raise employment in the industry to 75,000–90,000 (three times
25,000 or 30,000). If Haitian apparel exports to the United States reach 3.5% of total U.S.
imports in later years, it could mean Haitian apparel manufacturing employment of at least
175,000 (seven times 25,000). The enacted bill’s lower quantity limitations would seem
to reduce such expectations.
Should apparel production and employment gains take place, there would be, in
addition, indirect positive effects on other parts of the Haitian economy, as the increases
in personal and business incomes from expanded Haitian apparel manufacturing stimulate
other parts of the Haitian economy.12
12 One proponent of the legislation has projected indirect employment gains at 100,000.
Jacqueline Charles, “In U.S., Haitian Leader to Ask for Funds,” Miami Herald, May 4, 2004.

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Haiti’s Political and Business Climate
Among other considerations in analyzing the impact that the proposed legislation
would have on Haiti’s textile industry are Haiti’s political and business climates, access
to basic services, and public safety.13 While some progress is noted,14 one can question
Haiti’s ability to make progress in the near future toward establishing political pluralism
and the rule of law, protecting human and worker rights, and reducing corruption.
The business climate is marred by inadequate protection of private property and
considerable red tape that greatly slows transactions and procedures such as importing
equipment, purchasing factories, and incorporating.15 Inadequate protection of private
property raises the question of availability of insurance for entrepreneurs, without which
investment would not occur. In addition, reliable and sufficient electric power is lacking
in many areas, roads are poor, and inadequate security tends to preclude businesses from
adding night shifts, as workers cannot be assured of safe trips home.
On the positive side, Haiti’s production costs are reported to have become very
favorable relative to those of other Caribbean apparel producers.16 The country has a large
number of unemployed and underemployed people who constitute a labor pool readily
available for training and incorporation in the Haitian textile industry work force. The
free trade zone with the Dominican Republic is open and operating. And some have
perceived that the new government is eager to create a positive environment.17
Observation
The proposed trade preferences contained in the HOPE Act could have large
potential benefits for Haiti, particularly in view of the proposed easing of restrictions on
the country origins of components used in Haiti to make apparel that would be exported
duty free to the United States. To the extent that Haitian exports of apparel would
increase in a future period, Haitian apparel manufacturing and associated employment
would increase — and stimulate activity in the rest of the Haitian economy.
However, the several negative factors in Haiti’s political and business climate, noted
above, taken together weigh heavily, and may well preclude significant near-term gains.
Moreover, Haiti will not have had a window of opportunity to gear up production capacity
and develop markets before textile and apparel quotas expired on January 1, 2005, to be
able to compete for U.S. markets more intensively with goods from other textile-
producing countries.
13 Violence by police and UN peacekeepers as well as by gangs has been reported: Aaron Mate,
“Police-UN Killings in Haiti,” ZNet/Haiti, October 10, 2005. Viewed on November 29, 2005
[http://www.zmag.org/content/print_article.cfm?itemID=8909&sectionID=55].
14 See CRS Report RL33156, Haiti: International Assistance Strategy for the Interim Government
and Congressional Concerns, by Maureen Taft-Morales.
15 Assessment of the Potential Impact, p. 22.
16 Assessment of the Potential Impact, p. 17.
17 Based upon telephone conversation with Patricia Forner, World Vision Haiti, May 10, 2004.