The Haitian Economy and the HOPE Act

^Pr^ep^ar^{ed f}^o^r^M^e^m^b^ers^an^d^Com^mⁱ^t^t^ees^of^C^ong^r^e^ss

In December 2006, the 109^th Congress passed the Haitian Hemispheric Opportunity through
Partnership Encouragement Act of 2006 (HOPE I), which provides special trade rules that give
preferential access to U.S. imports of Haitian apparel. These rules are intended to promote
investment in the apparel industry as one element of a broader economic growth and development
plan. HOPE I allows 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 meets rules of origin and eligibility criteria that require making progress on worker rights,
poverty reduction, and anti-corruption measures. Early assessments of the effectiveness of HOPE ^th
I, however, were disappointing, so the 110 Congress responded by amending it in the
Hemispheric Opportunity through Partnership Encouragement Act of 2008 (HOPE II). HOPE II
extends the preferences for 10 years, expands coverage of duty-free treatment to more apparel
products, particularly knit articles, and simplifies the rules, making them easier to use.
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 within 16 months of enactment of the
legislation. The TAICNAR program provides technical assistance through the UN International
Labor Organization (ILO) to help Haiti develop the capacity to monitor compliance of apparel
producers in meeting internationally recognized core labor standards. Those firms that are
habitually unable, or refuse to comply with these standards or to accept technical assistance to
remedy deficiencies, can lose their eligibility for HOPE Act trade preferences.
In providing preferential access to Haitian apparel imports, the HOPE Act, as amended, gives
Haitian firms a competitive (price) advantage over other foreign producers who must pay U.S.
duties on their apparel exports made from yarns and fabrics supplied by non-regional (e.g., Asian)
producers. Improved competitiveness of the apparel business is intended to attract long-term
investment to Haiti’s primary export industry, expand output and employment, and provide one
pillar of a policy foundation aimed at promoting economic growth and recovery.
Unilateral trade preferences to help developing countries expand their export base have played a
long-standing role in U.S. trade policy. Congress designed the HOPE Act, as amended, as the
most flexible of these arrangements to meet Haiti’s critical development needs. The rationale for
success is based on the United States being the largest market for Haiti’s primary export industry.
The labor provisions reflect a relatively new approach for incorporating core labor standards
because the tariff preferences are tied directly to firm performance. In addition, the ILO, which
wields international credibility, is actively involved in administering and overseeing the program.
The model combines government, private sector, and international agency participation in a way
that achieved some success under the U.S.-Cambodia Textile Agreement. Congressional oversight
is mandated and important for ensuring that the HOPE Act is implemented as intended. Haiti, for
its part, faces many challenges and will have to find ways to overcome a legacy of political
volatility, economic inequality, and social dissension. Without the transition to a more equal and
stable society, trade preferences may be overwhelmed by the force of broader social and
economic factors. This report will be updated periodically.

Political and Social Challenges to Haitian Development................................................................1
Economic Background....................................................................................................................3
Macroeconomic Performance...................................................................................................3
Sector Issues..............................................................................................................................5
Foreign Trade and Investment...................................................................................................6
Apparel Assembly in Haiti..............................................................................................................8
The Haiti HOPE Act.......................................................................................................................11
HOPE I....................................................................................................................................12
HOPE II...................................................................................................................................13
Tariff Preferences and Rules of Origin.............................................................................13
Labor Provisions...............................................................................................................14
Implementing the HOPE Act.........................................................................................................15
Figure 1. Map of Haiti.....................................................................................................................2
Figure 2. Growth in GDP, 1998-2008.............................................................................................5
Figure 3. Haiti Direction of Trade, 2007.........................................................................................7
Figure 4. U.S. Imports of Haitian Apparel, 1989-2007...................................................................9
Table 1. U.S. Market Share of Haitian Top Five Apparel Exports, 2007......................................10
Appendix. Haiti: Selected Economic Indicators............................................................................16
Author Contact Information..........................................................................................................16

n December 2006, the 109^th Congress passed the Haitian Hemispheric Opportunity through
Partnership Encouragement Act of 2006 (HOPE I) to assist Haiti with expanding apparel ¹
trade as a way to stimulate economic growth. The Act provides special rules for the duty-free I

treatment of select apparel imports from Haiti made from less expensive third-country inputs
(e.g., non-regional yarns, fabrics, and components) provided Haiti meets rules of origin and
eligibility criteria that require making progress on worker rights, poverty reduction, and anti-
corruption measures. Early assessments of the effectiveness of HOPE I, however, were ^th
disappointing. The 110 Congress responded by amending HOPE I with the Hemispheric ²
Opportunity through Partnership Encouragement Act of 2008 (HOPE II). HOPE II extends the
preferences for 10 years, expands coverage of duty-free treatment to more apparel products,
particularly knit articles, and simplifies the rules to make them easier to use.
In providing preferential access to Haitian apparel imports, the HOPE Act, as amended, gives
Haitian firms a competitive (price) advantage over other foreign producers who must pay U.S.
duties on apparel exports made from yarns and fabrics supplied by non-regional (e.g., Asian)
producers. Improved competitiveness of the apparel business is intended to attract long-term
investment to Haiti’s primary export industry as one element of a broader strategy to achieve
sustainable economic growth and stability. The act also provides a new requirement to ensure
internationally recognized core labor standards are met. This report discusses the HOPE Act as it
relates to the Haitian economy and U.S. trade policy.

Haiti, which shares the western third of the island of Hispaniola with the Dominican Republic
(see Figure 1), has endured a long post-colonial history of poverty, underdevelopment, and
political repression. The trend continues today and the sustainability of Haiti’s tentative political
stability remains questionable. Since the end of the Duvalier dictatorship in 1986, Haiti has
struggled to institutionalize democracy, and so far has been unable to overcome a legacy of poor
governance, economic inequality, and social unrest. The presidency has alternated between Jean-
Bertrand Aristide, René Préval, and interim placeholders, none of whom has been able to
establish a fully-functioning and broadly accepted government, let alone change the underlying
fundamentals of inequality in Haitian society. The legacy of authoritarianism has continued to
unfold in the recent democratically elected administrations of both Aristide and Préval. Préval’s
second administration, begun in 2006, initially sparked a ray of hope among the masses, but his
rule has since been marred by decisions that have weakened the fledgling institutional ³
democracy.

¹^T^itle^V^of^the^T^a^x^Re^lie^f^a^{nd H}^e^a^{lth Ca}^re^A^c^{t of}^{2006 (H}^.R^{. 6}¹¹¹^/^P.L^.¹⁰^9-4³²⁾^.
²^T^itle^X^V^of^the^F^o^o^d^{, C}^ons^e^r^v^a^{tion, a}^nd^Ene^r^g^y^A^c^{t of}^{2008 (H}^.R.⁶¹^24/^P.L^.¹^10-²⁴^6)—the^“^F^a^r^m^Bill.”
³^A^de^ta^ile^{d s}^u^m^m^a^r^y^of^politic^a^l^e^v^eⁿ^ts^m^a^y^be^f^ound^in:^{CRS Re}^p^o^{rt RL}³²²⁹^4,^Ha^{iti: Develo}^p^m^en^t^s^aⁿ^d^U.S^.^P^o^licy
^Sinc^e¹⁹⁹¹^an^{d C}^u^r^r^e^nt^C^oⁿ^g^r^e^s^sⁱ^on^{al C}^onc^e^r^ns^,^by^Ma^ure^eⁿ^T^a^f^t^-Mora^l^e^s^{. F}^o^{r a}ⁿ^aⁿ^a^l^y^s^{is of}^Ha^{iti’s a}^u^thor^ita^riaⁿ
^tra^d^itio^{n a}ⁿ^d^obsta^c^l^e^s^to^de^m^o^c^r^a^tiz^a^{tion, se}^e^Fa^tt^on,^Ro^be^{rt Jr.}^H^a^{iti’s Pre}^d^atory^Re^pu^blic^:^T^h^e^Une^ndi^ng^Traⁿ^sitioⁿ
^to^Demo^cra^c^y^{. B}^o^ulde^r^:^L^y^nne^R^e^inie^r^P^u^blis^he^r^s^.²⁰⁰²^.

Figure 1. Map of Haiti
^Source:^Ma^{p Resources. Adapt}^e^d^{by CRS.}
The post-dictatorial political system is new, fragile, and in many ways, susceptible to criticism
that it has failed to establish a functioning government. After two years into his second non-
consecutive term, Préval’s leadership, vision, and strategy to address longstanding poverty and
unemployment are coming under question. His delay in appointing a Prime Minister, in
conducting Senate elections, and in initiating widely supported constitutional reform (particularly
to amend a repetitive, expensive, and so far unworkable electoral system) has compromised the
government’s legitimacy. The multiparty system, rather than consolidating politics, may be
slipping further into factional partisanship, evidence for some of the failure to promote a ⁴
“political culture of participation.” Multiple observers note that the government bureaucracy
suffers from a historic endemic corruption, acting to enrich itself while failing to delivery basic ⁵
services to the Haitian people.
Haiti’s uneven social structure lies at the heart of its apparent state of perpetual crisis. Haitian
society has small middle and working classes, and is dominated by the chasm between a tiny
minority of wealthy elite and the impoverished masses, the latter of which have little power or
participation in governing. Politics since the transition to democracy in 1986 has not altered this
precarious relationship. The highly skewed distribution of power and resources, and the

⁴^P^e^rito,^Ro^be^{rt M.}^H^a^iti:^Hope^fo^{r the}^Fu^ture^.^Uni^t^e^d^S^t^at^{es In}^stⁱ^t^ut^{e o}^f^P^eace.^S^p^eci^al^Repo^rt¹⁸⁸^.^J^uⁿ^e²⁰⁰⁷^.^p^.⁶^.
⁵^Fa^tto^n,^Ha^{iti’s Pre}^d^atory^Re^p^u^b^l^ic^{, pp}^{. 1}⁰^,¹⁴^aⁿ^d¹^12-^{17; T}^r^aⁿ^s^p^a^r^eⁿ^cy^Iⁿ^te^rⁿ^a^tiona^l.^C^o^r^r^u^pti^{on Pe}^r^c^e^p^tions^I^nde^x^,
²⁰⁰⁷⁽^H^a^iti^r^a^nk^e^d¹⁷⁷^ou^{t of}¹⁷⁹⁾^aⁿ^d^;^U^.^S.^D^e^pa^r^t^m^e^{nt of}^Sta^t^e^.^{Haiti: C}^o^uⁿ^try^Re^port^oⁿ^Humaⁿ^Rights^Prac^tic^e^s^,
²⁰⁰⁷^.^M^a^r^c^h²⁰⁰⁸^.^p^p^.^{1 an}^{d 8}^.

underlying fear it generates, have made the transition to democracy difficult. Haiti’s political ⁶
future remains tenuous as long as entrenched economic and social patterns remain unchanged.
Security remains a persistent problem, rooted in the history of violence stemming from political
and economic inequality. It manifests in the often random violence of gangs and paramilitary
groups. Security is currently being enforced by the United Nations Stabilization Mission in Haiti
(MINUSTAH). Few seem to question the need for a prolonged military presence, but concerns
linger over the sovereignty issues it raises. The ability of MINUSTAH to handle an escalation of
social upheaval is another key question, particularly if there is a repetition of violence such as
occurred during the food riots of April 2008.

It is in this often dysfunctional political and social landscape that the challenge of economic
growth and development must be addressed. Internally, expectations that the Haitian government
will deliver on changing the day-to-day conditions of a population immersed in poverty will be
difficult to ignore, yet many doubt they can be easily fulfilled. Externally, vast amounts of foreign
aid expose the legacy challenge to development in a country devoid of the basic cornerstones of
growth. The restoration of growth remains the primary economic goal and is a necessary
condition for development. Even if policies can ignite a sustainable growth trend, however, they
will not provide the foundation for long-term political and social stability if they cannot begin to
address the underlying extreme social inequality.
Haiti’s dismal economic growth trend epitomizes its developmental paralysis. From 1960 to 2000,
average real growth in per capita income was a dismal -0.7%, by far the worst performance in the
Western Hemisphere. Growth returned briefly in the 1970s, led by export-oriented assembly
industries, but Haiti experienced a prolonged economic downturn in the 1980s (as did most
countries in the region) leading to social and political unrest that ultimately contributed to the
overthrow of the Duvalier dictatorship in 1986.
In 1991, following an interim government, Aristide emerged briefly as the first elected president,
only to be deposed by a military coup within a few months. To force the return of the
democratically elected government, the United States and other countries responded to the coup
with a trade embargo under the auspices of the Organization of the American States (OAS) and
the United Nations (UN). Although its success in changing political behavior has been
questioned, its economic effects were concrete and devastating. Haiti was already experiencing a
decline in output, employment, and income, but the trend mushroomed during the 1991-1994
embargo. The embargo targeted fuel imports (not food, but supplies were delayed), and all
exports. Overall, by 1994, per capita income had fallen by 30% in three years and unemployment ⁷
peaked at 75%.

⁶^Fa^tto^n,^Ha^{iti’s Pre}^d^atory^Re^p^u^b^l^ic^{, pp}^{. 1}^97-²⁰^{5 a}ⁿ^d^P^e^rⁱ^t^o^,^H^a^iti:^Hope^for^the^F^u^ture^{, pp}^.^2-^7.
⁷^Gⁱ^bbons^,^Eliz^a^b^e^t^h^D^.^S^anc^ti^ons^{in H}^aⁱ^ti:^H^u^m^an^Rig^h^ts^aⁿ^d^D^e^m^o^c^r^ac^y^un^de^r^As^s^aul^t^.^W^e^st^p^o^r^t^:^P^r^aeger
^Publ^is^he^r^s^{. 1}⁹⁹⁹^.^pp^{. 1}³^aⁿ^d^18.

Sector effects were highly pronounced. Employment in the assembly manufacturing industry
(apparel, electronics, sporting goods), centered in Port-au-Prince, fell by over 80%, shedding

32,000 jobs. One estimate of the multiplier effect suggests that the embargo eliminated some ⁸

200,000 jobs in the formal sector. Most assembly plants closed permanently, with only apparel
rebounding in the aftermath of the embargo. The inability to import agricultural inputs (fertilizers,
seeds) or export agricultural goods had similarly devastating effects on that sector’s production.
In addition, because oil imports were blocked, there was a sudden increase in the production of
charcoal, accelerating the ecologically destructive trends in deforestation and soil erosion, further ⁹
damaging agricultural production.
Trade was renewed in 1995, but economic growth oscillated for the next decade, hampered by
recession, flooding, and ongoing political turmoil. In the post-embargo period, annual GDP
growth for the decade ending 2006 averaged only 1.1%, lower than Haiti’s 1.4% average
population growth rate, a recipe for perpetuating chronic unemployment, poverty, and emigration
pressures. As seen in Figure 2, Haiti’s economic growth has lagged badly compared to Latin
America and the Caribbean as a whole, a region that is itself known for its poor long-term growth
record. Growth has been positive since 2005, but declined to an annual rate of only 1.5% in 2008, ¹⁰
in part because of the U.S. downturn. Given the many domestic and international challenges
facing Haiti, sustainability of its long-term growth is far from certain (see data in Appendix).
Haiti is the poorest country in the region. In 2006, per capita income was a meager $1,700 on a
purchasing power basis (adjusted for price differences across countries), and 78% of the ¹¹
population lives on less than $2 per day. Inequality is extreme; Haiti has the most highly skewed
income patterns in the Americas with nearly half of the nation’s earnings going to the top 10% of
the income distribution. Real wages have fallen since 2000, inflation has declined, and real
interest rates have stabilized, but Haiti experienced upward pressures from sharp price increases
in food and energy in the first half of 2008 before commodity prices collapsed.
To consolidate the short growth trend begun in 2005, in addition to weathering the global
economic downturn, Haiti will have to address a core area of domestic policy, the lack of
productivity growth. Persistently low or negative productivity is the result of negligible
investment in private enterprise, human and social capital (e.g., education and health care), and
public infrastructure. It is highly pronounced in the agricultural sector, where primitive methods
and ancient equipment perpetuate low yields, lack of growth in cultivated land, and inadequate
food supplies, much of this due to the sector’s “decapitalization” during the 1991-1994 trade
embargo. Investment in manufacturing and public sectors has also been sparse, jeopardizing ¹²
prospects for longer-term growth.

⁸^Ibid^.,^p.^11,^c^iting^Un^ite^{d Na}^ti^on^{s da}^ta^.
⁹^I^b^id^.,^pp.¹⁰^-¹^{4 a}ⁿ^{d T}^h^e^W^o^r^l^d^B^a^nk^.^{Haiti: O}^p^tio^{ns a}ⁿ^d^Op^port^unitie^{s f}^o^{r Inc}^l^usiv^e^Growth^{. W}^a^s^h^ing^t^oⁿ^{, D}^.^C^.^J^u^ne
^{1, 2}⁰⁰⁶^.^pp^{. 1-}^5.
¹⁰^Uⁿ^ite^{d N}^a^ti^ons^Ec^on^om^ic^C^o^m^m^is^sⁱ^on^{on L}^a^{tin A}^m^e^rⁱ^c^a^a^{nd the}^C^a^rⁱ^bbe^aⁿ^.^P^r^elⁱ^mⁱⁿ^a^r^{y Overvi}^e^w^o^f^t^h^e
^Ec^onom^ie^s^of^L^a^tiⁿ^Am^e^r^ic^{a an}^{d the}^C^a^rⁱ^bbe^aⁿ^{, 20}⁰⁸^.^Sa^nt^ia^g^o^{, 2}⁰⁰⁸^.^pp.^4-^7.
¹¹^T^h^{ese are t}^w^o^m^easu^r^{es o}^f^p^o^v^er^t^y^.^Co^m^p^are^wⁱ^t^hⁿ^eⁱ^g^h^b^o^rⁱⁿ^{g Dom}ⁱⁿⁱ^can^Rep^u^b^lⁱ^c^wⁱ^t^h^{a p}^e^{r capi}^t^{a i}ⁿ^co^m^e^o^f
^$7,¹⁴^{0 a}ⁿ^{d w}^{ith 1}⁶^%^of^the^p^o^p^u^l^a^{tion l}ⁱ^vⁱ^ng^on^le^s^s^thaⁿ^$²^pe^r^da^y^.^W^o^r^l^{d B}^a^nk^.^Wo^rl^{d Devel}^o^p^m^en^t^Indⁱ^ca^t^o^rs
²⁰⁰⁷^,^pp^{. 4}⁰^,⁶⁰^aⁿ^d⁶⁶^.
¹²^Se^e^Uⁿ^ite^{d N}^a^ti^ons^.^Ec^on^om^ic^C^o^m^m^is^sⁱ^{on on L}^a^{tin A}^m^e^r^ic^a^a^{nd the}^C^a^rⁱ^bbe^aⁿ^.^E^c^on^o^mⁱ^c^S^u^r^{vey o}^f^L^a^tⁱⁿ^A^m^eri^c^a
^aⁿ^d^t^h^{e C}^a^ri^bb^ea^n,²⁰⁰⁶^-²⁰⁰⁷^.^S^a^ntia^g^o^{, J}^u^ly²⁰⁰^7.^pp^{. 2}^56-²⁵^9;^G^l^oba^{l I}ⁿ^sⁱ^g^h^t.^H^a^iti^.^Ma^y^{29, 2}⁰^{07; T}^h^e^W^o^r^l^d
^Ban^k^,^{Haiti: O}^p^tio^{ns a}ⁿ^d^Op^port^unitie^{s f}^o^{r Inc}^l^usiv^e^Growth^{, p}^p^.^5-^{6; a}^{nd G}ⁱ^bb^ons^,^S^anc^ti^onsⁱⁿ^H^a^iti^{, pp}^.¹⁵^-1^6.

Figure 2. Growth in GDP, 1998-2008

7^{(in percent)}

6
5
4
3
2
1
0
-1
-2
-3
-4
1998 1999 2000 20 01 2002 2003 2004 2005 2006 2007 20 08
^Haiti^L^a^tⁱⁿ^A^m^{erica an}^d^t^h^{e C}^a^rib^b^ean
^Source:^{United Nations. Econo}^{mic Commission on Latin America and the Ca}^ribbea^n.^{Preliminary Overview of the}
^Economies^{of Latin America and the Caribbea}^{n 2008}^{, p. 4.}
Slow growth is also apparent at the sector level. Agricultural production represents 25% of GDP
and employs up to 70% of the work force, but it has stagnated for decades and declined for five
years in a row until expanding by 3.0% in 2007. Agricultural growth is limited by the small
amount of arable land, overuse of soil, and poor irrigation. It is also constrained by poor rural
infrastructure, destructive agricultural practices, and frequent hurricanes and other natural
disasters. Rice, sugar, and coffee are produced at a fraction of levels achieved decades earlier.
Haiti currently produces little of these traditional exports and output of staples has long been
insufficient to meet domestic food needs. Haiti, therefore, must import large amounts of food
stuffs. Rising international prices of basic foods compounded Haiti’s inability to feed itself, to the ¹³
point of igniting food riots in April 2008. The recent collapse in commodity prices, although a
problem for much of the region, may help alleviate some of Haiti’s import bill.
Manufacturing constitutes only 7.6% of GDP and has shown no growth over the past decade. It,
nonetheless, is the major foreign exchange earner and holds out some promise for employment
growth. Manufacturing is dominated by food processing (47.2%) and apparel assembly (21.1%).
Construction and public works account for another 7.7% of GDP and grew by 6.3% over the last

¹³^Ré^pub^liq^ue^d’H^a^iti.^Mi^nite^re^de^l^’^Ec^onom^ie^e^t^de^s^Fi^na^nc^e^s^{. Ins}^tit^{ut H}^a^itieⁿ^de^Sta^tis^ti^que^e^t^d’Iⁿ^f^o^rm^a^tique^.^Le^s
^C^o^m^p^te^s^Ec^o^nomⁱ^que^s^eⁿ²⁰⁰⁷^a^{nd Ba}ⁿ^que^de^la^Ré^p^ubli^que^D’H^a^iti.^P^r^od^uⁱ^t^In^t^e^ri^eu^r^B^r^u^t^P^a^r^S^ect^eu^r^{; ECLA}^C,
^Statis^tⁱ^c^a^l^Ye^ar^b^ook^f^o^r^La^tin^Am^e^r^ic^{a an}^{d t}^h^e^C^a^rⁱ^b^b^e^a^{n 2}⁰⁰⁷^.

two years. These trends reflect recent, new public sector investment and provide one option for
employment growth of low-skilled workers. The services sector constitutes 51% of GDP and is
led by restaurant and hotel industries (tourism is not a major factor), which together account for ¹⁴

27% of GDP. It grew by nearly 6% in 2007.

Haiti has a historically unhealthy dependence on foreign commerce and finance, from the colonial
days of the sugar trade to the current assistance provided by developed countries. Total trade
(exports plus imports) equals 60% of GDP, but the trade imbalance is large with a deficit equal to
33% of GDP. Haiti is in a difficult position because slow growth in output and exports means that
it must rely on foreign sources for basic commodities such as food and oil, as well as
manufactured and capital goods. The problem is often made worse by deteriorating terms of
trade, when prices of oil and other commodity imports rise relative to prices Haiti’s exports.
Haiti’s trade relationship with the world is dominated by the United States, with which it ran a ¹⁵
$192 million deficit in 2007. The United States accounted for 73.3% of Haiti’s exports followed
in order of magnitude by the Dominican Republic (8.8%), the European Union (5.8%), and
Canada (3.3%) – see Figure 3. The United States also accounted for 41.1% of Haiti’s imports
followed by the Netherland Antilles (14.9%), the rest of Latin America (14.1%) the European
Union (7.7%), and China (4.7%). Haiti exports primarily apparel, which accounts for 75%-80%
of foreign earnings and for over 90% of total exports to the United States. Cacao, mangoes, and
coffee compose the small basket of agricultural exports.
A return to economic growth is critical to finance the trade deficit in the long run. In the near
term, however, there is no alternative to relying on foreign sources of income, principally
remittances, foreign aid, and grants. Transfers finance Haiti’s fiscal and current account deficits,
but they are a poor substitute for production and export-driven financing. They promote long-
term dependency and create technical problems, such as exchange rate appreciation that
exacerbates Haiti’s structural trade deficit, with no concomitant growth in productivity or output
that is typically associated with an export-driven exchange rate appreciation. These transfers, so
necessary for Haiti’s short-term survival, are dependent on the fortunes of expatriate citizens and
the generosity of foreign governments, diminishing Haiti’s control over the future of its economic ¹⁶
well-being.
Haiti has a poorly diversified export sector, overly dependent on one type of product and a single
foreign market, a strategy that has so far shown little lasting positive effect on long-term ¹⁷
development. The risk to this export structure becomes increasingly clear with the current U.S.
economic slowdown, which has reduced demand for Haitian goods (falling 7.5% year-over-year)

¹⁴^Ibid^.
¹⁵^U^.^{S. D}^e^pa^r^t^m^e^{nt of}^C^o^m^m^e^r^c^e^da^ta^r^e^por^te^{d i}ⁿ^t^h^e^W^o^r^l^{d T}^r^a^d^e^A^tla^s^.
¹⁶^T^h^{is poi}^{nt is m}^a^de^by^the^{IMF, w}^h^ic^{h spe}^a^k^{s to t}^h^e^ne^e^d^f^o^{r Ha}^{iti e}^v^eⁿ^tua^lly^{to re}^{turn t}^o^a^m^o^re^nor^m^a^{l pa}^tte^{rn of}
^inv^e^st^m^e^{nt a}^{nd e}^x^port-^le^{d g}^r^ow^th^ra^the^r^thaⁿ^re^ly^{on inte}^rⁿ^a^tio^na^l^don^{ors i}^nde^fⁱ^nite^ly^{. Inte}^rna^tio^na^l^Mone^ta^ry^Fund^.
^Haiti:^Se^le^c^t^e^d^Issue^s^an^d^Stat^isti^c^a^{l Ap}^pe^nd^ix^{. I}^M^F^C^o^untr^y^R^e^po^r^t^N^o^.^07/²⁹^{2. A}^u^g^u^s^t²⁰⁰⁷^.^p.¹⁷^.
¹⁷^Dup^u^y^,^A^l^e^x^.^G^l^oba^liz^a^tion,^the^W^o^{rld Ba}^nk^{, a}ⁿ^{d the}^Ha^itia^{n Ec}^o^nom^y^.^{In: Knig}^ht,^Fraⁿ^k^lⁱⁿ^W^.^{And T}^e^re^sita
^M^a^rt^íⁿ^ez-V^e^rgn^e^,^ed^s.^C^o^nte^m^po^r^a^r^y^C^a^rⁱ^b^b^e^{an C}^u^lt^ur^e^s^an^d^Soc^ie^tie^s^{in a}^G^l^o^bal^C^oⁿ^t^e^x^t^{. Cha}^p^e^l^{Hill: Univ}^e^r^sity^of
^N^o^r^t^{h C}^a^r^o^lina^Pr^e^s^s^.²⁰⁰⁵^{. p}^p^.⁵¹^-⁵^2.

and may well increase unemployment of Haitian expatriates in the United States, with predictably ¹⁸
negative effects on export earnings and remittances.
Figure 3. Haiti Direction of Trade, 2007
^Canada^O^t^her^O^t^her
^3.3%^LA^12.7%
^3.1%^O^t^her
^O^t^her
^5.7%^Uⁿ^ited^LA
^St^a^t^e^s^14.1%
^United⁴¹^.¹^%
^States^EU
^73.3%^5.8%^Neth.
^Ant.
^Dom^.^14.9%^Br^a^zⁱ^l^4.⁸^%
^Rep.^EU^Chiⁿ^a
^8.8%^7.7^%^4.7%
^H^a^{iti Expor}^{ts, Total}^{= $620.4 million}^H^a^{iti Im}^por^{ts, Total = $1,901.7 mil}^lion
^Source:^{IMF, Direction of Trade Statistics, September 2}⁰⁰^8.
Haiti’s trade dependence is most pronounced on the import side. Haiti imports manufactured
goods, machinery, transportation equipment, raw materials, energy, and food. It is unable to
produce most of these needs and will be a large net importer for the indefinite future. Haiti’s
vulnerability became acute over the last decade with the rise in food and energy prices, which has
had a huge budgetary effect. From 2002 to 2007, the value of food and energy imports rose 57%
and 159% respectively, even as volume declined slightly. In 2008, petroleum accounted for 25%-
30% of total imports. This trend points to two fundamental problems. First, higher commodity
prices make food and energy imports more expensive, decreasing Haitian purchasing power.
Second, to compensate, there is a compounding substitution effect, in which other goods must be
given up to spend more on food and energy. This effect may be seen in the decline of ¹⁹
manufactured imports, which fell by 37% from 2002 to 2007.
Foreign direct investment (FDI) in Haiti has been historically very low. Net FDI inflows ranged
from $4 million in 2000 to $14 million in 2004, and then spiked to $160 million in 2006, before
falling to $75 million in 2007. The large increase appears to be related to an investment boost in
construction and tourist industries, which may be limited in duration. Construction activity in the
public and private sector has expanded briskly, but FDI inflows are not expected to continue at ²⁰
this recent higher levels. One approach to attracting FDI to Haiti rests on reinvigorating the
apparel industry, a strategy that the U.S. Congress supported with the HOPE Acts.

¹⁸^B^a^nque^de^la^R^é^p^ubli^que^D^’^H^a^iti^.^Ex^por^t^a^ti^ons^d’^H^a^it^{i p}^a^r^Pr^o^d^uⁱ^ts^{. A}^t^c^eⁿ^tra^l^ba^nk^w^e^bsite^{: http://}^www^.brh.ne^t^/
^pibse^c^t^e^u^r.^pdf^{, a}^nd^Ec^on^om^{ist Int}^e^llig^eⁿ^c^e^Unit.^Co^untry^Ou^tlo^ok^:^Haiti^{. Fe}^br^ua^r^y²⁰⁰^8.
¹⁹^Ibid^.,^Im^porta^tio^{ns d’}^Haiti^{, Fe}^br^ua^r^y^2008.
²⁰^Ibid^{., Ré}^s^u^m^é^de^la^Ba^la^nc^e^de^s^P^a^ie^m^e^nts^d’H^a^{iti, Fe}^b^r^ua^ry²⁰⁰⁸^a^{nd Ec}^on^om^ic^Co^m^m^is^sⁱ^{on on}^L^a^{tin A}^m^e^r^ic^a^a^nd
⁽^c^onti^nue^d.^..)

Although agriculture is the single most important sector of the Haitian economy for both jobs and
output, apparel assembly is the core export industry and a possible source of employment growth
in the formal sector. The fortunes of the apparel sector have paralleled the broader trends of the
economy, which have been subject to tremendous social and political turbulence. Historically, the
apparel heyday in Haiti lasted from the 1960s through the end of the Duvalier dictatorship in
1986. The troubled transition to democracy, including the 1991 military coup and trade embargo
that followed, caused a massive downturn in production for years. Since 1994, the Haiti apparel
industry has entered into a slow and tentative period of rebuilding.
Employment and output data on the apparel industry are sketchy. At its peak in the 1980s, Haitian
apparel industry sources estimate that the number of jobs ranged from 60,000 to 100,000. The
1991-94 trade embargo effectively closed apparel operations, causing employment to fall to near
zero for a short time, as many apparel manufacturers apparently left Haiti for Honduras and other
sites in the region. In its rebuilding, Haitian apparel assembly increased employment to a high of
between 20,000 and 22,000, but by 2008 industry sources estimated that it had settled to ²¹
approximately 18,000 employees operating in 17 plants.
Apparel output data are not available from industry sources. Because over 90% of apparel
production is exported to the United States, U.S. import data can serve as a reasonable proxy for
production trends. Figure 4 shows the trend of U.S. imports of Haitian apparel by volume. Note
that imports were falling in the tumultuous aftermath of the Duvalier dictatorship. The downward
trend hit bottom during the 1991-94 trade embargo. With a temporary return to relative political
calm, U.S. imports (again as a reflection of output) rose, but fell again after 2000 as production
was lost to competition, and continuing political uncertainty kept investors at bay. Growth
renewed after 2002 with industry restructuring, but employment failed to return to levels achieved
two decades earlier. By 2006, a new downturn is noticeable, likely related to two events that
occurred at that time: the end of global textile quotas put in place under the World Trade
Organization (WTO) Agreement on Textiles and Clothing (ATC), and implementation of the
Dominican Republic-Central America-United States Free Trade Agreement (CAFTA-DR), which ²²
shifted regional U.S. tariff preferences for apparel in favor of Central America.
Haiti’s apparel industry faces many challenges. Among the more significant are highly efficient
competitors both in the region and in Asia, domestic political instability, poor infrastructure
(especially roads and ports), a high cost of capital, and the required use of higher-cost U.S. inputs
(e.g., yarns, fabrics, components) for duty-tree entry into the United States, which the HOPE Act
addresses. To improve its competitiveness, the industry underwent major restructuring after 2000.
Where once it had been a relatively diversified producer, it adopted a leaner, low-cost business
model based on high-volume production that could take advantage of Haiti’s low-skilled labor
pool.

^(...c^on^tin^ue^d)
^t^h^{e Cari}^b^b^ean,^E^c^on^o^mⁱ^c^S^u^r^{vey o}^f^L^a^tⁱⁿ^A^m^eri^c^a^an^{d t}^h^{e C}^a^ri^bb^eaⁿ^,²⁰⁰⁶^-2⁰⁰^7,^p.²⁵^9.
²¹^P^r^e^p^a^r^e^d^sta^t^e^m^eⁿ^{t by}^Ha^itia^{n a}^ppa^re^{l re}^pre^s^eⁿ^ta^tiv^e^s^be^f^o^re^the^USIT^{C a}^{nd Unite}^{d Sta}^t^e^s^In^te^rna^tio^na^{l T}^r^a^d^e
^Co^mm^issioⁿ^.^Te^x^tile^{s an}^{d A}^p^p^a^re^{l Effe}^c^t^{s of}^Spe^cⁱ^{al R}^u^le^{s for H}^a^it^{i on}^Tra^d^e^M^a^rk^e^t^{s an}^{d In}^dustrie^s^{. Inv}^e^stig^a^tion
^N^o^{. T}^R^-⁵⁰⁰^3-^{1. N}^o^v^e^m^b^e^r^{8, 2}⁰⁰⁷^{. p}^.²^-^1.
²²^Ibid^.

Figure 4. U.S. Imports of Haitian Apparel, 1989-2007
^Source:^{U.S. Department of Co}^{mmerce. Inte}^{rnational Trade Administration. Office of Textiles an}^{d Apparel.}
^{http://otexa.ita.doc}^.gov/
Haiti can compete at the low end of the U.S. apparel market based on its low wages, quality
products, and proximity to the United States, which is consistent with its current stage of
development. For the most part, Haiti’s production is limited to simple knits and some woven
products. Approximately 80% of Haiti’s exports are knits (e.g., t-shirts and sweatshirts), but the
more complicated production of woven goods (e.g., jeans and khaki pants) is growing. Haiti’s top ²³
five apparel products account for 96.7% of U.S. apparel imports from the country. As may be
seen in Table 1, they constitute 4.1% of global U.S. imports of those goods and for this basket of
goods, Haiti’s primary competition is Central America, the Dominican Republic and Southeast ²⁴
Asia (ASEAN), rather than China. China, which accounts for only 7.1% of U.S. imports of
these goods, has effectively ceded their production (mostly knits) to countries with lower-skilled,
lower-cost work forces.
Rejuvenating Haiti’s apparel assembly industry has been criticized as a growth strategy for its
lack of development potential, but it has survived as a niche production strategy in a highly
competitive industry. Supporters of the sector argue that given Haiti’s limited options for
rebuilding its economy in the short term, the apparel sector offers one relatively quick response to
high unemployment. Apparel assembly has also allowed manufacturing to remain in Haiti that

²³^Kⁿ^{it s}^h^ir^ts^{, c}^o^t^t^oⁿ⁽³^4.^9%⁾^,^kⁿ^{it s}^h^ir^ts^{, m}^a^n-^m^a^de^f^a^br^ic^s⁽^33.2%⁾^,^unde^r^w^e^a^r⁽^22.^4%⁾^,^tr^o^u^s^e^r^s⁽⁴^.⁴^%⁾^{, k}ⁿ^{it bl}^ous^e^s
^(1.8%⁾^{, a}^nd^othe^{r (}³^.³^%⁾^{. U.S.}^De^pa^rtm^e^{nt of}^Com^m^e^r^c^e^,^O^f^fⁱ^c^e^of^T^e^x^tile^{s a}^{nd A}^ppa^re^{l (OT}^E^X^A^).
²⁴^T^h^e^A^s^s^o^cⁱ^a^{tion of}^S^out^he^a^s^{t A}^sⁱ^a^{n N}^a^tions^:^Iⁿ^do^ne^sⁱ^a^,^Ma^la^y^sⁱ^a^{, Phili}^ppi^ne^s^,^Si^ng^a^por^e^,^T^h^a^ilaⁿ^d^,^B^r^uneⁱ
^D^a^r^u^s^s^a^lam^,^Vie^t^na^m^,^L^a^{o P}^D^R^,^My^aⁿ^m^a^r^,^a^{nd C}^a^m^bodia^.

might otherwise have migrated to Asia or Central America.²⁵ Haiti’s apparel industry relies
entirely on foreign producers for yarns and fabrics. In most cases, they are produced by firms in
the United States and the Dominican Republic. Four major foreign producers contract with
Haitian apparel plants: Gildan (Canada); Hanes (U.S.); Willbes (South Korea); and Grupo M
(Dominican Republic).
Table 1. U.S. Market Share of Haitian Top Five Apparel Exports, 2007
^{(in percent)}
^Appa^{rel Article}^Haiti^CAFTA-DR^a^ASEAN^China^Other^World
^{Knit shirt, cotton}^7.5^38.2^14.2^4.9^35.3^100.⁰
^{Knit Blouse}^0.3^24.5^30.0^9.1^36.1^100.⁰
^{Underwear, cotton}^2.7^49.3^13.8^5.6^28.5^100.⁰
^{Knit shirt, man-made fibe}^r^12.7^40.0^15.1^6.1^26.1^100.⁰
^Trousers^1.2^37.3^19.3^7.1^32.2^100.⁰
^Total^4.1^37.3^19.3^7.1^32.2^100.⁰
^{Data Source:}^{U.S. Department}^{of Commerce. OTEXA.}
^a.^{The Dominican Repu}^{blic, Guate}^{mala, Honduras, El Salvador, Nica}^{ragua, and Costa Rica.}
In 2003, Grupo M, a Dominican firm, began a mutually beneficial apparel co-production
arrangement in Haiti. The effort is highlighted by a new plant in a foreign trade zone (Compagnie
Development Industriel – CODEVI) in Ouanaminthe, Haiti on the northern border with the
Dominican Republic (see Figure 1, Map of Haiti, p. 2). Grupo M, the only Dominican company
operating a co-production plant, provides management training and guidance, and plans to turn
operation of the facility over fully to Haitian managers. It has also worked with the Haitian
government in providing the necessary infrastructure investment, including water and electricity,
the excess of which is made available to the surrounding community. Selection and training of ²⁶
Haitian workers is rigorous and the jobs are highly coveted.
Grupo M remains competitive in the U.S. apparel market by producing fabric in the Dominican
Republic (from U.S. yarns) and sending cut components to Haiti for assembly (sewing) using
Haiti’s low-wage labor force. Haiti assembly sector wage rates are the lowest in the region, on par ²⁷
with those in Bangladesh. The USITC estimates that they may average as little as one-third of ²⁸
those in the Dominican Republic. Assembled articles are then returned to the Dominican
Republic for washing and finishing because Haiti lacks the infrastructure (electricity, water, and

²⁵^Dup^u^y^,^{op. c}^it.^{, p}^p^.^64-⁶⁵^aⁿ^d^pr^e^p^a^r^e^d^sta^t^e^m^eⁿ^{t by}^Ha^itia^{n a}^ppa^re^{l re}^pre^s^eⁿ^ta^tiv^e^s^be^f^o^re^the^USIT^{C a}^{nd Unite}^d
^S^t^at^{es In}^t^e^rn^atⁱ^oⁿ^a^l^T^r^ad^{e Co}^mmⁱ^ssi^oⁿ^.^Te^x^tile^{s an}^{d A}^p^p^a^re^{l Effe}^c^t^{s of S}^p^e^cⁱ^al^Rule^{s f}^o^{r Hait}^{i o}ⁿ^Tr^ade^M^a^rk^e^t^{s an}^d
^In^du^stries^{. I}ⁿ^v^e^s^tig^a^{tion N}^o^{. T}^R^-⁵⁰⁰^3-^{1. N}^o^v^e^m^b^e^r^{8, 2}⁰⁰⁷^.^pp.^2-^{1 thr}^u^2-^6.
²⁶^Disc^{ussions w}^{ith Ha}^itia^{n a}^{nd D}^o^mⁱ^nic^aⁿ^re^pre^s^eⁿ^ta^tiv^e^s^{in Oua}ⁿ^a^m^inthe^a^{nd Sa}ⁿ^t^{o D}^o^mⁱ^ng^{o, A}^p^{ril 20-}²⁶^{, 2}⁰⁰⁸^.
^F^r^o^m^{a h}ⁱ^st^o^rⁱ^cal^p^e^rsp^ectⁱ^v^e,^t^hⁱ^s^{area h}^a^{s b}^een^anⁱ^m^p^o^r^t^aⁿ^t^bo^rd^e^r^cro^ssiⁿ^g^,^bu^t^al^{so t}^h^{e si}^t^e^o^f^si^gnⁱ^fⁱ^can^t^coⁿ^f^lⁱ^c^t
^be^tw^e^eⁿ^the^tw^{o c}^ountrie^s^{. C}^o^m^m^unitie^s^on^bot^{h s}ⁱ^de^s^of^the^b^o^rd^e^r^s^upp^{ort t}^h^e^plaⁿ^{t f}^o^{r t}^h^e^be^ne^f^its^{it pr}^ov^ide^s^a^s^the
^m^a^{jor inc}^o^m^e^g^e^ne^ra^{tor in the}^re^gⁱ^on.
²⁷^T^h^e^W^o^r^l^{d B}^a^nk^,^H^a^it^i:^O^p^ti^ons^and^O^p^por^t^unitⁱ^e^s^for^Iⁿ^c^l^us^iv^e^G^r^ow^th^{, pp}^.²²^-2^3.
²⁸^T^h^e^USIT^{C c}^o^m^p^ile^{d a}^v^e^r^a^g^e^wa^g^e^ra^te^s^f^o^{r a}^ppa^re^{l w}^o^rk^e^r^{s in the}^Ca^ribbe^aⁿ^,^w^h^ic^h^sug^g^e^{st tha}^t^Ha^{iti’s w}^a^g^e^s
^w^e^r^e^{, on a}^v^e^r^a^g^e^,^one^-third^tha^t^o^f^the^Domⁱ^nic^aⁿ^Re^public^a^nd^on^e^-^ha^lf^tha^t^of^Nic^a^r^a^g^ua^{, its ne}^a^r^e^s^{t c}^o^m^p^e^titor.
^US^IT^C.^Te^x^tile^s^and^Ap^par^e^l^{: Ef}^f^e^c^t^s^{of S}^p^e^cⁱ^{al R}^u^le^s^for^H^a^iti^on^Tr^ade^M^a^r^k^e^t^s^a^{nd I}ⁿ^d^u^s^t^rⁱ^e^s^{. Pu}^blic^a^tioⁿ⁴⁰¹⁶^.
^J^une²⁰⁰⁸^{. p. 2-}³^.

facilities) to do this type of work. CODEVI produces t-shirts, jeans, and knit trousers and
employs 2,000-2,500 workers and employment could double over the next few years. The entire
line of Hanes t-shirts is produced through the co-production process.
The plant began operations because of the advantage that Haiti’s low-cost labor afforded Grupo
M’s production process, but unilateral trade preferences provided additional incentives to produce
in Haiti. In particular, the use of flexible sourcing arrangements provides a competitive advantage
to apparel production in Haiti and was a major factor in the decision to expand operations by
Grupo M. The determination of the U.S. Congress to modify the tariff preferences and rules of
origin in the original HOPE Act was driven by a sense that they could be a critical factor in the ²⁹
renewed development of Haitian apparel assembly operations.

Congress first provided trade preferences to the Caribbean region in the Caribbean Basin
Economic Recovery Act (CBERA) of 1983 – often referred to as the Caribbean Basin Initiative. ³⁰
They did not, however, cover textile or apparel goods. In 2000, Congress passed the Caribbean
Basin Trade Partnership Act (CBTPA), which provided additional incentives on a temporary basis
to select textile and apparel articles assembled or knit-to-shape by firms in designated beneficiary
countries in the Caribbean region. In general, to qualify for the tariff preferences, the articles had
to be made from inputs produced in the United States or the region. The HOPE Act, as amended,
builds on this precedent, providing benefits exclusively for Haitian apparel exports as a way to
support growth and development in Haiti.
The HOPE Act, as amended, offers duty-free treatment for U.S. apparel imports from Haiti under
rules that allow for more flexible sourcing of materials than those offered to Haiti and other
Caribbean countries under the CBTPA. The basic difference is that under the CBTPA, apparel ³¹
goods receive duty-free treatment if assembled or knit-to-shape from U.S. yarns and fabrics.
Under the HOPE Act, duty-free treatment is extended to apparel articles if wholly assembled or
knit-to-shape in Haiti from materials (yarns, fabric, and components) sourced from any country
provided a minimum portion of the materials is produced by a country that is party to a U.S.
unilateral preferential trade arrangement or a free trade agreement (FTA). In effect, the special
rules exclusively allow Haiti apparel exports to contain limited amounts of lower-cost inputs from
anywhere in the world and still enter the United States free of duty. Because the United States is
the dominant market for Haitian apparel, the economic benefit conveyed from the preferences is
expected to have a significant effect on investment, output, and employment in that sector.

²⁹^Ibid^.
³⁰^In¹⁹⁸⁶^,^P^r^esi^d^en^t^Reagan^,^b^y^E^x^ecu^tⁱ^v^{e Ord}^e^r,^au^t^h^o^rⁱ^zed^a^S^p^ecⁱ^a^l^A^c^c^e^{ss P}^r^o^g^ram^(S^A^P^{) f}^o^{r el}ⁱ^gⁱ^b^l^e^Cari^b^b^ean
^c^ountrⁱ^e^s^tha^t^a^l^l^o^w^e^{d a}^g^u^a^r^aⁿ^te^e^d^aⁿⁿ^u^a^l^a^m^ount^of^a^ppa^r^e^{l im}^por^ts^tha^t^w^a^s^s^ubje^c^t^{to d}^u^tie^s^oⁿ^l^y^{on the}^a^m^{ount of}
^val^u^{e ad}^d^e^d^ab^r^o^ad^.
³¹^Kⁿ^{it a}^p^pa^r^e^{l m}^a^y^a^l^s^o^us^e^f^a^br^ic^m^a^de^{in a}^C^B^T^P^A^be^ne^fⁱ^cⁱ^a^r^y^c^o^untr^y^{. O}^t^he^r^r^u^le^s^aⁿ^{d e}^x^c^e^p^tions^e^x^is^{t. U}ⁿ^ite^d
^S^t^at^{es In}^t^e^rn^atⁱ^oⁿ^a^l^T^r^ad^{e Co}^mmⁱ^ssi^oⁿ^.^Te^x^tile^{s an}^{d A}^p^p^a^re^{l Effe}^c^t^{s of S}^p^e^cⁱ^al^Rule^{s f}^o^{r Hait}^{i o}ⁿ^Tr^ade^M^a^rk^e^t^{s an}^d
^In^du^stries^{. I}ⁿ^v^e^s^tig^a^{tion N}^o^{. T}^R^-⁵⁰⁰^3-^{1. N}^o^v^e^m^b^e^r^{8, 2}⁰⁰⁷^.^p.^1-⁵^.

In December 2006, the 109^th Congress passed the Haitian Hemispheric Opportunity through
Partnership Encouragement Act of 2006 (HOPE I) as Title V of the Tax Relief and Health Care
Act of 2006 (H.R. 6111/P.L. 109-432). Now referred to as HOPE I, the act provided special rules
for the duty-free treatment of select apparel imports from Haiti made from third-country yarns
and fabrics, provided Haiti met rules of origin and eligibility criteria. To be eligible, Haiti had to
make progress toward establishing a market economy, the rule of law, the elimination of barriers
to U.S. trade and investment, policies to reduce poverty, a system to combat corruption, and
protection of internationally recognized worker rights.
The act required that all eligible exports be shipped directly from Haiti. It also established an
overall cap on total qualified apparel imports equal to 1%-2% of total U.S. apparel imports. It
included a short supply rule that allowed duty-free treatment of goods made from fabrics found to
be in “short supply,” as defined in all other preference arrangements and FTAs of the United
States, and gives preferences to wire harness automotive imports.
At the heart of HOPE I were three specific new rules of origin. First, quotas were established for
the duty-free treatment of apparel articles made from inputs that meet the 50% to 60% value-
added content requirement from countries that are a party to a U.S. FTA or are beneficiary
countries under a unilateral preference arrangement. There are no restrictions on the source of the
remaining inputs. Second, additional quotas were established for duty-free treatment of woven
apparel that could not meet the 50%-60% value-added rule (allowing all inputs for these articles
to be sourced from anywhere in the world). Third, a single transformation rule of origin allowed
for duty-free treatment of brassieres made from components sourced anywhere in the world,
provided the garments were cut and sewn or otherwise assembled completely in Haiti, the United
States, or both.
Despite these new trade rules favoring Haitian apparel producers, HOPE I soon came under
criticism for being ineffective. In 2007, the first year of operation, only 3% of Haitian apparel ³²
imports entered under HOPE I, the rest still entering duty free under the CBTPA. Among the ³³
major criticisms of HOPE I were:
• the three-year program was too short to attract new investment;
• the 50% value added rule was too high;
• a more liberal value-added rule like that given wovens was needed for knits
because they represent 80% of Haitian apparel production;
• the requirement of direct shipping from Haiti was cumbersome and costly since
apparel finishing (e.g., washing and applications) had to be done in the
Dominican Republic and then the articles shipped back to Haiti for export to the
United States; and,
• the overall cap on imports was too small.

³²^US^IT^C,^Te^x^tile^{s and}^Ap^pare^l^:^Ef^fe^c^t^{s of S}^p^e^cⁱ^{al R}^u^le^{s for}^Haiti^oⁿ^Trade^M^a^rk^e^t^{s a}ⁿ^d^In^dustrie^s^,^pp^.^2-¹¹^an^{d 3}^-¹^.
³³^Com^m^unic^a^{tions w}^{ith Ha}^itia^{n a}ⁿ^{d Dom}ⁱ^nic^aⁿⁱⁿ^dustry^re^pr^e^s^eⁿ^ta^tiv^e^s^{, a}^l^{so sum}^m^a^riz^e^d^{in USIT}^{C te}^sti^m^ony^a^nd
^US^IT^C,^Te^x^tile^s^and^Ap^par^e^l^{: Ef}^f^e^c^t^s^{of S}^p^e^cⁱ^{al R}^u^le^s^for^H^a^iti^on^Tr^ade^M^a^r^k^e^t^s^a^{nd I}ⁿ^d^u^s^t^rⁱ^e^s^{, p}^p^.^3-^{9 thr}^u^3-¹⁰^.

In addition, U.S. textile producers objected to the preferences, contending that because they
permitted use of third-party fabrics and other inputs, they were effectively displacing textile jobs
in the United States and the Caribbean with those in Asia. U.S. producers also argued that the
rules of origin were vague and difficult to enforce, and that the tariff preferences could result in
diverting apparel production to Haiti from countries in the region that had apparel trade ³⁴
preferences in other agreements with the United States. The USITC found that in 2007, Haiti
imports of yarns and fabrics from China and Hong Kong increased significantly, possibly in part
as a response to HOPE I. In general, however, because Haiti accounts for less than 1% of total
U.S. apparel imports, the USITC opined that HOPE I had a “negligible” effect on the U.S. textile
industry. In addition, there was little evidence of trade diversion from other apparel manufacturers ³⁵
in the region.
Because early assessments of the effectiveness of HOPE I were critical of its progress in
stimulating investment in the apparel sector, and given Haiti’s economic and social conditions ^th
were deteriorating rapidly in 2008, the 110 Congress amended the HOPE Act with passage of
the Hemispheric Opportunity through Partnership Encouragement Act of 2008 as part of Title XV
of the Food, Conservation, and Energy Act of 2008 (H.R. 6124/P.L. 110-246)—the “Farm Bill.” It
became known as HOPE II, and both Houses of Congress were able to agree on bill language
relatively quickly without formal hearings, expediting the legislative process.
As with HOPE I, duty-free treatment is provided to apparel articles that are wholly assembled or
knit-to-shape in Haiti. The specific rules of origin determine the amount of third party inputs that
can be used in the manufacturing process and still receive duty-free treatment. Broad design
changes to the HOPE Act include:
• extending all tariff preferences for a period of 10 years ending September 30,

2018;

• allowing direct shipment of final goods from either Haiti or the Dominican
Republic, and;
• clarifying the quantitative limitation (cap) rules to ensure that: 1) articles subject
to a specific cap do not count toward the overall value-added cap; 2) articles
subject to one cap do not count toward another cap; and 3) HOPE benefits are
understood to be extended in addition to any other benefits conveyed under the
Caribbean Basin Initiative.
Amended rules of origin allow for duty-free treatment of imports of Haitian apparel regardless of
the source of inputs (yarns, fabrics, components) with the major changes being an increase in the
cap of woven articles and the addition of a new capped benefit for knit articles. Detailed changes
include:

³⁴^Unⁱ^t^e^d^S^t^at^{es In}^t^e^rn^atⁱ^oⁿ^a^l^T^r^ad^e^Co^mmⁱ^ssi^oⁿ^.^Te^x^tile^{s an}^{d A}^p^p^a^r^e^{l Effe}^c^t^{s of}^Spe^cⁱ^al^Rule^{s f}^o^{r Hai}^{ti o}ⁿ^Tra^d^e
^M^a^r^k^e^t^s^{and I}ⁿ^d^u^s^t^rⁱ^e^s^{. Inv}^e^stig^a^tion^{No. T}^R^-5⁰⁰^3-1.^Nov^e^m^b^e^r^{8, 20}⁰⁷^{. p}^p^.^31-³⁴^aⁿ^d^te^stim^ony^s^ubm^itte^{d joi}ⁿ^tly^by
^the^Am^e^r^ic^aⁿ^Ma^nuf^a^c^t^uring^T^r^a^d^e^A^c^{tion Coa}^liti^on^aⁿ^d^the^Na^ti^oⁿ^a^l^Co^unc^il^of^T^e^x^tile^Or^g^a^niz^a^tⁱ^ons.
³⁵^US^IT^C,^Te^x^tile^{s and}^Ap^pare^l^:^Ef^fe^c^t^{s of S}^p^e^cⁱ^{al R}^u^le^{s for}^Haiti^oⁿ^Trade^M^a^rk^e^t^{s a}ⁿ^d^In^dustrie^s^,^{p. 3}^-^1.

• maintaining the value-added rule, but freezing the overall cap on eligible apparel
articles at 1.25% of total U.S. apparel imports. The original sunset provision is
maintained, allowing the cap to expire in 2012 because it was considered
unlikely to be exceeded and too complicated to interpret in relation to other caps;
• increasing the annual cap for select woven apparel imports without regard to
source of inputs to 70 million square meter equivalents (SMEs);
• adding a new duty-free rule for knit apparel without regard to source of inputs
(with multiple exclusions) capped annually at 70 million SMEs;
• adding a new uncapped duty-free rule (under the single transformation rule) for
brassieres, selected womens’ and girls’ sleepwear, luggage, and handbags;
• adding a new uncapped “3 for 1” earned import allowance (EIA). It allows
producers to claim a credit for the export of apparel articles made from
qualifying inputs that can be used in exchange for exporting articles duty-free
made from non-qualifying inputs in a 3 for 1 ratio. Qualifying woven fabric must
be wholly formed in the United States from yarns wholly formed in the United
States. Qualifying knit fabric and knit-to-shape components must be wholly
formed or knit-to-shape in the United States or any country or combination
thereof that is a party to a U.S. free trade agreement or a beneficiary country
under a unilateral preference arrangement, from yarns wholly formed in the
United States.
• clarifying that the “short supply” rule, or benefits given for the use of non-U.S.
fabric and yarns not available in commercial quantities, is uncapped and
expanded to include all fabric and yarns in short supply lists in other U.S.
preference arrangements and FTAs.
HOPE II also amended the eligibility requirements by requiring Haiti to create a new independent
Labor Ombudsman’s Office and to establish the Technical Assistance improvement and
Compliance Needs Assessment and Remediation (TAICNAR) Program within 16 months of
enactment of the legislation. The labor ombudsman is to be appointed by the President of Haiti
and report directly to him. The office’s major functions include: 1) maintaining a registry of
apparel producers who seek to use the trade preferences; 2) implementing and overseeing the
TAICNAR program; 3) receiving and directing appropriate comments to the Haitian Department
of Labor and the United Nations International Labor Organization (ILO) regarding labor ³⁶
conditions and complaints; and 4) overseeing compliance with ILO core labor standards.
The TAICNAR program provides technical assistance through the ILO to help Haiti develop the
capacity to monitor compliance of registered apparel producers in meeting core labor standards.
Those that are habitually unable, or refuse to comply with these standards or to accept technical
assistance to remedy deficiencies, can lose their eligibility for HOPE Act trade preferences. The
TAICNAR program is also required to help build government capacity to inspect facilities,

³⁶^De^fⁱ^ne^{d in the}^sta^t^ute^a^s^{: 1)}^f^r^e^e^dom^of^a^ssocⁱ^a^{tion; 2) t}^h^e^e^f^f^e^c^tive^re^c^o^gⁿ^itio^{n of}^the^rig^h^t^t^o^ba^rg^aⁱ^{n c}^o^lle^c^tiv^e^l^y^;³⁾
^the^e^lim^ina^tion^of^a^{ll f}^o^r^m^{s of}^c^o^m^pulsory^{or f}^o^rc^e^d^la^{bor; 4)}^the^e^f^f^e^c^tiv^e^a^bolitio^{n of}^c^h^il^{d la}^b^o^{r a}^{nd a}^pro^h^ib^itioⁿ^on
^the^w^o^r^s^{t f}^o^r^m^s^of^c^h^{ild la}^bor^{; a}ⁿ^{d 5)}^the^e^lim^ina^tio^{n of}^dis^c^rⁱ^mⁱ^na^tion^{in r}^e^s^p^e^c^t^{to e}^m^ploy^m^e^{nt a}^{nd oc}^c^upa^ti^on.

enforce labor laws, and resolve labor disputes. The ILO is to issue a report every six months
evaluating the progress of each producer in meeting the goals of the TAICNAR program. The
President of the United States is also to produce an annual report for Congress on the progress in
implementing the labor provisions.

As discussed above, Haiti faces enormous obstacles to sustainable economic growth and ³⁷
development. Congress responded to Haiti’s long-term economic challenges in part by creating
and then expanding the HOPE Act. Unilateral trade preferences for developing countries have
played a long-standing role in U.S. trade policy and Congress designed the HOPE Act as the most
flexible of these arrangements to address Haiti’s special circumstances. As the poorest country in
the Western Hemisphere, it has the greatest need for development assistance.
Because the United States is the primary market for Haitian apparel exports, trade preferences
may affect export and production levels enough to help rejuvenate the apparel industry. This
could help Haiti’s struggling economy by providing additional incentives to invest in an industry
that has the potential to create employment relatively quickly and which is also the largest foreign
exchange earner in the country. Apparel exports to the United States have stagnated since 2005
and turning this trend around would be an important indication that the preferences might be
having the desired effect. However, because of the need for both public (infrastructure) and
private (facilities) capital investment, increased apparel production may lag for some time.
Trade preferences are also only one policy response, limited to affecting one sector of the
economy. Success in attaining broader development goals, therefore, may face many other
challenges presented by Haitian society that will require much deeper political and social reform.
HOPE II does support social reform by requiring that internationally recognized core labor
standards be enforced and strictly monitored. The labor provisions reflect a relatively new
approach for incorporating core labor standards because the tariff preferences are tied directly to
firm performance. In addition, the ILO, which wields international credibility, is actively
involved in administering and overseeing the program. The model combines government, private
sector, and international agency participation in a way that achieved some success under the U.S.-³⁸
Cambodia Textile Agreement.
Congressional oversight is also clearly mandated in the HOPE Act, as amended, and will likely be
an important factor in assuring it continues to be implemented as Congress intended and in ways
that support Haiti’s long-term development. Haiti, for its part, will have to find ways to overcome
a legacy of political volatility, economic inequality, and social dissatisfaction. Without the
transition to a more equal and stable society, trade preferences may be overwhelmed by other
factors.

³⁷^T^h^e^s^e^w^e^re^m^a^de^w^o^rse^b^y^Hurric^aⁿ^e^s^Fa^y^a^{nd G}^u^sta^v^,^w^h^ic^{h tore}^thro^ug^{h Ha}^iti^{in A}^u^g^u^{st 2}⁰⁰⁸^{. U.}^{S. A}^g^eⁿ^c^y^f^o^r
^Inte^rna^tio^na^{l De}^v^e^lopm^eⁿ^{t a}^ssistaⁿ^c^e^f^o^{r hurric}^aⁿ^e^re^lie^f^tota^le^d^$3^{3.7 m}^illio^{n a}^s^of^De^c^e^m^b^e^r^18,²⁰⁰⁸^.
³⁸^{See attach}^m^eⁿ^t^en^titled^Harn^essin^g^G^l^o^b^a^{l Fo}^{rces to}^{Create Decen}^{t W}^o^rk^{: A}^Su^ccess^f^u^l^Ex^p^e^ri^m^eⁿ^tⁱⁿ^t^h^e
^C^a^m^bodiaⁿ^A^ppa^r^e^{l Se}^c^t^o^rⁱⁿ^:^Po^la^s^k^{i, Sa}^ndr^a^.^T^h^e^Fi^ght^Ag^ainst^Globa^{l P}^o^v^e^r^ty^and^Ine^q^ua^lity^{: T}^h^e^W^o^{rld B}^ank^’s
^Appr^o^a^c^h^{to C}^o^r^e^La^bor^St^an^dar^ds^a^{nd Em}^ploy^m^e^nt^{. He}^a^r^ing^te^sti^m^on^y^be^f^o^re^the^House^Com^m^itte^e^{on F}ⁱ^na^nc^ia^l
^Se^r^v^ic^e^s^{. O}^c^tobe^r^3,²⁰^07.

²⁰⁰^{0 200}^{1 200}^{2 200}³²⁰⁰⁴²⁰⁰⁵²⁰⁰⁶²⁰⁰⁷
^{GDP Growth (%)}^0.9^-1.0^-0.3^0.4^-3.5^1.8^2.3^3.3
^{Per Capita GDP Growt}^{h (%)}^-0.8^-2.7^-1.8^-1.2^-5.0^0.2^0.7^1.6
^{Inflation Rate (%)}^14.1^14.2^9.9^39.3^22.8^15.1^13.2^9.0
^{Real Int. Rate (%)}^6.1^20.5^10.7^-9.7^13.9^12.3^19.5^24.5
^{Avg. Real Wage (% change)}^-11.9^-11.6^-8.9^33.5^-14.4^-13.2^-12.0^-7.6
^{Gross Fixed Capital Form. (% of GDP)}^27.3^27.3^28.0^28.8^28.9^28.8^28.8^28.8
^Curre^{nt Acct. Bal. (% GDP)}^-3.0^-3.8^-2.8^-1.6^-1.5^0.9^-0.4^0.2
^Curre^{nt Acct. Bal. – w/out gra}^nts^(%)^-8.2^-6.6
^{Net FDI ($ mil)}^13.0^4.0^6.0^14.0^6.0^26.0^160.⁰^75.0
^{Terms of trade (index)}^100.⁰^101.²^100.²^98.7^96.0^92.4^88.9^83.9
^Source:^{United Nations}^Econom^{ic Commission on Latin America and the Carib}^bean^(ECLAC).^Statistical
^{Yearbook for Latin American an}^{d th}^{e Caribbean 20}⁰⁷^{, March 2}⁰⁰^{8, and Inte}^{rnational Monetar}^{y Fund.}^{Haiti: Second}
^{Review Under the Three-Year Arr}^an^{gement Under the Poverty Reductio}^{n and Growth F}^acility^{, March 20}^08.
^J^.^{F. Horn}^beck
^Specialis^{t i}ⁿ^In^terⁿ^ation^a^{l T}^r^{ade an}^{d Fin}^aⁿ^ce
^j^h^orn^b^eck^@^c^rs^.l^oc.g^o^v^{, 7-}⁷⁷⁸²