Originally: Assessment of the Potential Impact of Haitian Economic Recovery andOpportunity Act

The Carana Corporation is a prime contractor to the Agency for International Development for the LAC Trade project

May 26, 2003.

Executive Summary
         This study is in response to the introduction of legislation (S. 489 and HR 1031) by Senator
         DeWine and Congressman Clay Shaw respectively, to expand certain preferential trade
         treatment for Haiti. The legislation would grant special preferences to the Haitian textile sector
         that is here referred to as such, or as the apparel sector, or the garment sector, The bill seeks to
         amend the Caribbean Basin Initiative (CBI), by allowing duty-free imports of Haitian apparel
         produced from mill products originating in countries benefiting from bilateral or regional
         preferences, up to an initial limit of 1.6% of all US apparel imports from Year 1, with that limit
         progressively rising to 3.5% by Year 8.
         An issue of concern for HERO vis-a-vis Congress is likely to be whether or not there will be a
         significant adverse impact upon apparel manufacturers producing in the United States or US
         textile mills providing fabric. In addition to the internal workings of the interagency process, public
         comment was also invited with respect to the eligibility of AGOA countries. (Annex 7) There
         should be no adverse impact on US apparel manufacturers since the type of apparel that could
         conceivably enter from Haiti under the new provisions of HERO have long-since left the United
         States for offshore operations. There is, as yet, no fabric or yarn manufacturing facility in Haiti.
         We do not expect HERO to generate such production since Haiti lacks the factors of production
         required for such production?raw materials (cotton, cellulosics, or hydrocarbon derivatives) low-
         cost energy and available water.
         There is some concern that increased production of apparel in Haiti from third country fabric could
         displace apparel production in Haiti and other offshore locations from US textile mill products.
         Although this could conceivably occur, it is much more likely that HERO will stimulate production
         in Haiti of apparel from both US and third country fabrics. If there is any diversion, it is most likely
         come at the expense of imports from the Far East made with no US components or imports from
         US preferential trading partners who will see their textile mill products incorporated into apparel in
         Haiti as opposed to within their own countries.
         The cap for exports to the United States set by the legislation is, at present, somewhat academic
         and most generous as Haitian apparel currently represents only 0.38% of all apparel imports.
         Sine the cap begins at 1.6 percent of all apparel imports, Haitian imports would therefore have to
         increase approximately four-fold to take up the full initial quota. Since the cap increases to 3.5
         percent, for this number to be reached in the future, Haitian exports would have to increase ten-
         fold to reach the final limits. Such increases would represent increases in exports from the 2002
         value of $216 million, through $864 million, to $2160 million, which was precisely the extent of
         Dominican Republic exports to the US in 2002. Expressed differently, employment could
         increase through 80,000 to over 200,000 or approximately 5% of persons of the working age in
         Haiti. On the basis expressed by Haitian observers that one formal job in Haiti feeds 6 mouths,
         such employment could conceivably support over 15% of the entire population.
         The paper believes that Haiti has the capacity to reach the caps specified in the legislation
         although they appear very ambitious. The quality of certain enterprises is high; there exists good
         US-educated management with a style readily conducive to the formation and continuation of
         business with a few major US companies. The availability of under and unemployed labor
         combined with the fact that Haitian labor appears hard-working and easily trainable means that
         that there are workers to produce more. Unfortunately the expansion of Haitian exports will
         depend significantly on internal reforms and the elimination of various barriers to business
         expansion. There will be a need for pressure on Haiti?s government to urgently remove a series
         of identified constraints before much progress can be made. There is also a corresponding need
         to assist the sector by further specified measures outlined in the report.
         There is a window of opportunity of only eighteen months for such changes to be made before
         the new WTO trading regime commences in 2005 and the full force of global competition begins
         to be felt by apparel producers around the world. Dramatic changes in global trading alignments
         are anticipated. Whereas there has been increasingly difficult competition from Asia as well as
         new transient locations benefiting from both Asian investment and preferential trading
         arrangements, such as provided AGOA and indeed by the GEl itself, the principal focus of
         concern after 2005 will turn to the impact from unfettered entry from China, Vietnam and Indian
         The following figures summarize some relevant features and trends in the current situation.
         Apparel imports into the United States in 2002 totaled $57,000 million. The first three months of
         2003 shows an increase of 18% on the same period 2002. Of this entire 2002 figure, $21 6m.,
         $5594m., $2161m. and $1097. came from Haiti, China, Dominican Republic and Sub-Saharan
         Africa (AGOA) respectively. U.S. imports from these countries in the first three months of 2003
         as compared with the first three months of 2002, increased by 36%, 63%, 6% and 26%
         respectively. Most AGOA imports came from Asian-owned transient? facilities with strong
         financial, technical and human support from the parent companies.
         The questions for HERO and Haiti are, first, whether the Haitian government has the means and
         the will to remove identified business constraints; and second, whether individual companies will
         be able to benefit sufficiently from specified practical measures and business support initiatives,
         in the widest sense, including training and export promotion assistance.
         On the assumption that a number of improvements can be made in the business environment,
         including frameworks that will facilitate a close, informed and positive co-operation between
         Government and industry, in particular the Ministry of Commerce and Industry and the Haiti
         Manufacturers Association, it is just possible that the talented Haitian manufacturers with their
         natural US affinity and connections, will be more than able to hold their own in difficult global
         market conditions. HERO could accord a vital time to strengthen their presence in the United
         States before the real global battle for market share begins.
         Governments, manufacturers, unions, NGO?s, and other sector stakeholders worldwide are finally
         starting to focus on the full implications of the WTO 2005 provisions, as evidenced by a gathering
         of 800 such persons, specifically to discuss the issues, in Brussels on 5/6 May 2003 (1)and by a
         similar forum arranged by the Washington International Trade Association, in Washington on 15
         May 2003.(2)  Adjustment to the new global regime will be difficult, and it is generally
         acknowledged that there will be winners and losers. What is far from clear is which countries will
         fall into which category.
         Regardless of whether or not the caps within HERO can be met, the legislation is still considered
         to be a potentially valuable instrument for energizing key actors to attain socio-economic and
         political progress.
         (1) www.euroya.eu.intIcOmm/trade/QOOdS/textile/tr3004O3 fr.htm
         (2) www.wita.org