Before the Committee on Ways and Means
                               Subcommittee on Trade
                                 September 22, 2004
                  The U.S. Association of Importers of Textiles and Apparel, USA-ITA, strongly supports legislation
         to provide enhanced trade preferences to apparel manufactured in Haiti, as a means of ensuring that orders are
         placed in Haiti after 2004. Given the extraordinary disadvantages Haiti currently faces, it is unlikely that U.S.
         importers and retailers will include Haiti in their future business plans, unless significant additional incentives
         are provided. Apparel importers and retailers will need a strong and compelling reason to be in Haiti after this
         year; the Haiti Economic Recovery Opportunity Act approved by the Senate and under consideration in the
         House would give them that reason.
                  The poorest country in the Western Hemisphere, Haiti is also among the most destitute nations in
         the world. With an average life expectancy of 53 and literacy rates at only about 50%, over 80% of Haiti’s
         population lives in extreme poverty and, according to official statistics, which could be understated, more 16%
         of the population is unemployed. The Haitian economy continues to stagnate after a period of political
         upheaval, and its economy grew at an anemic 0.7% in 2003, which resulted in a net per capita loss when one
         factors in population growth. However, as a report by the U.S. Agency for International Development recently
         stated, “one bright spot is exports (mainly apparel and textile),” with the United States serving as Haiti’s largest
         trading partner. Without immediate and meaningful help from the U.S. Congress, that one bright spot is likely
         to disappear in 2005.
                  A program that will effectively entice American importers and retailers to do business in Haiti next
         year absolutely must be commercially sound, with rules that do not add prohibitive costs and risks. Simplicity
         is key. Rules that are too complicated and too confusing will destroy any incentive for business to go to Haiti.
         Simply put, business should not need a Ph.D. to establish a compliant duty-free program; while companies may
         have tolerated added compliance burdens while quotas were in place, once those quotas are gone and unlimited
         options around the world are finally available, that patience will be gone.
                  Regrettably, the Caribbean Basin Trade Partnership Act has not served to bring significant new
         orders to Haiti; instead, the presence of quotas on other suppliers is probably the primary reason Haiti is
         producing any apparel for the U.S. market today, with CBTPA providing some incentive as well. Over half of
         what Haiti ships to the U.S. market today is knit shirts — 35 percent of the apparel exports are cotton knit shirts
         and 18 percent are man-made fiber knit shirts. Approximately 68 percent of the Haitian-made apparel entering
         the U.S. qualifies for duty-free access under CBTPA. Another 20 percent enters the U.S. under other
         provisions reserved for goods containing some U.S. content (the so-called “807” provision), thereby qualifying
         for a small duty reduction. While U.S. importers therefore have used the CBTPA to produce garments in Haiti,
         their willingness and reason for continuing to do so after December 31, 2004, is extremely limited. Once quota
         costs are eliminated for other suppliers, producing CBTPA compliant garments in Haiti simply will not be
         justified in terms of cost, especially given the simple garments produced there.

                 Recognizing this reality, the Senate-approved Haiti Economic Recovery Opportunity Act, S. 2261,
         and its House counterpart, H.R. 4889, would establish a trade preference program similar to the one established
         for the least developed countries of sub-Saharan Africa under the African Growth and Opportunity Act. The
         parallel is clearly appropriate. Haiti is as poor as these sub-Saharan nations and the obstacles to its future
         success in apparel production are painfully similar. While Haiti has the advantage of a closer location to the
         United States and therefore can meet the important speed to market demanded by retailers today, it shares the
         lower productivity levels and more limited skills, as well as the lack of adequate and competitive supplies of
         essential inputs, including yarns and fabrics. Only with the ability to obtain duty-free treatment for apparel
         produced from third country fabrics will Haiti be able to produce garments that are competitive with garments
         produced elsewhere in the region or in Asia.
                 USA-ITA appreciates the Committee’s desire to identify whether there are alternative origin rules
         that would encourage apparel manufacturing orders to be maintained or added in Haiti. However, our
         members’ review of the suggested alternatives concludes that it is highly unlikely that anything less than a
         single transformation rule — allowing the use of third country yarns and fabrics — would result in serious
         consideration of Haiti as a source for apparel after 2004. Efforts to “tweak” existing programs, such as
         CBTPA, will not be sufficient. With that in mind as well as with a strong understanding of the ways in which
         companies are restructuring in response to the elimination of quotas, USA-ITA has two recommendations
         beyond the Senate-passed bill.
                 First, it is worth considering the idea of a single transformation rule for “certain apparel.”
         However, USA-ITA urges the Committee, if it proceeds with the idea of a single transformation rule for
         “certain apparel,” it must not burden such a rule with separate product-by-product caps or with additional
         paperwork burdens. Such complications will only destroy any incentive for U.S. importers to explore that
         option, The program must include those products Haiti is capable of producing and any cap on duty-free
         access must be based upon commercial reality and viability; a level that is too low creates a risk that companies
         will not participate at all.
                 Second, although clearly not as attractive to U.S. apparel importers and retailers as a more straight-
         forward third country fabric provision, application of the Generalized System of Preferences program to
        apparel would be a possibility. The idea is not new or unique; the European Union includes apparel within its
        GSP program. USA-ITA members advise that a value-added rule based upon the GSP program, namely 35
         percent value added plus substantial transformation plus direct shipment to the U.S. market, with other
         countries in the region and U.S. inputs allowed to help make up that 35 percent threshold, might provide a
         small incentive to place some orders in Haiti. Expressly placing Haiti apparel under the GSP program also
         carries with it the conditions and standards that are part and parcel of the U.S. GSP program, including
         affording internationally recognized worker rights.
                 USA-ITA also urges the Committee not to perpetuate an inappropriate distinction between apparel
         made of knit and woven fabric. As a practical matter, only knit fabrics are produced in the Caribbean and
         Central American region; wovens are virtually non-existent. The more limited benefits for woven apparel
         under CBTPA, requiring that the fabrics be formed in the U.S. from U.S. yarns (while knit apparel can use
         fabric woven in the region from U.S. yarns), has effectively undermined any incentive for investment in such
         mills in the region. Continuing that distinction would only serve to eliminate the ability of Haiti to shift into
         other products. Creating an incentive for investment in woven fabric production now, by providing benefits for
         apparel made from fabrics woven in the region, while noble, is truly too late, particularly in light of the amount
         of production capacity already in place in the world.

                 Adjustments in the caps on benefits under CBTPA would be largely tantamount to rearranging the
         deck chairs on the Titanic. While Haiti might benefit from its own non-underwear t-shirt cap, if it were set at a
         commercially viable level, it is not the caps that will prevent Haiti from maintaining the interest of U.S.
         importers or winning more orders from U.S. buyers next year. With Haiti accounting for only 0.67 percent of
         the apparel imported into the United States in one year period ending July 2004, and the overall CBTPA cap
         never filling, it is apparent that other issues are behind the trends. Only the non-underwear t-shirt cap fills
         early. Ultimately, the issue is how to make apparel, including more types of apparel, produced in Haiti
         competitive. The way to do that is to allow it to reduce costs sufficiently to offset its lower productivity levels.
                 USA-ITA does commend the concept behind H.R. 1031, which would encourage U.S. free trade
         agreement partners and unilateral preference partners to use inputs produced in any of these countries and
         regions. While our members do not yet view this as a viable option for Haiti, because too few of the U.S.
         partners produce sufficient quantities of cost competitive yarns and fabrics or have the logistics in place to
         allow timely movement of inputs from one location to another, the goal of integrating productive capabilities
         among our preferential trade partners is clearly the right direction. At some point in the future, when our
         preference regions include more yarn and fabric producers, the inclusion of such cumulation benefits could be
         a winning business plan.
                  USA-ITA respectfully urges the Committee to quickly approve legislation that will give U.S.
         importers a real reason to do business in Haiti. With very little time left for legislative action, we ask the
         Committee to pass meaningful and substantive legislation. Time is of the essence. Haiti is already losing
         business as the end of the decades of quotas nears. The most recent trade data shows that the month-to-month
         and quarter-to-quarter data are falling much faster than the year-ending data. That signals that orders are
         moving, primarily to other Central American countries, and portends the difficulties Haiti will face unless the
         Congress acts now to provide substantial benefits to justify the placement of business in Haiti.