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Failure of EAI Program under Hope - Behavior of Dominican Exporters
Duty-Free Access for Haiti and DR: Evaluating Impact
30 June 2010
With Central America being now back to the US market, the duty-free access is still a decisive advantage for regional exporters. The impact of duty-free rules remains however difficult to asses, as recently enlightened by two studies.
With Central American origins being this year back on the US apparel market, duty-free access again appears a decisive advantage for apparel exporters in the region.
Behind global data, two recent studies tried assessing how duty-free access affects the behavior of exporting companies in the Dominican Republic and in Haiti, respectively.
EIA Of No Use
The most interesting approach for US apparel importers is a recent analysis by the US Government Accountability Office (GAO) over the use of so-called Earned Import Allowance (EIA) Program for Haiti.
The EIA is a complex system introduced in 2007 into HOPE II - the second law expanding duty-free access for Haitian apparel- and this year further relaxed as part of HELP, a just passed law for further expanding duty-free access.
Under EIA, Haitian exporters may use yarns and fabrics made in other parts of the world (let's say in China) without losing duty-free access to the US territory.
There is one condition: they must have previously used US materials.
Under HOPE II, for 3 units of US materials being processed in Haiti, one single unit of non-US or non-regional materials could be utilized.
The system includes declarations to the US textile administration (OTEXA) with credits being accumulated by exporting companies in Haiti.
This is such a cumbersome and complex system that actually no one single company ever used it, the GAO's investigator found.
Rival Duty-Free Provisions
The poor impact of the EIA is also due to rival rules under HOPE II (now becoming HELP), offering similar duty-free access with less complicated procedures.
A much more relaxed rule was for instance offered to producers of woven apparel, with the free use of yarns and fabrics from Asia but under limits.
Exports of Haitian woven apparel therefore soared to the United States.
Similarly, a value-added restraint limit also got a strong success amid Haitian exporters, although its share of total exports fell over the past years.
Interestingly, Haitian exporters prefer shipping T-shirts without taking advantage of HOPE II, but under the CBTPA, a preferential treatment offered in 2000 by the US to Central American and Caribbean countries.
This apparently remains the simplest way to get the duty-free advantage without losing too much time and money in trying to understand complex rules.
This also favors the use of US yarns by Haitian plants.
Exporting at Huge Risks
A more theoretical and general approach is being offered by the World Bank with a recent study over the Dominican Republic.
Authors tried evaluating how Dominican firms behaved after getting the duty-free access under the DR-CAFTA provisions.
The duty-free pact apparently attracted a large number of opportunists who rapidly lost their shirts.
Due to a lack of sectoral approach, the study does not precisely describe how apparel exporters behaved.
Although duty-free access was previously granted under the CBTPA, the new free trade agreement offered more opportunities in terms of rules of origin.
Only existing exporters may have been able to really take advantage of the new rules, nevertheless, while newly arrived players may have been disappointed, especially when the US demand slowed down in 2008 and 2009.
The DR-CAFTA and the Extensive Margin: A Firm-Level Analysis
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