Haitian Recovery, Sweatshop Jobs, and the Role of Trade Preferences

Trade deserves some credit for the small but significant improvements to Haiti’s economy before the earthquake. U.S. efforts to help Haitians recover from the disaster should include further improvements in our trade preferences program to promote job growth and better working conditions in Haiti.

The day before the devastating earthquake hit Haiti, PBS’s Newshour reported on growing hopes that the country might be turning a corner in terms of political stability and economic growth, in part because of the Haitian Hemispheric Opportunity through Partnership Encouragement (HOPE) Act, which allows duty-free imports of Haitian apparel products. And, in the days since the quake, various scholars and pundits have noted the need to start planning now for how to shift from humanitarian relief to recovery and reconstruction, with a focus on rapid job creation—something that HOPE could help deliver.

As one of his six important lessons for disaster relief, CGD visiting fellow John Simon noted that, “[e]ven as the relief operation is gearing up, work should commence in parallel … to plan long-term recovery.” Paul Collier called for a Marshall Plan for Haiti, including using U.S. and other trade preference programs to stimulate the quick revival of the garment sector. Similarly, citing an earlier Collier analysis on how to promote economic security in Haiti, Nicolas Kristof called for revival of the garment sector, noting that even so-called “sweatshop” jobs are better than nothing.

So, is the HOPE Act adequate? Or could it be improved to help spur exports, jobs, and recovery? And must the jobs created be sweatshop jobs?

In 2006, Congress passed what came to be known as HOPE I to expand duty-free access for Haitian exports, especially of apparel. But investors did not respond for a number of reasons, including the program’s short timeframe (just three years) and rules of origin for determining product eligibility that were complicated and restricted efficient sourcing of inputs (though they were far more flexible than under most other U.S. trade preference programs for developing countries).  As shown in the table, despite HOPE I, total Haitian apparel exports to the U.S. stagnated in 2007 and then dropped in 2008.

Haitian Apparel Exports to the United States (million dollars)
	2006	2007	2008	2009*
Total	450	453	412	512
Under CBTPA	392	394	297	342
Under HOPE I, II	Not applicable	13	75	125
Share of total U.S. imports	0.6%	0.6%	0.6%	0.8%

* Extrapolated from January-November data.
Sources: U.S. Department of Commerce, Office of Textiles and Apparel; U.S. International Trade Commission.

HOPE II, passed less than two years later, extended the program for a decade and further loosened the rules of origin to provide more flexibility to source materials globally. Congress also added requirements for Haiti to beef up monitoring and enforcement of labor standards, with technical and financial assistance from the U.S. and the International Labor Organization (ILO). With these changes, Haitian exports to the U.S. rebounded last year to 13 percent above the 2007 level. While the positive impact of the HOPE II changes is evident in the table, the rules of origin, even now, are restrictive and complex, spanning four and a half pages of single-spaced small print.

In addition, HOPE II excludes t-shirts and sweatshirts, three-quarters of Haiti’s exports, with the result that most Haitian apparel exports still come into the U.S. under other preference programs. Those products receive duty-free status under the regional Caribbean Trade partnership Act, but under that program, they must incorporate American yarn, as well as fabric that is either American or locally-produced, a stipulation that raises costs and decreases Haiti’s competiveness.

Those rules also create problems for Haitian exporters trying to penetrate the Canadian market. Canada’s trade preference program for least-developed countries has generous rules of origin, allowing beneficiaries to source fabric and other inputs from any other developing country. But, because of the American rules that force Haiti to use U.S. inputs, many Haitian apparel exports are not granted duty-free treatment in Canada, even though the yarn or fabric would receive such treatment if exported directly from the U.S. to Canada under the North American Free Trade Agreement (NAFTA). That combination of rules makes little sense for the United States, Canada, or Haiti.

Finally, what about the quality of the jobs created under the HOPE Act? While apparel assembly pays relatively low wages wherever it is done in the world, these jobs do not have to endanger workers’ health or be abusive or force workers to choose between a wage and their fundamental rights, conditions often associated with sweatshops. To ensure Haiti’s compliance with HOPE II’s requirements, the ILO, with the International Finance Corporation and U.S. financial support, launched a Better Work program in the country last fall. In an earlier post I discussed the Better Work program and a CGD event where preliminary research was presented on the results from a similar program operating in Cambodia. This research suggests that monitoring and focused attention on improving human resource practices in factories leads to both better working conditions and more competitive firms. Effective implementation of this program in Haiti would mean that HOPE II contributes to both more and better jobs for Haitians trying to survive in the wake of this terrible tragedy.

Preliminary reports from the Better Work program manager in Haiti suggest that, while some factories collapsed, others suffered only minor damage or none at all. This sector and program, then, present an ideal opportunity for the public and private sectors to cooperate and to start work on Haiti’s longer-term recovery. To maximize the impact, the United States and Canada should also fix the rules in their preference programs to allow the broadest possible sourcing of fabric and other inputs, which would facilitate Haiti’s apparel exports and create the jobs that are so desperately needed.