MANCHESTER TRADE LTD...

International Business Advisers

1710 Rhode Island Avenue, NW

Suite 300

Washington D.C. 20036

Stephen Lande, President                                                                          Tel: 202-331-9464

Dr. David Lewis, Vice President                                                                  Mobile: 202-415-1243

Anthony Carroll, Vice President                                                                  E-mail: stepland@aol.com

February 3, 2007

Haitian Trade Initiatives after Passage of HOPE

Stephen Lande and Amb. Ernest H. Preeg

The time is now for trade-policy initiatives with the objective of making Haiti a significant center of manufacturing in the Western Hemisphere . Such manufacturing would include assembly of U.S. and third-country inputs for export. Should this occur in Haiti , it would replicate the role played by a number of Far East locations ( Hong Kong , Singapore and Taiwan ) in the 1970s through the 1990s. It would require assuring effective implementation of HOPE. More important, it would go beyond HOPE to address all aspects of trade, investment and services. This paper focuses on these broader trade-policy initiatives.

Trade Policy Initiatives

HOPE

            Passage of HOPE is the first step in the economic renaissance of Haiti. The bill should reverse the recent decline in apparel assembly in Haiti and in fact perhaps lead to double-digit growth. More important, however, is that it sends the clear message that Haiti is open for business. Provisions in HOPE are limited to garments and one automotive part. The renaissance that we suggest for Haiti will involve many manufacturing and service sectors.

Entry into a Stand-alone FTA with the U.S. or Adhere to DR–CAFTA

           FTAs almost always have positive effects on economic development. This experience dates from the first FTA negotiated by the United States with Israel in 1984 to NAFTA and most recently to DR–CAFTA. Haiti will gain even more than these countries. This is as much due to the positive effect of the market opening in the Haitian economy as to the fact that an FTA requires introduction of market principles in a number of key areas. Eligibility requirements for HOPE implementation are actually a starting-point for FTA negotiations since they can form the basis for Haiti to demonstrate that it is ready to enter into an FTA.

It now appears that Trade Promotion Authority, due to expire this June, will be extended before the end of this year. Current indications are that the extension may be for a short period of time (one year) and limited to multilateral trade negotiations, specifically the DOHA Round. However, it is always possible that given the support for Haitian development, most recently recognized by the passage of HOPE, one can add a rider to TPA allowing free-trade negotiations for Haiti . If such effort is to undertaken, the Haitian government and private sector must in the near future convince the administration and Congress of their readiness and commitment to such negotiations.

A major objective of this effort will be to negotiate a free-trade agreement with the United States before the 2009 reduction and the 2010 expiration of HOPE provisions covering apparel incorporating third-country-woven fabrics. This period also coincides with the end of the Haitian proposal for an IMF arrangement under the Haitian Poverty Reduction and Growth Facility (PRGF). This would require negotiations during the time period foreseen for any possible renewal of TPA.

A Free Trade Agreement (FTA) is absolutely necessary to create incentives for Haiti to carry out appropriate reforms, specifically in establishing good-governance institutions and practices. Such an agreement is now a requirement since almost all other countries with the exception of MERCOSUR and non-competitive Caribbean countries will have entered into a free-trade agreement with the United States early next year. In many ways the investment provisions in such an agreement are more important than the trade provisions, since American companies rely on the discipline within an FTA in making decisions as to where and how much to invest. The trade provisions are also important since they are deeper and more comprehensive than the transitory provisions available under CBI.

There are two ways that Haiti can negotiate free trade with the United States. First is simply to negotiate a stand-alone agreement with the United States. This would only require an agreement with the United States but would only provide duty-free access into the United States.

A second possibility is to request adhesion to DR–CAFTA. Such a path may be more difficult since it requires not only the acquiescence of the United States but of the six other members of CAFTA. The advantage of adhering to DR–CAFTA is that it would allow free trade with the Dominican Republic. This would recognize the indivisibility of imports from Hispaniola regardless of the mix of content from the Dominican Republic and Haiti. It would encourage full consolidation of production on the island and encourage Haitian officials and businessmen to learn from the successful transformation on the other side of the island.

If entry into DRCAFTA proves politically too complicated, it could be possible for Haiti to negotiate FTAs with both the Dominican Republic and the United States . This would promote co-production on the island of products since Haitian and Dominican origin will be treated the same for purposes of duty-free entry into the United States .

Negotiate FTAs with Additional Countries

Haiti should also consider negotiating free-trade arrangement with other countries. In this regard, we suggest both hemispheric ( Mexico, Colombia, Central America) and extra-hemispheric arrangements with such countries as Malaysia (upscale assembling), Taiwan and Israel (technology.)

Rules-of-Origin Improvements

            Another more limited option would be for FTA trade partners in the hemisphere to agree to treat Haitian-origin materials the same as materials originating in any member of the FTA. There is whole array of such agreements, with the largest being NAFTA and MERCOSUR. Given their political involvement in Haiti and their support of a democratically-elected regime, the United States and Brazil among others might well support this concept. In fact, the two countries could agree to work with their respective free-trade partners to allow FTA duty-free entry for products containing third-country components but assembled in Haiti. There also may be efforts in the hemisphere to knit together various FTAs which could include harmonizing origin rules.

Better Utilization of Existing CBI Benefits

Secondly, CBI provisions should be reviewed. Once CAFTA–DR is fully implemented for all participants, Haiti will be the only country with manufacturing capability that will remain as a beneficiary of CBI. There are a large number of existing opportunities for Haitian producers to incorporate third-country inputs and meet CBI origin requirements — opportunities that can be realized without changing current provisions. Haitian authorities, possibly working with a proposed investment commission, can work with the USITC and outside consultants to identify such products and circulate the information to the private sector and multilateral development organizations. Secondly, in those areas where origin rules discourage such production, one can amend CBI especially in those cases where no U.S. manufacturer would be harmed. One useful tool could be to temporarily reduce the required value-added to 20 percent, restoring it to 35 percent over time.

Trade-Related Initiatives

AID For Trade

The international community is prepared to provide a significant amount of assistance to help Haiti develop trade-related infrastructure and other forms of supply-side capacity. Supply-side capacity-building involves numerous factors, the most pertinent of which is institution-building to allow good governance, particularly rapid decision-making and reduction in corruption, promotion of the private sector, adequate middle management, and upgrading of manufacturing skills. Such an effort would have to be accompanied by a solid program of investment promotion, managerial training and upgrading the skills of the work force.

            To be successful, the Haitian private sector would have to expand beyond its preoccupation with clothing exports and move into other products and other sectors. Fortunately, the Haitian private sector has proven to be resilient with an ability to recover from political disorder in the past, and if given the opportunity and some assistance, should be able to diversify and upgrade.

            Other trade-related issues which must be addressed for the FTA to work for Haiti include port security, extension of duty-free zones, and trade-facilitation measures. Even with sufficient donor resources, the beneficiary country still must have a plan to coordinate the assistance offer.

            In addition to the normal aid flows, there are two new sources of funding. The Millennium Challenge Corporation has been established by the Bush administration to provide assistance to “worthy” developing countries with project assistance. Countries must enter into a compact with the U.S.-government-supported Millennium Challenge Corporation. An MCC compact provides support for infrastructure and capacity-building programs in exchange for responsible Haitian policies. To be eligible to enter into a compact with the corporation, countries must have policies that are judged to be reflective of good governance and investor- and market-friendliness. The policies must also be conducive to reducing poverty. Haiti can develop this eligibility.

            WTO has set up a working group to develop guidelines of “Aid for Trade” as a tool for building supply-side capacity and trade-related infrastructure. Aid for Trade is designed to allow a developing country to take advantage of trade liberalization from multilateral, plurilateral and bilateral negotiations as well as to meet increased competition from market-opening measures. Although the DOHA Round is currently suspended, the work of the AID for Trade Working Group continues and its recommendations were delivered last week to the WTO General Council. We believe that Haiti should follow the work of this group. Being the only least-developed country in the Western Hemisphere, it could be an ideal country to benefit from the group’s work.

Investment Agreements

In cases where the United States and its trading partner agree not to enter into free-trade agreements, the United States has negotiated agreements focusing on investment. For example, MERCOSUR rules prevented Uruguay from negotiating an FTA with the United States. Instead, the two countries recently concluded negotiations for an investment agreement. After a failure to negotiate an FTA with the South African Customs Union, the United States announced that it would try to negotiate an investment agreement

Haiti should not settle for such agreements since it will maintain the disadvantage faced by Haitian exports in the U.S. market compared to those from those U.S. free-trade partners. Duty-free treatment would not be bound and Haiti would not be able to use dispute- settlement procedures against unilateral U.S. actions to reduce or remove benefits. Investment provisions are included in an FTA—thus failure to negotiate an FTA would be a consolation prize.

There are two types of investment agreements. A Trade and Investment Framework Agreement (TIFA) promotes the establishment of legal protections for investors, improvements in intellectual-property protection, more transparent and efficient customs procedures, and greater transparency in government and commercial regulations. A Bilateral Investment Treaty (BIT) is more limited, focusing on investment issues. The BIT program’s basic aims are to protect U.S. investment abroad and to encourage countries to adopt market-oriented domestic policies that treat private investment in an open, unbiased and transparent manner.