Overview Of The Haitian Hemispheric Opportunity Through Partnership Encouragement Act
Jon Fee, Diego Marquez And Bj Shannon, Alston & Bird LLP

September 2, 2014

Introduction

In 2006, 2008 and 2010, the U.S. Congress amended the Caribbean Basin Economic Recovery Act (CBERA) to provide preferential treatment for certain textile and apparel articles from Haiti.  The vehicles for these amendments were the Haitian Hemispheric Opportunity Through Partnership Encouragement Act of 2006 (HOPE), the Haitian Hemispheric Opportunity Through Partnership Encouragement Act of 2008 (HOPE II) and the Haiti Economic Lift Program Act of 2010 (HELP).  HOPE, as amended by HOPE II and HELP (collectively, HOPE), permits duty-free importation into the United States of limited quantities of apparel articles made in Haiti under three tariff preference levels (TPLs), as well as unlimited quantities of apparel articles made in Haiti under product-specific provisions, an earned import allowance program, and short supply rules.

Hope’s Rules Are Based on Assembly or Knitting to Shape

HOPE’s origin rules for apparel refer to articles wholly assembled or knit-to-shape in Haiti from any combination of fabrics, fabric components, components knit-to-shape or yarns, and imported directly from Haiti or the Dominican Republic.  Thus, cutting in Haiti is not required.  Nor is knitting to shape in Haiti required unless an apparel article consists of only one knit-to-shape component, as in the case of socks.  Moreover, with the exception of the value-added TPL and the earned import allowance program, HOPE’s rules place no restrictions on the source of the fabric, fabric components, components knit-to-shape or yarns from which the apparel articles are made.

TPL Benefits

HOPE includes three TPLs, one of which imposes a value-added requirement for apparel articles in one entry or produced over a one-year period.  The other two TPLs apply, respectively, to all woven and most knit apparel and require only assembly or knitting to shape in Haiti, without regard to the source of fabrics, components or yarns from which the apparel articles are made.  All three TPLs are temporary; unless extended by statute, the value-added TPL will expire on December 19, 2018 and the woven and knit TPLs will expire on September 30, 2020.

 Value-Added TPL

HOPE includes a TPL for duty-free treatment of apparel articles that meet certain value-added requirements.  To be eligible, an apparel article must be wholly assembled or knit-to-shape in Haiti from any combination of fabrics, fabric components, components knit-to-shape or yarns, and it must be imported directly from Haiti or the Dominican Republic.  Additionally, the cost or value of materials produced in Haiti or other eligible countries, plus the direct costs of processing in Haiti or other eligible countries, must meet the value-added percentage requirement applicable in the year of importation.  Fabrics and yarns that may be of any origin when used to make apparel articles under NAFTA’s origin rules, and fabrics and yarns designated as in short supply under CBTPA, AGOA, ATPDEA, or U.S. free trade agreements (FTAs) are included for purposes of meeting the applicable value-content requirement.  On the other hand, the cost or value of any other foreign materials used in the production of the apparel article in Haiti, as well as foreign materials used in the production of the materials produced in Haiti or other eligible countries, must be deducted from the cost or value of materials produced in Haiti when determining whether an apparel article meets value-added requirements. 

In addition to Haiti, eligible countries are: the United States, countries with FTAs in force with the United States (Australia, Bahrain, Canada, Chile, Colombia, Costa Rica, Dominican Republic, El Salvador, Guatemala, Honduras, Israel, Jordan, Korea, Mexico, Morocco, Nicaragua, Oman, Peru, and Singapore), AGOA beneficiary countries, ATPDEA beneficiary countries, and CBTPA beneficiary countries.  The value of materials from these countries and the direct cost of processing in these countries contribute to the required value-added percentage.  Since the passage of HOPE II, countries with FTAs with the United States that enter into force in the future will also be eligible countries.

The value-added percentage requirement increases over the life of the TPL.  During each of the nine one-year periods from December 20, 2006 through December 19, 2015, the applicable percentage is 50 percent.  For each one-year period from December 20, 2015 through December 19, 2017, the applicable percentage is 55 percent.  For the one-year period from December 20, 2017 to December 19, 2018, the applicable percentage is 60 percent.  The TPL expires on December 19, 2018.

Generally, the applicable percentage is applied to the declared customs value of all apparel articles in an entry.  Alternatively, a person who is a producer or entity controlling production may elect to meet the value-added requirement by annual aggregation.  In that case, if the person’s aggregate entries in the preceding year meet the applicable percentage for the current year, then apparel articles that the person enters during the current year may be entered with the benefit of HOPE’s value-added TPL.  For any year, apparel entered with the benefit of preference programs other than HOPE or without the benefit of a preference program is included in the annual aggregation only at the producer’s election.  Once a producer elects to use annual aggregation, the producer must continue to use that method for the entire one-year period. 

If CBP finds that entries of a person who is a producer or entity controlling production fail to meet the requirements of claimed duty-free treatment under the TPL in any year, the person’s entries will be ineligible for the TPL in succeeding years until the person’s aggregate entries for a year meet the succeeding year’s applicable percentage, plus 10 percent.  After meeting this increased percentage, the person’s entries will again be eligible for the TPL in the succeeding year.  The person may also apply for retroactive refunds for the year during which the person met the increased percentage.  Similarly, a new producer or entity controlling production that elects to use annual aggregation must first meet the increased percentage as a prerequisite to receiving duty-free treatment in a later year and may seek retroactive refunds for the year during which the person met the increased percentage.

The TPL limits are established annually based on a percentage of the aggregate square meter equivalents (SME) of all apparel imported into the United States during 12 months prior to the TPL period.  The percentage is 1.25 percent for each one-year period from December 20, 2007 through December 19, 2018.  Thus, from December 20, 2013 through December 19, 2014, the TPL limit is 322,629,971 SME.  For the one-year period ended December 19, 2013, only 5.54 percent of the TPL was used.

 Woven Apparel TPL

HOPE also includes an additional TPL for woven apparel articles of Harmonized Tariff Schedule (HTS) chapter 62.  To qualify for duty-free treatment under the woven apparel TPL, apparel articles must be wholly assembled or knit-to-shape in Haiti from any combination of fabrics, fabric components, components knit-to-shape or yarns.  The fabrics, fabric components, components knit-to-shape or yarns may be of any origin.  The apparel articles must be imported directly from Haiti or the Dominican Republic. 

The original TPL was increased and extended by HOPE II and HELP.  The current quantitative limit is 70,000,000 SME for each one-year period from October 1, 2008 through September 30, 2020.  HOPE II clarified that apparel entered with the benefit of the value-added TPL does not count against the quantitative limitation for the woven apparel TPL.

If 52,000,000 SME of apparel articles enter the United States under the TPL in any of the one-year periods, then the quantitative limit for that year will be increased to 200,000,000 SME.  If this happens, however, men’s and women’s cotton and man-made fiber woven trousers and shorts will continue to be limited to 70,000,000 SME for that year.  For the one-year period ended September 30, 2010, only 33,114,317 SME, or 47.31 percent of the 70,000,000 SME limit, were imported under this TPL.

Knit Apparel TPL

HOPE II added an analogous TPL for certain knit apparel of HTS chapter 61 that is wholly assembled or knit-to-shape in Haiti from any combination of fabrics, fabric components, components knit-to-shape or yarns and HELP extended the TPL through September 30, 2020.  The apparel articles must be imported directly from Haiti or the Dominican Republic.  HOPE II clarified that apparel entered with the benefit of the value-added TPL does not contribute toward the quantitative limitation for the knit apparel TPL.

The TPL limit is also 70,000,000 SME per year.  If 52,000,000 SME of apparel articles enter the United States under the TPL in any of the one-year periods, then the quantitative limit for that year will be increased to 200,000,000 SME.  If this happens, however, men’s cotton knit shirts and tank tops and similar garments, women’s and girls’ cotton t-shirts, certain women’s and girls’ cotton knit pullovers and certain men’s, boys’, women’s and girls’ man-made fiber knit pullovers will be limited to 85,000,000 SME for that year.  For the one-year period ended September 30, 2013, only 40,807,811 SME, or 58.30 percent of the 70,000,000 limit, were imported under this TPL.

Some apparel articles are excluded from eligibility for the benefit of the TPL.  Specifically, the following men’s or boys’ apparel articles are not eligible for entry under the knit apparel TPL: all white t-shirts of cotton, with short hemmed sleeves and hemmed bottom, with crew or round neckline or with V-neck and with a mitered seam at the center of the V, and without pockets, trim, or embroidery; all white singlets of cotton, without pockets, trim, or embroidery; other t-shirts of cotton (not including thermal undershirts); t-shirts of man-made fiber; sweatshirts of cotton; pullovers of cotton, other than sweaters, vests, or apparel articles imported as part of playsuits; and sweatshirts of 50 percent or more, but less than 65 percent, man-made fiber.

Uncapped Duty-Free Treatment

Under HOPE, certain textile and apparel articles are eligible for duty-free treatment without quantitative limitation, regardless the origin of yarns, fabrics, or components composing the articles.  HOPE includes product-specific provisions for brassieres, certain sleepwear, and certain other apparel articles.  HOPE also offers uncapped duty-free treatment for apparel articles imported with earned import allowance certificates under HOPE’s 2-for-1 program and for apparel articles made with short supply yarns and fabrics.  All eligible articles must be imported directly from Haiti or the Dominican Republic.  All of these uncapped duty-free provisions will expire on September 30, 2020, unless they are extended by statute.

 1. Product-Specific Provisions

Under the 2006 HOPE legislation, brassieres were included in the TPL for woven apparel.  Under HOPE II, imports of brassieres do not count against the value-added or woven TPL.  Instead, brassieres are eligible for duty-free treatment, regardless the origin of yarns, fabrics, or components, if the brassieres are wholly assembled or knit-to-shape in Haiti from any combination of fabrics, fabric components, components knit-to-shape or yarns.
HOPE also grants duty-free treatment to certain sleepwear that is wholly assembled or knit-to-shape in Haiti from any combination of fabrics, fabric components, components knit-to-shape or yarns.  Eligible articles include women’s or girls’ pajama bottoms and other sleepwear of cotton and man-made fiber, and girls’ pajama bottoms and other sleepwear of other textile materials. 

Additionally, apparel articles eligible for duty-free treatment under single transformation rules in the Dominican Republic-Central America-United States Free Trade Agreement (CAFTA-DR) are eligible for duty-free treatment under HOPE if they are wholly assembled or knit-to-shape in Haiti from any combination of fabrics, fabric components, components knit-to-shape or yarns.  Eligible apparel articles include certain women’s and girls’ cotton coats and cotton and man-made fiber suits; infant dresses; women’s and girls’ man-made and other fiber ensembles; men’s and boys’ cotton and man-made fiber woven dress shirts; women’s, girls’, men’s and boys’ suit jackets of selected fibers; and women’s wool anoraks.  Significantly, CAFTA-DR’s single transformation rules require apparel articles to be cut and sewn or otherwise assembled.  Under HOPE’s assembly rules, cutting in Haiti is not required.

HELP added a list of 117 additional classifications of selected knit apparel articles that are eligible for duty-free treatment under HOPE if they are wholly assembled or knit-to-shape in Haiti from any combination of fabrics, fabric components, components knit-to-shape or yarns. 

2. 2-for-1 Earned Import Allowance Program

In addition to these product-specific provisions, HOPE II added unlimited duty-free treatment for all types of apparel articles under an earned import allowance program.  Apparel articles imported with the benefit of the program must be wholly assembled or knit-to-shape in Haiti (regardless the source of fabrics, fabric components, components knit-to-shape or yarns) and accompanied by an earned import allowance certificate reflecting sufficient credit for the duty-free importation.

Producers or entities controlling production in Haiti earn credits by purchasing qualifying knit or woven fabrics for use in apparel production in Haiti.  To qualify, knit fabric (including knit-to-shape components) must be wholly formed or knit-to-shape in Haiti, the United States, or U.S. FTA or apparel preference program countries from yarns wholly formed in the United States.  A de minimis rule permits up to 10 percent by weight of non-U.S. yarn in the fabric or component.  Qualifying knit fabric may also contain certain non-U.S. nylon yarns and yarns found to be in short supply under U.S. preference programs or FTAs.  Qualifying woven fabric must be wholly formed in the United States from yarns formed in the United States.  Qualifying woven fabric may contain de minimis non-U.S. content, certain nylon yarns, and short supply yarns; but, unlike qualifying knit fabric, woven fabric must be formed in the United States.  Formation in other countries, including Haiti, will disqualify the woven fabric.

The U.S. Department of Commerce’s Office of Textiles and Apparel (OTEXA), which manages accounts and certificates for this program via the Haiti HOPE II Earned Import Allowance Online System, issues one SME credit to a producer for every two SME of qualifying fabric purchased.  Originally, HOPE II required three SME of qualifying fabric for every one SME credit; but HELP changed the requirement from three to two SME of qualifying fabric.  Producers may bank these credits in their individual accounts.  Then, to import apparel with the benefit of credits earned, a producer must obtain from OTEXA an earned import allowance certificate showing credits equal to the SME of the apparel articles to be imported with the benefit of the certificate.

3. Short Supply

HOPE II also permits unlimited duty free importation of all apparel articles wholly assembled or knit-to-shape in Haiti from short supply yarns or fabrics or from components formed or knit-to-shape from short supply yarns or fabrics.  Eligible yarns and fabrics are those that may be of any origin when used to make apparel articles under NAFTA’s origin rules, and those yarns or fabrics designated as in short supply under AGOA, ATPDEA, CBTPA, or any of the U.S. FTAs.

Visa Requirements

All HOPE claims must be accompanied by a visa, which is issued by Haiti.  Pursuant to an agreement with the United States, Haiti transmits visa information via CBP’s Electronic Visa Information System (ELVIS).  Thus, effective, November 30, 2009, CBP eliminated paper visa requirements for HOPE claims.

Safeguards

HELP added provisions to require CBP to verify that apparel articles imported under the TPLs are not being unlawfully transshipped into the United States.  HELP also added a provision authorizing the U.S. President to reduce the TPLs to account for unlawful apparel transshipment.

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