USITC Reports on DR 2-for-1 Program

On October 16, 2008, H.R. 7222, the Andean Trade Preference Extension Act of 2008, Became Public Law No: 110-436. Sec. 2 of the Act created the Dominican Republic-Central America-United States Free Trade Agreement ("CAFTA-DR") Earned Import Program–a 2-for-1 matching program for trousers assembled in the Dominican Republic. Under this program the D.R. may ship, duty-free, one square meter equivalent of trousers of third-country fabric for every two sme of trousers of U.S.-made fabric.

On August 3, 2018, the U.S. International Trade Commission ("USITC") published Investigation No. 332-503 USITC Publication 4809 Earned Import Allowance Program: Evaluation of the Effectiveness of the Program for Certain Apparel from the Dominican Republic.

The EIAP allows apparel manufacturers in the Dominican Republic who use U.S. fabric to produce certain apparel to earn a credit that can be used to ship eligible apparel made with non-U.S.-produced fabric into the United States duty free. The Dominican Republic-Central America-United States Free Trade Agreement Implementation Act, as amended, requires the USITC, an independent, nonpartisan, factfinding federal agency, to evaluate annually the effectiveness of the EIAP program and make recommendations for improvements.

The USITC's ninth annual review was submitted to the U.S. House of Representatives Committee on Ways and Means and the U.S. Senate Committee on Finance on August 3, 2018.  Highlights of the report follow.

• Of the 13 registered firms, only 4 firms are currently using the program – one less than was reported in the last three annual reviews.

• In 2017, U.S. imports of woven cotton bottoms from the Dominican Republic fell 57 percent by value (from $3.5 million in 2016 to $1.5 million) and 80 percent by quantity (from 745,000 SMEs in 2016 to 154,000 SMEs). U.S. government sources and a former user of the program in the Dominican Republic attributed the decline in U.S. imports under the EIAP to increased imports from Haiti and increased competition from other Western Hemisphere suppliers. Haiti offers lower labor costs and trade preferences under the HOPE/HELP programs, which provide more sourcing flexibility and coverage for a wider range of products than the EIAP, as well as a tariff preference level (TPL) for woven apparel from Haiti that allows the use of third-country fabric up to a specified level.  Also, the decline in U.S. imports under the EIAP likely reflects a significant decline in woven trouser manufacturing capacity in the Dominican Republic, along with a simultaneous shift by U.S. importers to Asian suppliers during the life of the program. Finally, uncertainty surrounding the program's renewal after its expiration on December 1, 2018, may also explain why U.S. imports of woven cotton bottoms under the program reached their lowest level in 2017.

• The recommendations offered during the ninth annual review of the EIAP were virtually the same as those received by the Commission during the previous eighth annual reviews:  1) lowering the 2-for-1 ratio of U.S. to foreign fabric to a 1-for-1 ratio; 2) expanding the program coverage to enable other types of fabrics and apparel items to be included in the EIAP; and 3) changing the requirement that dyeing and finishing of eligible fabrics occur in the United States.