U.S. Program Failing to Help Certain Apparel Production in the Dominican Republic

A U.S. government program designed to boost apparel production in the Dominican Republic and bolster U.S. fabric exports to that Latin American country fell short of expectations last year.

The Earned Import Allowance Program, or EIAP, whose goal is to help the Dominican Republic make apparel that is competitive with Asian-sourced goods, saw a more than 50 percent drop for U.S. imports made under the program last year. In turn, U.S. bottom-weight fabric exports under the program plummeted by half during the same period.

This was the first time there was a decline in the program, which was well used between 2009 and 2011. That was the conclusion of the International Trade Commission in Washington, D.C., which has evaluated the program every year since it went into effect on Dec. 1, 2008.

The Earned Import Allowance Program (EIAP) provides duty-free entry into the United States for certain apparel made in the Dominican Republic using U.S. bottom-weight fabrics. For every 2 square-meters equivalent (SME) of apparel assembled in the Dominican Republic using U.S. yarn and fabric, the program allows one SME of third-party yarn and fabric from countries such as China to enter the U.S. duty-free. This is called the 2-for-1 ratio.

U.S. fabric that qualifies for the program is basically woven cotton fabric that includes twill but excludes denim. The cotton fabric is used to produce pants, shorts, overalls and skirts.

The purpose of the program, when it was passed by Congress in 2008, was to keep the Dominican Republic’s apparel industry viable as it faced more competition from apparel made in China and other Asian nations. The Dominican Republic is also part of the Dominican Republic–Central American Free Trade Agreement, which allows most apparel made of regional materials to enter the U.S. duty free. The EIAP program extends duty-free treatment to specific apparel made with fabric from outside the region.

Twelve apparel companies in the Dominican Republic have signed up for the program, but only seven of them participated last year. Many see gaps in the program. One recommendation is that the 2-for-1 ratio be changed to a 1-for-1 ratio, which allows garment makers to use more third-country fabrics. Many of the apparel producers said the program’s effectiveness would decline as their retroactive credits for third-country fabric were depleted.

Another criticism is that all dyeing, finishing and printing must be done in the United States. Apparel producers in the Dominican Republic would like to be able to finish their goods in Central America, where prices are cheaper.

Fishman & Tobin Inc., a Pennsylvania boys’ apparel manufacturer that employs 2,000 workers in the Dominican Republic, said the costs to use the program far outweigh the benefits. “We have long advocated for changes to the program, including expanding the scope of products and fabrics eligible under the EIAP, reducing the 2-for-1 ratio to 1-for-1, and modifying the dyeing and finishing restriction,” wrote Mark Fishman, the company’s president, in a letter to the International Trade Commission. “Unless such changes are made, the EIAP will continue to have no relevance to our business.”

Fishman also wanted to be able to import U.S. greige goods to be finished outside the United States, perhaps in Central America. Right now, more than 95 percent of the fabric his company buys comes from outside the United States, primarily China and Pakistan. “If nothing is done, more than likely we will continue to utilize Asian raw materials to cut and sew in our Dominican Republic facility and continue to move garment production out of the region,” he noted.

School Apparel Inc., which has offices in Star City, Ark., and Burlingame, Calif., manufactures 120,000 units every month in the Dominican Republic. It uses the program to obtain several styles of fabric that have become problematic, but it could use more help when producing its school uniforms. Gerry McKee, School Apparel’s head of manufacturing operations, lobbied for a 1-for-1 ratio in the program that allows the company to use more third-country fabric that is cheaper and gets duty-free entry.