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Appendix D -- CARIBBEAN BASIN INITIATIVE -- Islands of the
Commonwealth Caribbean
The Caribbean Basin Initiative (CBI), first proposed in 1982,
is a broad United States foreign policy program designed to promote
economic development and political stability. The CBI is not
limited to the Commonwealth Caribbean nations but extends to the
entire Caribbean Basin, also including selected countries of
Central America, northern South America, and the
non-English-speaking Caribbean (see table A, this appendix). The
CBI consists of trade, economic assistance, and investment
incentive measures to generate economic growth in the region
through increased private sector activity.
Table A. Potential Beneficiaries of the Caribbean Basin
Initiative, 1986
Anguilla Guyana
Antigua and Barbuda Haiti
Aruba Honduras
The Bahamas Jamaica
Barbados Montserrat
Belize Netherlands Antilles
British Virgin Islands Nicaragua
Cayman Islands Panama
Costa Rica St. Christopher and Nevis
Dominica St. Lucia
Dominican Republic St. Vincent and the Grenadines
El Salvador Suriname
Grenada Trinidad and Tobago
Guatemala Turks and Caicos Islands
Source: Based on information from United States, International
Trade Commission, Annual Report on the Impact of the Caribbean
Basin Economic Recovery Act on U.S. Industries and Consumers: First
Report, 1984-85, Washington, September 1986, 1-8.
The most significant aspect of the program is the Caribbean
Basin Economic Recovery Act (CBERA) of 1983. The CBERA provides
Caribbean Basin countries with duty-free access to the United
States market for most categories of exported products until
September 30, 1995. It also includes special tax provisions for the
tourist sector, as well as measures to support the economic
development of Puerto Rico and the United States Virgin Islands. In
addition to the CBERA, other CBI measures include increased United
States economic assistance, a wide range of government and private
sector investment promotion programs, support from multilateral
development institutions and their donor nations, and Caribbean
Basin country self-help efforts.
BACKGROUND
The CBI resulted from a series of 1981 meetings involving
United States, Canadian, and Caribbean Basin officials. In a July
1981 meeting in Nassau, the United States special trade
representative and the United States secretary of state met with
the foreign ministers of Canada, Mexico, and Venezuela. Each agreed
to support a multilateral action program for the region, within
which each country and dependent territory would develop its own
programs. Multilateral and bilateral meetings were held between the
members of the so-called Nassau group and representatives of the
Caribbean Basin countries.
The CBI package announced by President Ronald Reagan in a
February 1982 address before the Organization of American States
(OAS) consisted of foreign assistance, a free trade arrangement,
and tax incentives for United States investors. The foreign aid
portion of the CBI, which proposed an additional US$350 million for
the Caribbean region for fiscal year (FY--see Glossary) 1982, was
passed by the 97th Congress and became law in September 1982
(Public Law 97-257). (Two-thirds of this total was slated for
Central America, with the remainder earmarked for the Caribbean.)
The trade portion, contained in the CBERA, was passed by the 98th
Congress in July 1983 and signed into law in August 1983 (Public
Law 98-67). The CBERA also contained a tax benefit allowing United
States citizens and companies to make deductions for expenses from
conventions and business meetings held in CBI countries. The
investment tax incentive portion of the package was left out of the
legislation's final version. Also, a number of products were
excluded from the eligibility list of duty-free exports.
HIGHLIGHTS OF THE CARIBBEAN BASIN ECONOMIC RECOVERY ACT
Duty-Free Treatment
Section 211 of the CBERA gives the president the authority to
grant duty-free treatment to eligible countries and dependent
territories for eligible products, and Section 212 outlines the
criteria for eligibility. The president may not designate a
communist country or a country that fails to meet certain criteria
regarding the expropriation of United States property; does not
take adequate steps to prevent narcotics from entering the United
States; fails to recognize arbitral awards to United States
citizens; provides preferential treatment to the products of
another developed country, adversely affecting trade with the
United States; engages in the broadcast of United States
copyrighted material without the owner's consent; or fails to enter
into an extradition treaty with the United States.
In addition, the president is required to take into account
eleven discretionary criteria. The criteria focus on the degree to
which the potential beneficiary is prepared to provide equitable
and reasonable access to its markets and basic commodity resources;
follows the accepted rules of international trade; uses export
subsidies or imposes export performance requirements or local
content requirements that distort international trade; and
undertakes self-help measures to promote its own economic
development.
Twenty-eight countries or dependencies of the Caribbean,
Central America, and northern South America are considered
potential beneficiaries. By 1986 twenty-two of these had been
designated for the duty-free provisions of the CBI, the exceptions
being Guyana, Nicaragua, Suriname, Anguilla, the Cayman Islands,
and the Turks and Caicos Islands, none of which applied for
designation.
Section 213 sets forth the criteria for determining which
articles may enter the United States free of customs duty. To
qualify, a product must be grown, produced, or manufactured in one
or more of the beneficiary countries. If produced from components
from a non-CBI country, the product's direct processing costs must
total at least 35 percent of the product's final cost. United
States component parts may account for only 15 of these percentage
points, the remaining 20 percent coming from non- CBI countries.
Specific articles are excluded, including textiles and apparel
subject to textile agreements, canned tuna, petroleum and petroleum
products, footwear, work gloves, luggage, handbags, flat leather
goods such as wallets, leather apparel, and watches and watch parts
if any components originate in a communist country. Duty-free sugar
exports are limited either by absolute quotas or by ""competitive
need"" limits contained in the Generalized System of Preferences
(GSP); these restrictions are intended to ensure that duty-free
sugar imports will not impede the United States price support
system for domestically produced sugar.
Section 214 outlines special measures for Puerto Rico and the
United States Virgin Islands to ensure healthy economic
development. These measures increase the permissible foreign
content for United States insular possessions from 50 to 70 percent
and treat the products of all insular possessions as favorably as
products from CBI beneficiary countries.
Tax Provisions
Section 221 amends the United States Internal Revenue Code by
transferring all taxes collected on rum imports from the Caribbean
to the treasuries of Puerto Rico and the United States Virgin
Islands. Section 222 also amends the Internal Revenue Code by
allowing deductions for business expenses when attending
conventions, seminars, or other meetings in a CBI beneficiary
country or dependent territory provided that the country or
dependent territory enters into a tax information exchange
agreement (TIEA) with the United States. By the end of 1987, just
three of the twenty-eight potential CBI beneficiaries--Barbados,
Grenada, and Jamaica--were qualified for the convention tax
deduction benefit.
OTHER MEASURES AND PROGRAMS RELATED TO THE CARIBBEAN BASIN
INITIATIVE
Economic Aid
In the first half of the 1980s, United States economic aid to
the CBI region increased substantially. From FY 1982 to FY 1985
economic assistance nearly tripled to US$1.8 billion. (However, as
was the case with the supplemental allocation for FY 1982, the
majority of assistance for FY 1985 went to Central America; less
than 20 percent was destined for the Caribbean.) Approximately
three-fourths of the total package was funneled into the Economic
Support Fund (ESF) program. Although the ESF enables governments to
meet immediate expenditures, it also allows them to delay
potentially necessary fiscal reforms. Since FY 1987, absolute
levels of economic assistance to the region have been declining
because of United States efforts to reduce its government's budget
deficit.
Investment Incentives and Promotion Programs
United States efforts in the CBI region also included measures
to increase the level of private investment. In 1984 United States
legislation created new sales export companies, known as Foreign
Sales Corporations (FSCs), which were designed to generate
government revenue for the host country and add to its
international business infrastructure. FSCs provide United States
firms with income tax exemptions and low operating costs; in
exchange, FSCs must be incorporated outside the United States in
insular territories or in countries that have concluded TIEAs with
the United States. By 1987 Barbados, Grenada, and Jamaica had
concluded effective TIEAs and were therefore eligible for FSCs. New
legislation in 1986 also made countries with effective TIEAs
eligible for investments with funds generated in Puerto Rico (via
Section 936 of the Internal Revenue Code).
The United States also concluded bilateral investment treaties
with two CBI countries, Haiti and Panama, and held discussions
about negotiating such a treaty with most other nations in the
region. The Department of Commerce, the Department of State, and
the Office of the United States Trade Representative have primary
responsibility for implementing promotion programs for investment
in CBI countries. In 1984 the Department of Commerce established
the CBI Center to provide support services for companies interested
in developing businesses in the region. In March 1987, the Office
of the United States Trade Representative appointed a CBI ombudsman
to serve in Washington as a problem solver for firms participating
in the initiative. In addition, the Overseas Private Investment
Corporation, a United States government entity charged with
insuring foreign investments of American firms, dedicated
approximately half its portfolio in the early 1980s to the
Caribbean Basin.
Textile Initiative
In early 1986, President Reagan strengthened the CBI by
introducing a new program to promote investment in the textile
industries of CBI countries. The program guaranteed access to the
United States market for certain textile and apparel imports. In
addition, higher levels of access were provided for textiles
manufactured from material originating in the United States. As of
mid-1987, bilateral textile agreements had been signed with the
Dominican Republic, Haiti, Trinidad and Tobago, and Jamaica.
Complementary Trade Preference Programs
Several other United States trade preference programs apply
worldwide, rather than just to the Caribbean area. The GSP permits
approximately 2,800 products to be imported duty free into the
United States from developing nations around the world. All of the
potential beneficiary countries under the CBERA are eligible for
benefits of the GSP, which in 1984 was extended until 1993. A
second trade preference program covers two items of the Tariff
Schedules of the United States (TSUS) that provide for reduced
duties for products of United States origin that are assembled or
processed in other countries. Finally, the TSUS also allows special
duty rates for certain products of countries that have been
designated least developed developing countries (LDDCs) of the GSP.
To date, the only CBI country that is eligible for special
treatment as an LDDC is Haiti.
Multilateral Support
Other countries of the Caribbean Basin (Colombia, Mexico, and
Venezuela) have instituted development programs in the region, as
have Britain, Canada, the European Economic Community (EEC), the
Federal Republic of Germany (West Germany), France, the
Netherlands, and Japan. Mexico and Venezuela established the Joint
Oil Facility in 1980 to provide concessionary oil rates to ten
countries of the Caribbean Basin; the agreement was a milestone in
cooperation among developing nations. Colombia has offered special
trade credits and technical assistance programs to several
governments in the region.
In 1986 Canada announced plans to implement an economic and
trade development assistance program for the Commonwealth
Caribbean. The program, known as Caribcan, provided for duty-free
access to the Canadian market of 99.8 percent of current
Commonwealth Caribbean imports. Excluded from the program were
textiles, clothing, footwear, luggage and handbags, leather
garments, lubricating oils, and methanol. The EEC's most important
program is the Lomé Convention (see Glossary), which covers
numerous African, Caribbean, and Pacific countries, including
twelve CBI beneficiaries. The Lomé Convention is updated every five
years. Lomé III, which took effect in March 1985, offers duty-free
access to the EEC as well as economic aid and investment
incentives. Work of multilateral institutions such as the
Inter-American Development Bank, the International Monetary Fund
(IMF--see Glossary), and the World Bank (see Glossary) also
complements the CBI program, as do the programs of consultative
groups such as the Caribbean Group for Cooperation in Economic
Development.
IMPACT
Assessing the effectiveness of a 12-year trade program that
began in 1983 is difficult. Initial reports indicated that the
overall trade performance for the CBI region was disappointing; CBI
exports to the United States in 1985 were 24 percent lower than in
1983. The decline was a result of weak markets, mainly in oil, but
also in bauxite, alumina, and sugar. Final 1986 figures were
expected to show further declines because of a United States
decision to lower its sugar import quota; the OAS estimated that
the decrease would cost Caribbean producers US$250 million.
Despite the overall decline in exports, the United States
Department of Commerce pointed out that from 1983 to 1985 there was
a 14-percent increase in nontraditional exports, such as apparel,
electronics, vegetables, seafood, and wooden furniture.
Furthermore, if oil-producing countries of the region are excluded,
exports to the United States increased in most areas of the region.
Exports from Central America, the Central Caribbean, and the
Eastern Caribbean increased by 13.4, 15.9, and 19.0 percent,
respectively. All of the oil-producing exporting countries of the
region, however, experienced substantial declines in total exports
to the United States. In 1981 United States imports from these
countries amounted to US$6 billion, but by 1985 that figure had
dropped to US$2.7 billion.
The direct investment benefits of the CBI have not been
substantial. New United States investment in the region amounted to
approximately US$208 million during the first eighteen months of
the CBI, generating roughly 35,000 new jobs. However, this new
investment amounted to less than 2 percent of the total United
States direct investment in the region and thus represented only a
slight improvement. In addition, income derived from direct
investment actually declined, bringing down the former relatively
high rate of return for businesses in the region. The direct
investment figures did not include the planned divestitures of
major companies in Jamaica (Reynolds Metals), Costa Rica (United
Brands), and the Netherlands Antilles (Exxon). The few new projects
included data processing, electronics, manufacturing, and hotel
development.
In its September 1986 report on the first two years of CBERA
operation, the United States International Trade Commission (ITC)
emphasized the percentage increases in exports destined for the
United States from non-oil-refining CBI countries. An average
increase of 14.8 percent was noted in exports from these Central
American and Caribbean CBI nations. Nevertheless, the report
observed that these increases compared unfavorably with the
33.8-percent growth rate of American imports worldwide. The ITC
report concluded that the impact of the CBERA on United States
industries and consumers had been minimal. The report also noted
the problems involved with export-oriented economic development in
the Caribbean region. According to the ITC, growth in Caribbean
exports is likely to be slow because producers in the region face
a number of constraints, including high transportation costs,
inadequate infrastructure, and a lack of experience and access to
marketing channels in the United States. Subsequent ITC reports
will be published annually, as mandated by law, until the
expiration of the CBERA in 1995.
The reactions of CBI countries and dependent territories to the
CBI have been mixed. Although several, most notably Costa Rica,
have praised the CBI, many of the smaller one have expressed
concerns over the CBI's shortcomings. In August 1985, the prime
ministers of eleven Caribbean states informed President Reagan of
their concern about increased United States protectionism. They
also pointed out that the CBI excludes products that are important
for foreign exchange earnings and employment potential, most
notably textiles, footwear, and leather products. At the 1986
Caribbean Community and Common Market (Caricom--see Appendix C)
summit meeting in Guyana, Caribbean leaders indicated further
reservations about the CBI. They reported that aid levels to
Caricom nations had stagnated since the increases of 1983 and also
pointed out that smaller countries of the Eastern Caribbean lacked
the necessary infrastructure to take advantage of CBI benefits.
Several suggestions to improve the CBI came out of the summit
meeting, including an increased United States sugar quota, a
10-percent tax credit for United States investors in the region,
and an increase in development aid, particularly for infrastructure
projects, through regional development institutions, such as the
Caribbean Development Bank.
* * *
Since the CBI was first proposed in 1982, much material has been published
on the principles, benefits, and shortcomings of the program. Notable United
States government publications include the Department of Commerce's annual guidebook
on the CBI; the Department of State's Background on the Caribbean Basin
Initiative (1982); the United States International Trade Commission's Annual
Report on the Impact of the Caribbean Basin Economic Recovery Act on U.S. Industries
and Consumers, first published in 1986; and Elliot Abrams's ""CBI and the
U.S. National Interest."" An extensive review of the CBI was also presented
in the published hearings of the Subcommittee on Oversight of the House of Representatives'
Committee on Ways and Means, held in February 1986. Journal articles providing
background on the CBI include ""Sinking in the Caribbean Basin"" by Robert Pastor,
""The Reagan Caribbean Basin Initiative, Pro and Con"" published in the Congressional
Digest, and Nicholas Raymond's ""Caribbean Basin Initiative Revisited.""
(For further information and complete citations, see Bibliography.)
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