CBI; one year later - Caribbean Basin Initiative

CBI ONE YEAR LATER

Now that the Caribbean Basin Initiative has been in effect for a year, early indications are that the program is working. While it is too soon to judge such long-term trends as investment flows and the development of substantial new nontraditional export sectors, the Caribbean Basin has attracted new investments and expanded trade with the United States.

The Caribbean Basin Initiative's unique combination of long-term trade, aid and investment incentives are designed to encourage new business while promoting political and social stability. Caribbean Basin nonoil trade with the United States was up dramatically in 1984, at least in part due to the robust U.S. recovery. Aid flows to the region have increased from a variety of sources including U.S. bilateral assistance and multilateral development organizations. This assistance is increasingly oriented towards helping firms take advantage of the wide range of business opportunities in the region. Investment incentives include special tax deductions for business conventions in the region and now some CBI beneficiary countries are eligible sites for establishing Foreign Sales Corporations (FSCs).

Expanding Trade

The centerpiece of the Caribbean Basin Initiative is a one-way, duty-free provision allowing preferential access to the United States market for most Caribbean Basin products. This benefit went into effect on Jan. 1, 1984 for 20 of the CBI countries. (For a list of beneficiary countries, see the chart on page 13). Eliminating oil products, which are not eligible for the CBI and account for most of the imports from Trinidad and the Netherlands Antilles, U.S. imports from the region were up $695 million through October of 1984, or over 21 percent, while U.S. exports to the Basin rose by $284.6 million.

The CBI trade preference is actually one of the three major duty-reducing programs available for Caribbean Basin products. The table on page 8 shows the use of the CBI-form trade in the first three quarters of 1984, as well as the dollar volume of duty-free products shipped under the Generalized System of Preferences, and the trade under the TSUS 806.30, 807 program, which allows reduced duties for U.S. source products that are assembled abroad.

Aid: Growing and New Emphasis

The second portion of the CBI--aid--is also up sharply since the program was first proposed in February 1982. In addition to the $350 million CBI supplemental appropriation in fiscal year (FY) 1982, the U.S. has steadily increased economic assistance for the region from $324 million in FY 1980 to an estimated $1.5 billion in FY 1985.

This growing assistance has a new emphasis: supporting the private sector. The Agency for International Development (AID), which administers most of this economic assistance, is concentrating on expanding nontraditional exports, creating jobs, and improving productivity. AID programs include support for private sector organizations, investment promotion, seed capital for banks and work on local business policy.

New Investment

The third portion of the Caribbean Basin Initiative is intended to encourage investment in the region. While the proposed CBI legislation included a 10 percent tax credit, the final bill contains an incentive for the tourism industry only. This provision permits U.S. firms to deduct from their taxes business convention expenses in CBI beneficiary countries, including Bermuda, that have signed tax information exchange agreements with the United States. In addition, recent U.S. legislation has created new export sales companies called Foreign Sales Corporations (FSCs), which must be incorporated outside the United States in eligible countries. These include U.S. territories like Puerto Rico, the Virgin Islands and Guam, and countries that have signed a tax information exchange agreement like the one required for the CBI convention tax deduction benefit.

Several CBI countries are now eligible for these benefits. Barbados and Jamaica qualify for both benefits, while Trinidad has qualified as an FSC incoporation site only so far. Costa Rica has negotiated an agreement with the United States but it has not yet been signed.

In addition to these legislative investment incentives, a very broad program of investment promotion, assistance and in-country facilitation has evolved under the CBI. Many countries have set up investment promotion offices in New York and in other U.S. cities, and established "one-stop' investment approval offices in-country. Combined with feasibility study assistance available from several U.S. Government programs, investors can move quickly in narrowing the 20 CBI countries down to the best few options for their interests, and then deciding on and implementing their project.

Examples of these successful investment assistance programs include:

The Jamaica National Investment Promotion Limited, which is credited with implementing over 300 new investments since it was established in 1982;

The Barbados Industrial Development Corporation, which has aggressively and successfully attracted several new high-technology companies to Barbados;

The Project Development Assistance Program, funded by the U.S. Agency for International Development (AID) and administered by Coopers and Lybrand, which has experienced officers living and working in several Eastern Caribbean Islands and Belize to guide potential investors and provide feasibility and cost comparison assistance;

The Caribbean Basin Promotion Center in Chicago, also AID-funded, with several successes in promotion of both trade and investment in the Dominican Republic and Costa Rica;

Private sector groups like FIDE in Honduras and CINDE in Costa Rica that provide direct assistance to foreign investors;

U.S. Government programs including the Overseas Private Investment Corporation with feasibility study funding, investment insurance and financing, and the Commerce Department's Caribbean Basin Information Center, country desk officers, and U.S. and Foreign Commercial Service offices worldwide.

Other Benefits

The CBI's provisions encouraging trade, aid and investment are really just the beginning of the Caribbean Basin story. From many CBI countries, U.S. firms can gain access to the European market duty-free under the provisions of the new Lome III agreement between the EC and the ACP (Africa, Caribbean and Pacific) countries. Some Central American countries are pursuing special bilateral trade arrangements with other Central and South American countries, including Mexico, which will provide access for U.S. firms producing in Central America. Costa Rica hosted an EC-Central America summit last fall where possible trade and aid provisions were discussed.

On the Caribbean Basin side, U.S. companies will find generally improving business climates and governments that are receptive to foreign investment--a distinct change in many of the region's countries as they shift from protectionist import substitution development strategies to export-oriented development efforts relying on the private sector. This change translates into support for new foreign investment at the top level in most of the Caribbean Basin countries, with decreasing controls and regulation.

With the combination of CBI business incentives, and new or expanded U.S. and local business assistance programs, the Caribbean Basin is increasingly being identified by businesses ranging from small entrepreneurs to large manufacturers as the next major area of international business opportunity. As outstanding business issues such as limited trade finance or shipping problems are resolved, the Caribbean Basin may become as well known and popular for business as it is for tourism.

Photo: The Caribbean Show at the Atlanta National Gift Market held in July yielded orders for 61 of the 79 participating CBI companies. Caribbean Basin countries that were represented at the show included Costa Rica, Dominican Republic, Guatemala, Haiti, Honduras, and Jamaica.

COPYRIGHT 1985 U.S. Government Printing Office
COPYRIGHT 2004 Gale Group