CARICOM-US Trade Relations in an Era of 'Open Regionalism

• Author: Karl Petrick
• Pages: 381-398

CARICOM-US TRADE RELATIONS

IN AN ERA OF ‘OPEN REGIONALISM’1

Karl Petrick

26

1. Historical Background:

The Caribbean Basin

Initiative in Three Acts

The Caribbean Basin Initiative (CBI)

was initiated during a time of economic

crisis in the Caribbean: from 1980–1983,

the average change in real GDP across the 12

major economies in the region (Costa Rica, El

Salvador, Guatemala, Honduras, Nicaragua,

Panama, Barbados, Dominican Republic,

Guyana, Haiti, Jamaica, and Trinidad and

Tobago) was -23.5%. Considering only the

Caribbean countries in that group, the average

was only slightly less dire: -16.9% change in

real GDP over the period, ranging between

Trinidad and Tobago (-12.3% growth) and

Jamaica (-27.3% growth, not only the worst of

the Caribbean countries, but the fourth worst

in the entire 12-country group).2 Furthermore,

The average Balance of Payments def‌icit across

the group was US $ 196.0 billion (US $ 334.8

billion for the Caribbean countries)3 and

debt as a percentage of GDP was an average

of 61.68% across the group (55.64% for the

Caribbean countries).4

Amidst this backdrop, the CBI was

presented ‘as a Marshall Plan tailored for the

Caribbean.’5,6 In February 1982, the then U.S.

President Ronald Reagan outlined the tenets

of the CBI at an address to the Organisation

of American States, characterising the CBI as

“a ‘fresh view of development’” as it moved

away from an emphasis on f‌inancial aid

(and government intervention) and put the

emphasis on trade and investment (and the

free market). Reagan’s argument was that

such a focus would gradually phase out the

dependence of Caribbean Basin countries

on foreign aid and enable self-sustaining

economic growth in the region by ‘making use

of the magic of the marketplace’.7

The belief underlying the CBI was that the

dismantling of trade barriers between countries

would be the primary force for economic

recovery across the region, as indeed, the

‘Reagan Doctrine’ envisioned the same across

the globe. Despite the rhetoric, this view is

hardly new – the idea that trade is the engine

of growth and that free trade would benef‌it all

parties was f‌irst expressed by David Ricardo

in 1817.8 Nonetheless, President Reagan’s

pronouncement of a ‘new’ development vision

for the region was broadly endorsed across both

parties in the U.S. Congress: Thus, Act One

of the CBI, The Caribbean Basin Economic

Recovery Act (CBERA) was passed into law.9

The ‘carrot’ was a widening of trade

preferences under the U.S. Generalised System

of Preferences (GSP) to the advantage of CBI

countries, as well as a simplif‌ication of the U.S.

duty structure to help Caribbean exporters

access the U.S. market. However, to gain this

access, CBI countries had to enact a whole

series of trade policies. For example, Section

212(c ) of the Act outlines f‌ive discretionary

criteria for the U.S. President to consider

before bestowing benef‌iciary status to any

state, including:

CARICOM: POLICY OPTIONS FOR INTERNATIONAL ENGAGEMENT

382 CARICOM: POLICY OPTIONS FOR INTERNATIONAL ENGAGEMENT

382

• “The country’s acceptance and adherence

to rules of international trade in

accordance with the General Agreement

on Tariffs and Trade.

• The country’s willingness to provide

equitable and reasonable access to the

markets and commodity resources of the

country.

• The degree to which a country uses

trade distortion manoeuvres, such as

export subsidies, export performance

requirements, or local content

requirements.

• The degree to which a country is engaging

in self-help practices and measures to

promote and ensure its own economic

development”10 .

Apparently, the degree of openness to free

trade (as measured by the f‌irst three criteria

above) was to be taken as an indicator of the

level of the fourth criteria: the American draftees

apparently never considered that the ‘self-

help practices and measures to promote and

ensure (a country’s) economic development’

could well include a level of export subsidies,

export performance requirements, and/or

local content requirements. On the U.S. side,

however, the CBERA (section 213(e)) allowed

the President to ‘invoke protective measures to

respond to negative impacts of CBI duty-free

treatment on American domestic industries.’11

The Caribbean Basin Economic Recovery

Act included a ‘sunset clause’ (Section 218),

which scheduled the termination of the

CBERA on August 5, 1990; 7 years was

apparently seen as enough time for all that ‘self-

generating economic growth’ to kick in across

the Caribbean Basin. However, when the

United States International Trade Commission

(USTIC) reviewed the effects of the initiative

in 1989, it noted ‘the CBERA and other

related provisions have not as yet brought

about substantial improvements in the overall

export position of CBERA countries vis-à-

vis the United States, and, indirectly in the

diversif‌ication, restructuring, and/or expansion

of the Caribbean economies as a whole.’12 The

understated conclusion of the USTIC study

was that ‘the effectiveness of the CBERA might

need some improving.’13 This led to the CBI

Act Two: The CBERA Expansion Act (1990),

which widened the access of duty-free goods

from the region somewhat and also pushed

CBI recipients for more tax incentives for U.S.

Foreign Direct Investment.14 It also abolished

the ‘sunset clause’.

Act Three of the CBI began in 2000:

The Caribbean Basin Trade Partnership Act

(CBTPA), which effectively signalled the

eventual ending of the CBI as a preferential

trade agreement and a shift in emphasis

towards a deeper free trade area: ‘it is the policy

of the United States to offer Caribbean Basin

benef‌iciary countries willing to prepare to

become a party to the (Free Trade Agreement of

the Americas) or another free trade agreement,

tariff treatment essentially equivalent to that

accorded to products of (North American

Free Trade Agreement) countries for certain

products not currently eligible for duty-free

treatment under the CBERA.’15

The signif‌icant feature of the Trade

Partnership Act was that CBI countries asked

for and received ‘NAFTA parity’ for their

products in the run-up to that agreement.

They had worried that a free trade agreement

between the USA and Mexico (as two-thirds of

NAFTA) would be disastrous – not necessarily

due to an erosion in imports of CBERA-eligible

products, but rather, due to the textile/apparel

provisions in NAFTA shifting production

in this CBERA–ineligible sector from CBI

countries to Mexico. As a result of the Trade

Partnership Act, textiles were CBERA- eligible

for the f‌irst time, albeit as long as the apparel

was ‘from fabric wholly formed or cut in the

United States’16 in most cases, leaving the

CBI countries as sewing shops using fabric

(and thread) supplied by US companies,

which was little different from the situation

as it already existed in CBI countries.17 The

Trade Partnership Act may have placed these