ANNUAL REPORT ON THE IMPACT OF THE CARIBBEAN BASIN ECONOMIC RECOVERY ACT ON U.S. INDUSTRIES AND CONSUMERS Fourth Report 1988 Report to the Congress and.· the President on Investigation No. 332-227 · Under Section 332 (b) of the Tariff Act of 1930 USITC PUBLICATION 2225 SEPTEMBER 1989 United States International Trade Commission Washington, DC 20436 UNITED STATES INTERNATIONAL TRADE COMMISSION COMMISSIONERS Anne E. Brunsdale, Chairman Ronald A. Cass, Vice Chairman Alfred E. Eckes Seeley G. Lodwick David B. Rohr Don E. Newquist Office of Economics John W. Suomela, Director Martin F. Smith Chief, Trade Reports Division This report was principally prepared by: L. Lee Tuthill Project Director Constance A. Hamilton Janice R. Fair Susan 0. Bloom Hugh M. Arce With the assistance of Dean M. Moore Laura Stonitsch Supporting assistance was provided by: Paula R. Wells, Secretarial services Linda D. Cooper, Clerical services Address all communications to Kenneth R. Mason, Secretary to the Commission United States International Trade Commission Washington, DC 20436 Annual Rep.ort on the Impact of the Caribbean Basin Economic Recovery Act on U.S. Industries and Consumers Fourth Report 1988 Investigation No. 332-227 USITC Publication 2225 September 1989 Prepared in Conformity with Section 215(a) of the Caribbean Basin Economic Recovery Act PREFACE The submission of this study to the Congress and the President continues a series of annual reports by the U.S. International Trade Commission on the impact of the Caribbean Basin Economic Recovery Act (CBERA) on U.S. industries and consumers. The reports are mandated by section 215(a) of the act, which requires that the· Commission report annually on the operation of the program. The present study fulfills the requirement for calendar year 19 8 8. The CBERA, enacted on August 5, 1983 (Public Law 98-67, 97 Stat. 384), authorized the President to proclaim duty-free treatment to eligible articles from designated beneficiary Caribbean Basin countries. The President proclaimed duty-free treatment on certain eligible articles effective January 1, 1984, and such duty-free treatment is scheduled to remain in effect until September 30, 1995. Section 215 of the act requires the Commission to provide an assessment of the actual and probable future effects of the CBERA on the U.S. economy generally, on U.S. industries producing like or directly competitive products with those imported from beneficiary countries, and on U.S. consumers, and to submit its report to the President and the Congress by September 30 of each year. The provisions of the CBERA are listed and explained in the first CBERA report. The following countries were designated beneficiary countries upon the implementation of the CBERA: Antigua and Barbuda, Barbados, Belize, Costa Rica, Dominica, the Dominican Republic, El Salvador, Grenada, Guatemala, Haiti, Honduras, Jamaica, Montserrat, Netherlands Antilles, Panama, Saint Christopher-Nevis (St. Kitts), Saint Lucia, Saint Vincent and the Grenadines, Trinidad and Tobago, and the Virgin Islands (British). TheBahamas became a beneficiary nation in March 1985. Upon becoming independent of the Netherlands Antilles in April 1986, Aruba was designated as a beneficiary country, effective retroactively to January l, 1986. In April 1988 Panama's beneficiary status was suspended and in November 1988 Guyana was designated as a beneficiary country. The report contains three chapters and three appendices. Chapter 1 analyzes overall U.S. trade with the Caribbean Basin during 1988 and compares trade under special programs (CBERA, the Generalized System of Preferences (GSP), and TSUS items 806.30/807.00). Chapter 2 addresses the actual effects of the CBERA in 1988, the fifth year of the program's operation, covering CBERA's effects on the U.S. economy, U.S. industries, and U.S. consumers. Chapter 3 focuses on the probable future effects of the CBERA. It examines significant investment projects in the region and provides an indication of products most likely to be exported to the United States in the future. Appendix A contains a copy of the Federal Register notice by which the Commission solicited public comment for this investigation and a list of submissions received, appendix B contains a table of the leading imports that benefited from CBERA provisions, by source, and appendix C explains the economic model used to derive the results contained in chapter 2. CONTENTS Page Preface .................................................................. Executive Summary ....................................................... v Chapter 1. U.S. Trade with the Caribbe~n Basin ....................... , ..... 1-1 Two-way trade ..................................................... , ..... 1-1 U.S. imports .................................................... , ....... 1-2 Total imports from nondesignated countries ............................ ; ..... 1-2 Total imports from designated CBERA countries ....................... , ...... 1-2 Product composition of total imports ................................ , ...... 1-5 Dutiability and special duty-free programs ............................... i •••••• 1-7 Dutiable value of imports ..........................................•....... 1-7 Duty-free value of imports ......................................... , ...... 1-7 MFN duty-free imports .......................................... ; ...... 1-9 TSUS items 806.30 and 807.00 ................................... ; ...... 1-9 GSP duty-free imports ........... , . , ............................ • ....... 1-9 CB ERA duty-free imports .......................................... ; ..... 1-9 Product composition of imports under the CBERA ...................... ; ...... 1-10 Product eligibility under the CBERA ......................................... 1-12 Leading CBERA beneficiaries ........................................ ; ...... 1-12· Chapter 2. Impact of the CBERA in 1988 .................................... 2-1 Products most affected by CBERA ....................... ; .................. 2-1 Description of items benefiting from CBERA ................................. 2-1 Products that benefited the most from CBERA in 1988 ............... , .•....... 2-3 Beef and veal ......................................................... 2-3 Pineapples ............................................................ , 2-3 Sugar, sirups, and molasses ....... , ............................ , . ; ...... 2-3 Resistors . , . 2-3 Electrical capacitators ........................................... , ....... 2-3 Measuring the net-welfare cost of CBERA in 1988 ............................. 2-4 Analytical approach .............................................. ; ...... 2-4 Measurement of net-welfare effects of CBERA ........................ , ...... 2-5 Quantitative results ................................................ , ..... 2-5 Description of items analyzed .................................... ; ....... '2-5 Effects on the U.S. economy in 1988: Net-welfare costs and the displacement of domestic output ................................ 2-5 Chapter 3. Probable future effects of the CBERA .............. , .............. 3-1 Methodology ....................................................... : .... 3-i Overview of investment and export potential .................................. 3-1 Summary of investment activities and trends ................................... 3-4 Investment projects by product category ..................................... 3-4 Investment in nontraditional products ....... ; ............................... 3-7 Investment projects by country ............................................ 3-7 Central American beneficiary countries .................................... 3-8 Eastern Caribbean islands ............................................... 3-8· Central Caribbean ...................·. ·.................................. 3-8 Oil-producing countries ................................................. 3-8 Investment in infrastructure ......................................... ,. ..... 3-8. Investment by Asian NIEs in CBERA countries · .............................. 3-9 Section 936 of the internal revenue code ·........................... ~: ........ 3-10 Section 936 financing ............. : ...................................... 3-11 Financing obstacles ........... ~ ......... ·................................. 3-11 Twin-plant program ..................................................... 3-13 iii CONTENTS-Continued Page Chapter 3. Probable ruture errects of the CBERA-Continued CBI II legislation ......................................................... 3-13 Repeal of termination .................................................... 3-14 Expansion of eligible products ............................................. 3-14 Treatment of articles assembled from U.S. components ........................ 3-14 Textiles and apparel ...................................................... 3-14 Injury determination ............................................· ........... 3-15 Eastern Caribbean Region .................... , ........................... 3-15 Restoration of sugar quotas ....................... ·........................ .3-15 Ethanol ............................................................... 3-15 Promotion of tourism and duty-free allowances ............................... 3-16 Reporting requirement ................................................... 3-16 Appendices A. Federal Register notice and list of submissions ................... ~ .......