United States International Trade Commission The Impact of the Caribbean Basin Economic Recovery Act Nineteenth Report 2007-2008 Investigation No. 332-227 USITC Publication 4102 September 2009 U.S. International Trade Commission COMMISSIONERS Shara L. Aranoff, Chairman Daniel R. Pearson, Vice Chairman Deanna Tanner Okun Charlotte R. Lane Irving A. Williamson Dean A. Pinkert Robert A. Rogowsky Director of Operations Robert B. Koopman Director of Economics Address all communications to Secretary to the Commission United States International Trade Commission Washington, DC 20436 U.S. International Trade Commission Washington, DC 20436 www.usitc.gov The Impact of the Caribbean Basin Economic Recovery Act Nineteenth Report 2007-2008 Investigation No. 332-227 Publication 4102 September 2009 This report was prepared principally by the Office of Economics Project Leader Walker Pollard Deputy Project Leader James Stamps Office of Economics Nannette Christ and Nick Grossman Office of Industries Jeffrey Clark, Vincent DeSapio, Douglas Newman, and Laura Rodriguez Primary Reviewer John Giamalva Supporting assistance was provided by Terri L. Anderson and Eric Cardenas Office of Publishing Under the direction of Arona Butcher, Chief, Country and Regional Analysis Division PREFACE Section 215 of the Caribbean Basin Economic Recovery Act (CBERA), as amended (19 U.S.C. 2704) (“the Act”), requires the U.S. International Trade Commission to provide biennial reports in odd-numbered years to the Congress and the President on the economic impact of the Act on U.S. industries and consumers and on the economy of beneficiary Caribbean Basin countries. This report constitutes the Commission's report for 2009 and covers the period 2007–08. CBERA was originally enacted on August 5, 1983 (Public Law 98-67, 97 Stat.384, 19 U.S.C. 2701 et seq.). It authorized the President to proclaim duty-free treatment or other preferential treatment for eligible articles from designated beneficiary countries. The act has been amended several times, including by the United States Caribbean Basin Trade Partnership Act (CBTPA) in 2000. Among other things, the CBTPA amended section 215 of CBERA to change the frequency of Commission reports from annual reports to the current biennial reports in odd-numbered years. This is the Commission’s 19th report under CBERA and the fifth report since the 2000 amendments. However, it is noted that the current report covers fewer Caribbean Basin countries than prior reports, as four Central American countries (El Salvador, Guatemala, Honduras, and Nicaragua) ceased to be designated beneficiary countries in 2006, and a fifth country (the Dominican Republic) ceased to be a designated beneficiary country in 2007. During those two years, the Dominican Republic-Central America-United States Free Trade Agreement (CAFTA-DR) entered into force with respect to those countries, and imports from those countries became eligible for U.S. duty-free or other preferential treatment under the free trade agreement. The information provided in this report is for the purpose of this report only. Nothing in this report should be construed as indicating what the Commission’s findings or determination would be in an investigation involving the same or similar subject matter conducted under another statutory authority. i ABSTRACT This report is the 19th in a series of reports prepared by the U.S. International Trade Commission pursuant to section 215 of the Caribbean Basin Economic Recovery Act (CBERA) (19 U.S.C. 2704) on the economic impact of the CBERA program on U.S. industries and consumers and on the economy of the beneficiary countries. The current study fulfills the Commission’s reporting requirement for 2009 under the statute and covers the period 2007–08. The overall effect of CBERA-exclusive imports (imports that could receive tariff preferences only under CBERA provisions), on the U.S. economy generally and on U.S. industries and consumers in particular, continued to be negligible in 2008. Based on the upper estimates and industry analysis, the Commission identified one U.S. industry— methanol—as potentially facing significant negative effects from CBERA-exclusive imports. U.S. industries supplying inputs to apparel producers in CBERA countries are benefiting from the enhancements added by the United States Caribbean Basin Trade Partnership Act (CBTPA) in 2000. U.S. imports of the leading CBERA-exclusive items for which analysis was possible, including methanol, all produced net welfare gains for U.S. consumers in 2008. The probable future effect of CBERA on the United States, judging by an examination of export-oriented investment in the beneficiary countries, is also expected to be minimal for most products, as CBERA countries generally are small suppliers relative to the U.S. market. Some U.S. sources have expressed concerns about increasing ethanol imports from CBERA countries under the program, although this increase occurred at the same time as higher U.S. domestic ethanol production, making the effect on U.S. producers and consumers uncertain. The impact of CBERA preferences on the beneficiary countries continues to be small, but positive. Its effects in individual countries have tended to be narrow rather than broad, as shown by an examination of CBERA’s impacts on the three countries that have made the heaviest use of CBERA preferences in the past two years—Haiti, Jamaica, and Trinidad and Tobago. In Haiti, the impact of CBERA has been almost exclusively focused on the apparel assembly sector. CBERA has played an important role in Haiti’s ability to develop and diversify its export sector, especially for offshore apparel assembly operations. For Jamaica, CBERA preferences provide an important incentive for exports of ethanol to the U.S. market; they have become less important with respect to Jamaica’s other exports to the United States. For Trinidad and Tobago, the impact of CBERA has been almost exclusively on the energy sector. For most other CBERA countries, recent investment activity has been increasingly focused on export-oriented services, such as tourism, financial, and telecommunications services, rather than on the production of CBERA-eligible exports. This has tended to dilute the impact of the CBERA program, since its preferences apply exclusively to exports of goods. iii TABLE OF CONTENTS Page Preface............................................................................................................................................... i Abstract............................................................................................................................................. iii Executive Summary ......................................................................................................................... ix Frequently Used Abbreviations and Acronyms ............................................................................ xvii Definitions of Frequently Used Terms ........................................................................................... xix Chapter 1. Introduction................................................................................................................... 1-1 Organization of the report ........................................................................................................... 1-2 Summary of the CBERA program............................................................................................... 1-2 Beneficiaries ......................................................................................................................... 1-4 Trade benefits under CBERA ............................................................................................... 1-5 Qualifying rules .................................................................................................................... 1-7 CBERA and GSP .................................................................................................................. 1-7 Caribbean Basin Trade Partnership Act................................................................................ 1-9 HOPE Acts of 2006 and 2008............................................................................................... 1-9 U.S. FTA with Central America and the Dominican Republic............................................. 1-12 U.S.-Panama FTA................................................................................................................. 1-14 Analytical approach .............................................................................................................. 1-14 Data sources.......................................................................................................................... 1-16 Chapter 2. U.S. Trade with the Caribbean Basin ......................................................................... 2-1 Key findings .............................................................................................................................. 2-1 Approach ..................................................................................................................................... 2-1 Trade with CBERA countries...................................................................................................... 2-2 Total U.S. imports ....................................................................................................................... 2-2 Total U.S. imports by country .............................................................................................