ANNUAL REPORT ON THE IMPACT OF THE CARIBBEAN BASIN ECONOMIC RECOVERY ACT ON U.S. INDUSTRIES AND CONSUMERS Report to Congress and the President on Investigation No. 332-227 Under Section 332(b) of the Taniff Act of 1930 Sixth Report 1990 UNITTD!Q'ATES C PUBLICATION 2432 INTERNATIONAL EMBER1991 TRAD!°COMMISSION _,,, Attanllc: Caribbean Basin Countries ~ 977 77- UNITED STATES INTERNATIONAL TRADE COMMISSION COMMISSIONERS Anne E. Brunsdale, Acting Chairman Seeley G. Lodwick David B. Rohr Don E. Newquist Office of Economics John W. Suomela, Director Martin F. Smilh Chief. Trade Rtports Division Kim S. Frankena Chief, Major Trading Nations Branch This rtport was principally prtparrd by: James E. Swnps Projtct Dinctor Diane L. Manifold HughM.Alc% Magdolna Komis Edward Wilson With the a.rsistanct cf Dean M. Moore S11pporting assistanct was provided by: Paula R. Wells, Sterttarial strvict!.C .~· ~ ~Lindi b.~cooJ,e;, CkricaJ srica Add~ all communications to Kenneth R. Mason, Secretary to the ·commmion United States International Trade.Commission Washington, DC 20436 Annual Report on the Impact of the Caribbean Basin Economic Recovery Act on U.S. Industries and Consumers Sixth Report . 1990 Investigation No. 332-227 USITC Publication 2432 September 1991 Prepared in Conformity With Section 215(a) of the Caribbean Basin Economic Recovery Act PREFACE The submission of this sbldy to the Congress and the President continues a series of annual reports by the U.S. International Trade Commission (the 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 repon annually on the operation of the program. The present study fulfills the requirement for calendar year 1990, the 7th year of program operation. The CBERA, enacted on August 5, 1983 (Public Law 98-67, title Il), authorized the President to proclaim duty-free treatment to eligible articles from designated beneficiary Caribbean Basin countries. Duty-free treaunent on certain eligible articles became effective January 1, 1984. Section 215 of the act continues to require the Commission to assess actual and probable effects of the CBERA in the future on the U.S. economy generally, effects on U.S. industries producing like products or products directly competitive with those imported from beneficiary countries, and effects on U.S. consumers. It requires the Commission to submit its report to the President and the Congress by September 30 of each year. The following countries were designated beneficiary countries of the CBERA during 1990: Antigua and Barbuda, Aruba, the Bahamas, Barbados, Belize, the British Virgin Islands, Costa Rica, Dominica, the Dominican Republic, El Salvador, Grenada, Guatemala, Guyana, Haiti, Honduras, Jamaica, Montserrat. Netherlands Antilles, Nicaragua, Panama, St Kitts and Nevis, St. Lucia, St. Vincent and the Grenadines, and Trinidad and Tobago. Panama's beneficiary · status was restored in March 1990 following that country's suspension from the program in April 1988. Nicaragua was designated a beneficiary country in November 1990. The report contains four chapters and three appendices. Chapter 1 provides an overview of the CBERA program, discusses changes to the CBERA legislation in 1990, and summarizes other duty-free programs and U.S. investment incentive programs available for eligible Caribbean Basin countries. Chapter 2 analyzes overall U.S. ttade with the Caribbean Basin during 1990 and compares trade under special programs-CBERA, the Generalized System of Preferences (GSP), and Harmonized Tariff Schedule (HTS) subheadings 9802.00.60 and 9802.00.80 (Connerly Tariff Schedules of the United States (TSUS) items 806.30 and 807.00). Chapter 3 addresses the actual effects of the CBERA in 1990, covering CBERA's effects on the economy, industries, and consumers of the United States. Chapter 4 focuses on the probable effects of the CBERA in the future. It looks at investment in the region and indicates which products are 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 U.S.-Caribbean trade data, a table of the leading imports under CBERA provisions, by source, in 1990, data on projects financed with section 936 funds in 1990, and information on twin plants. Appendix C explains the economic model used to derive the results contained in chapter 3. CONTENTS Page Preface .......................................................................... Executive summary ............................................................... vi Chapter 1. Duty-free entry for Caribbean products ................................ 1-1 Overview of the CBERA program .................................................. 1-1 Designated eligible countries ..................................................... 1-1 Trade benefits under the CBERA ................................................. 1-1 Excluded products .............................................................. 1-2 The Caribbean Basin Economic Recovery Expansion Act of 1990 ...................... 1-2 Key provisions ................................................................. 1-3 Other c~~es ................................................................. 1-3 New provisions ................................................................ 1-4 Removal of remaining barriers to CBERA products ................................... 1-5 Other U.S. special-duty programs ................................................... 1-5 U.S. GSP program ............................................................. 1-5 IITS subheadings 9802.00.60 and 9802.00.80 ....................................... 1-6 Benefits under section 936 of the Internal Revenue Code ............................. 1-6 Tax Information Exchange Agreements (TIEA) ..................................... 1-7 Caribbean Basin Financing Authority (CARIFA) ................................... .. 1-8 Twin-plant program ............................................................. 1-8 CBERA rules of origin ........................................................... 1-8 U.S. industries' concerns .......................................................... 1-9 Chapter 2. U.S. Trade with the Caribbean Basin .................................. 2-1 Two-way ttade ................................................................... 2-1 Imports from nondesignated countries ............................................... 2-1 Imports from CBERA countries .................................................... 2-1 Total imports from CBERA country groups ....................................... .. 2-1 Product composition of total imports .............................................. 2-5 Dutiability and special duty-free programs ......................................... 2-7 CBERA duty-free imports ....................................................... 2-9 Product eligibility under the CBERA ............................................ .. 2-9 Import profiles of leading CBERA countries ...................................... .. 2-13 Chapter 3. Impact of the CBERA in 1990 ........................................ 3-1 Products most affected by the CBERA .............................................. 3-1 Products that benefited the most from the CBERA in 1990 ........................... 3-2 Beef and veal ................................................................. 3-2 Pineapples ..................................................................... 3-3 Frozen concentrated orange juice ................................................. 3-4 Rum .......•................: .................................................. 3-4 Ethyl alcohol •............•..................................................... 3-5 Cigars, cheroots, and cigarillos •................................................... 3-5 Raw sugar ••..•...•............................................................ 3-6 Measuring the net-welfare cost of the CBERA in 1990 ............................... 3-6 Analytical approach .............................................................. 3-6 Measurement of net-welfare effects of the CBERA ................................. 3-7 Quantitative results ............................................................. 3-7 Items analyzed ............................................................... 3-7 Effects on the U.S. economy in 1990: Net-welfare costs and the displacement of domestic output ...................................... 3-11 Chapter 4. Probable future effects or the CBERA ................................. 4-1 Methodology ..................................................................... 4-1 Summary of invesbnent activities and ttends ......................................... 4-1 New CBERA-related investment in 1990 .......................................... 4-2 Centtal America .............................................................. 4-2 Eastern Caribbean ..............•.............................................. 4-3 iii CONTENTS-Continued Page Chapter 4. Probable future effects of the CBERA-Continued Other Caribbean and South American . 4-3 Section 936 financing . • . 4-3 CARIFA . .. .. .. .. ... .. ..• .• . ... .. .. .. .. .. .. .. 4-4 Twin pJants . 4-4 Impact of a United States-Mexico Free-Trade Agreement . 4-5 Investment and export potential in