U.S. Trade Policy and the Caribbean: From Trade Preferences to Free Trade Agreements

Prepared for Members and Committees of Congress

For over 40 years, the United States has relied on unilateral trade preferences to promote export-
led development in poor countries. Congressionally authorized trade preferences give market
access to selected developing country goods, duty-free or at tariffs below normal rates, without
requiring reciprocal trade concessions. The Caribbean Basin has benefitted from multiple
preferential trade arrangements, the best known being those linked to the Caribbean Basin
Initiative (CBI), first passed by Congress in Caribbean Basin Economic Recovery Act of 1983
and made permanent in 1990. The most effective trade preferences for increasing Caribbean
exports to the United States focused on textile and apparel trade rules and were provided for a
limited time in the Caribbean Basin Trade Partnership Act (CBTPA) of 2000. Since then, the
growing number of reciprocal U.S. free trade agreements (FTAs) in the region have replaced
preferential trade arrangements for many countries, signaling a shift in U.S. trade policy and
raising questions with respect to its effectiveness on U.S. imports from the mostly smaller
countries that still rely unilateral trade preferences.
The Caribbean trade preference programs amended tariff schedules and trade rules in ways
designed to increase U.S. imports from beneficiary countries. Trade grew, but evaluations of the
early programs suggested that their effects were not as robust as originally hoped. Benefits tended
to be concentrated in a few countries and products (energy and later textiles), limiting export
promotion and deterring production diversification. Over time, benefits were “eroded” further by
multilateral trade liberalization, which reduced the relative value of unilateral preferences.
Bilateral FTAs, particularly the CAFTA-DR, actually replaced unilateral preferences with
permanent, more attractive tariff reductions and trade rules for the Dominican Republic and
Central American countries, the largest of the (now former) CBI/CBTPA beneficiary countries,
and the main exporters of apparel.
A number of issues and circumstances are converging that will be a challenge for U.S. trade
policy in the Caribbean region. The most effective trade preferences have been those provided
under the CBTPA because of their apparel provisions. Although they have been extended through
September 30, 2010, they are sparsely used by the remaining smaller Eastern Caribbean countries
that have largely services-based economies and export only small amounts of manufactured
goods. There is also a reluctance by these countries to make the transition to an FTA without
some guarantee of a “development component” to the agreement. These concerns persist, despite
the promise of permanent market access and increased investment that an FTA holds out. The
Caribbean countries, long involved in dependent economic relationships, appear content to take a
cautious path toward any new trade arrangement with the United States.
For U.S. trade policy, any thoughts of achieving broader regional integration are challenged by
these circumstances. Broader integration may be difficult to reconcile with the needs of very
small developing countries, which are highly vulnerable to the vicissitudes of global economic
trends and may require new and creative solutions, particularly if U.S. policy is still driven by the
historical focus on development and regional security issues in addition to trade liberalization. In
the context of continuing with trade preferences in similar or altered form, or opting for an FTA,
the solution is not immediately obvious. This report will be updated. For more information on the
Caribbean economic integration, see CRS Report RL34308, CARICOM: Challenges and
Opportunities for Caribbean Economic Integration, by J. F. Hornbeck.

U.S. Preferential Trade Programs and the Caribbean Region........................................................3
Background: Early Trade Preference Programs........................................................................3
The Caribbean Basin Economic Recovery Act of 1983............................................................4
Special Access Program......................................................................................................5
The Caribbean Basin Economic Recovery Expansion Act of 1990.........................................6
The Caribbean Basin Trade Partnership Act and NAFTA Parity.............................................6
CAFTA-DR and New Parity Issues...........................................................................................8
The HOPE Act: New Trade Preferences for Haiti.....................................................................8
Trade Effects of Tariff Preferences..................................................................................................9
Imports by Duty Category.......................................................................................................10
Product Trends........................................................................................................................12
Country Trends........................................................................................................................13
Trade Preference Programs: Some Economic Perspectives..........................................................15
U.S.-Caribbean Basin Trade Relations: Policy Options..............................................................16
Allow Trade Preference Programs to Expire...........................................................................16
Renew Trade Preference Programs.........................................................................................17
A Reciprocal FTA and CARICOM.........................................................................................17
Outlook ........................................................................................................................ .................. 19
Figure 1. Map of the Caribbean Basin.............................................................................................2
Figure 2. U.S. Imports from CBI Countries, 2000 and 2006........................................................12
Table 1. U.S. Imports from CBI Countries by Dutiable Category, 2000-2006.............................10
Table 2. U.S. Imports by CBI Country, 2000-2007.......................................................................14
Appendix. Country Groups...........................................................................................................20
Author Contact Information..........................................................................................................21

or over 40 years, the United States has relied on unilateral trade preferences as an integral
part of its foreign economic policy. Trade preferences give market access to selected 1
developing country goods, duty-free or at tariffs below normal (NTR) rates, without F

requiring reciprocal trade concessions. They come in many forms and are intended to promote
economic growth and development in poor countries by stimulating export promotion and
investment, and to encourage the use of U.S. inputs in foreign manufacturing. Trade preference
programs must be authorized by Congress and are usually done so for specific periods of time.
The Caribbean Basin (see Figure 1)2 has benefitted from multiple preferential trade
arrangements, the best known being those linked to the Caribbean Basin Initiative (CBI) begun in
the mid-1980s. Since then, the growth of free trade agreements (FTAs) in the region has signaled
a shift in U.S. trade policy. The increase in reciprocal FTAs (particularly the Dominican
Republic-Central America-United States Free Trade Agreement – CAFTA-DR) with even more
generous trade benefits for Caribbean exports has the effect of “eroding” the relative benefits
given to countries covered only by the CBI programs, raising questions about the future path of
U.S. trade policy for those countries.
This report reviews unilateral preference programs for the Caribbean, discusses how they have
been affected by FTAs in the region, and considers trade policy options for dealing with countries
still relying on trade preferences and that may be considering whether to negotiate an FTA with
the United States.

1 NTR stands fornormal trade relations,” a phrase adopted by the United States in lieu of the often confusingmost-
favored-nation” (MFN) term used internationally. Both refer to the application of tariffs on a non-discriminatory basis.
Tariff preferences are by definition inconsistent with NTR/MFN treatment, requiring a waiver from the World Trade
Organization (WTO). The last waiver for the Caribbean (and other) programs expired and the United States is pursuing
a new one before the WTO, but has so far been blocked by Paraguay. See CRS Report RS22183, Trade Preferences for
Developing Countries and the World Trade Organization (WTO), by Jeanne J. Grimmett.
2 Caribbean Basin countries include Antigua and Barbuda, Aruba, Bahamas, Barbados, Belize, British Virgin Islands,
Costa Rica, Dominica, 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.

Figure 1. Map of the Caribbean Basin
Source: Map Resources. Adapted by CRS.

The United States has a long history of employing various types of trade incentives to encourage
specific trade activities. Motivated by commercial, political, and security interests at times, the
U.S. Congress has created unilateral trade preference programs that promote developing country
exports, but are often structured so as to minimize the negative economic effects on U.S.
producers and workers. Over time, bilateral, regional, and multilateral trade agreements have
come to eclipse the importance of preference arrangements, a trend that a review of these
developments will show has been particularly visible in the Caribbean Basin.
In 1964, the United States Government initiated a preferential tariff program based on production
sharing. Production sharing is a cost-reducing business strategy that seeks competitive (price)
advantage by locating manufacturing processes in more than one country. U.S. firms specialize in
the capital intensive, technology driven stages of production, and outsource assembly and other
lower-skill processing to lower-wage countries. Under the U.S. production-sharing program,
foreign firms that import U.S. component parts and assemble or process them into finished or
semi-finished products may then re-export them back to the United States, with duties levied only 3
on the value added abroad (no tariff on U.S. content).
U.S. firms benefit from production sharing by the required use of their inputs (to receive the tariff
exemption) and in retaining a portion of the global market for goods that might otherwise go to
lower-cost foreign producers that do not use U.S. inputs. Foreign firms using U.S. inputs benefit
from the tariff exemption, making their products more competitive in the U.S. market relative to
those of other producers who face a duty on the full value of their exports. This type of
production arrangement has been commonly used for automobile parts, electronics, and apparel, 4
among other manufactured goods.
The Caribbean Basin and Mexico were early beneficiaries of the production sharing program,
with proximity providing a major advantage at that time. Lower transportation costs and quicker
turn around times have provided Mexican, Caribbean, and Central America producers with an
additional competitive factor, at least for certain niche markets, over their more distant, but often
lower cost Asian competitors. Many Caribbean countries developed their export processing zones
around this program.
By the 1970s, the concept of preference programs for developing countries shifted. Whereas
production sharing was based on a mutually beneficial competitive business strategy, developing
countries had long advocated unilateral trade preferences as a form of development assistance.

3 Initially defined under Item 807 of the U.S. tariff schedule and later in Chapter 98 of the U.S. Harmonized Tariff
Schedule (HTS). United States International Trade Commission. Production Sharing: Use of U.S. Components and
Materials in Foreign Assembly Operations, 1995-1998. Washington, D.C. USITC Publication 3265. December 1999.
pp. 1-1 and 1-2.
4 Regional production sharing is also done by European and Asian firms.

Under the auspices of the General Agreement on Tariffs and Trade (GATT), the Generalized
System of Preferences (GSP) was conceived as a way for developed countries to respond to this
expressed need. The GSP permits developed countries to grant unilateral tariff preferences for
selected imports from developing countries to promote export-led growth. The U.S. program
provides limited tariff incentives for many, but not all products. The Caribbean region has availed
itself of both the GSP and production sharing incentives for many years. The U.S. GSP program 5
requires periodic renewal by Congress and was last reauthorized through December 31, 2009.
The tariff preference model as development strategy continued to evolve in the 1980s. The next
step targeted specific regions of the world for deeper preferences than those accorded under the
GSP, a strategy driven by security, as well as economic and political interests of the United States.
Congress enacted the first such geographically targeted program for the Caribbean region in 6


The impetus to create a Caribbean trade preference program arose from concern over the region’s
economic collapse and concomitant political radicalization that materialized in the early 1980s.
The Caribbean’s Basin’s “proximity, vulnerability, and instability” has long made it of particular
strategic interest to the United States, a notion well established in U.S. political history dating to 7
the Monroe Doctrine. In light of this reasoning, President Reagan and the U.S. Congress initially
considered a comprehensive response to the Caribbean Basin’s troubles. Trade preferences would
emerge as the primary economic component of a scaled back alternative.
President Reagan unveiled the CBI in a speech before the Organization of American States on
February 24, 1982, arguing that ensuring economic and political stability in the Caribbean region
was vital to U.S. security interests. He proposed a controversial mix of tax incentives, aid, and
trade preferences. The idea was rejected by many, however, particularly import-competing firms th8th
and workers. As a consequence, the first bill died in the 97 Congress. In the 98 Congress, 9
however, Congress acted promptly on the Caribbean Basin Economic Recovery Act (CBERA).
Although it again drew stiff resistance from U.S. textile and labor interests, once scaled back to
modest duty-free treatment for only 10% of Caribbean imports, it passed with overwhelming 10
support in both the House (392-12) and the Senate (90-7). President Reagan signed it into law
on August 5, 1983 (P.L. 98-67) and the trade preferences went into effect on January 1, 1984.
The CBERA permits 27 countries to be designated by the President as beneficiary countries (24
eventually were—see Appendix), eligible to receive duty-free or reduced-duty access for selected
exports provided the countries meet specific conditions. Designation may be denied or suspended
if the country: 1) is a Communist country; 2) has seized U.S. property without compensation; 3)

5 See CRS Report RL33663, Generalized System of Preferences: Background and Renewal Debate, by Vivian C.
6 Other geographically targeted trade preference programs would be created in the Andean Trade Preference Act
(ATPA) and the African Growth and Opportunity Act (AGOA).
7 See Pastor, Robert A. Exiting the Whirlpool: U.S. Foreign Policy Toward Latin America and the Caribbean, Second
Edition. Boulder: Westview Press, 2001. pp. 19-20.
8 1982 CQ Almanac. Caribbean Trade Plan. pp. 54-55 and 129.
9 The CBI was a comprehensive program, with the tariff preferences codified in the CBERA.
10 1983 CQ Almanac. Caribbean Trade Plan. pp. 252-53.

fails to recognize or enforce awards arbitrated in favor of U.S. citizens; 4) affords preferential
treatment to goods from other countries to the detriment of U.S. commerce; 5) broadcasts U.S.
copyrighted material without permission; 6) has not signed an extradition agreement with the
United States, or 7) is not taking steps to afford internationally recognized worker rights. Thus,
the unilateral nature of the arrangement is clear: meet U.S.-defined eligibility criteria and 11
selective imports will be granted trade preferences. No negotiation is involved.
Provided a good is wholly the “growth, product, or manufacture” of, and imported directly from,
a beneficiary country, it may enter the United States duty free or at a reduced rate of duty. There
were, however, significant exceptions for articles defined by Congress as “import sensitive.”
These included textiles and apparel subject to textile agreements under the Multi-Fiber 12
Arrangement (MFA), petroleum products, footwear, handbags, luggage, flat goods, work gloves,
leather wearing apparel, canned tuna, and watches or watch parts. Under the rules of origin, 35%
of the article’s value of labor and parts had to originate in a beneficiary country, although some 13

15% of the 35% could be of U.S. origin.

A number of special provisions also applied. First, all Caribbean imports were still subject to
safeguard measures (resumption of tariffs) if the imports were shown to increase in quantities that
would hurt U.S. producers. Also, special treatment was accorded to some import-sensitive goods. 14
CBERA gave ethanol imports duty-free entry if produced under certain conditions and sugar
imports from the region entered under a tariff rate quota (TRQ)—duty free up to a specified quota
and then taxed at prohibitively high levels.
Congress also required that the United States International Trade Commission (USITC) produce
regular reports on the effects of the preference program. The USITC found that for the first five
years, the impact was relatively small, with imports from beneficiary countries expanding at
slower rates than imports from the rest of the world. CBERA eligible products, nonetheless, grew
from 6.7% of total imports from CBERA beneficiary countries in 1984, to 7.4% in 1985, 11.1%
in 1986, 12.7% in 1987, and 13.0% in 1988. Even these numbers overstate the effects because
there was an increasing shift from use of duty-free access under GSP to CBERA, so the marginal
increase in duty-free goods that entered exclusively under CBERA was small.
Under CBERA, textile and apparel products were excluded from receiving tariff reductions,
despite the fact that they are a major manufacturing export (and job creating) sector for the
region. Textile and apparel articles are considered highly import sensitive in the United States and
elsewhere, and their trade was controlled by quotas defined in bilateral textile agreements
permitted under the MFA. In 1986, President Reagan, by executive order, established a Special
Access Program (SAP) that granted guaranteed access levels (GALs) for apparel from eligible

11 Some of these conditions may be waived by the President for national security reasons. Other requirements were also
in force. For a summary, see U.S. Congress. House. 109th Congress. 1st Session. Committee Print. Committee on Ways
and Means. Overview and Compilation of U.S. Trade Statutes. Part I of II. June 2005. pp. 23-24.
12 Recast in 1994 under GATT as the Agreement on Textiles and Clothing (ATC), it was the framework for the global
bilateral textile quota agreements that were finally phased out on January 1, 2005.
13 P.L. 98-67, section 213.
14 Ibid, pp. 26-28 and CRS Report RS21930, Ethanol Imports and the Caribbean Basin Initiative (CBI), by Brent D.

CBERA countries, provided it was assembled from fabric formed and cut in the United States. 15
GAL shipments paid duty only on the value added abroad.
Following implementation of the SAP, there was an sudden large increase in apparel imports from
CBI countries. Importantly, the increase occurred because of changes in U.S. textile policy, not
the CBERA. The increase in demand for Caribbean apparel articles at this time was evident
nonetheless, driven by their relatively low cost, production proximity, and higher quota
restrictions that Asian producers still faced. Tariffs on textile and apparel goods from the CBI
countries, however, remained a significant barrier and would not be addressed in legislation until 1617

2000. The SAP did not apply after elimination of the world textile quotas on January 1, 2005.

Soon after the original CBERA went into force, concern over the effectiveness of its trade
preferences surfaced. Two issues stood out: 1) expanding the program to include a greater number
of Caribbean goods, and 2) making the program permanent. The legislation as initially proposed
would have extended additional tariff benefits to textiles, apparel, sugar, petroleum, leather
goods, and other items left out of the 1983 legislation. It also would have repealed the September

30, 1995 termination date, making the duty preferences permanent.

As the initiative made its way through the legislative process, however, many of the preferences
that might have had the greatest economic impact on the Caribbean, like the textiles and apparel
provisions, were stripped from the bill. This change allowed the Caribbean Basin Economic
Expansion Act of 1990 (referred to as “CBI II”) to be passed as Title II of the Customs and Trade
Act (P.L. 101-382). It made permanent the existing CBI preferences for beneficiary countries, but
extended them only to a few new products. Changes included a limited phased-in tariff reduction
for handbags, luggage, flat goods, work gloves, and leather goods not eligible for GSP treatment,
and duty-free and quota-free treatment for articles other than textiles, apparel, and petroleum
products that are assembled or processed from U.S. components. There were also new limited
benefits for ethanol imports and a few non-trade incentives. CBI imports were also given an
exception from antidumping (AD) and countervailing duty (CVD) cumulation rules, making it
harder to show that U.S. firms had experienced material injury from those imports.
On January 1, 1994, NAFTA took effect, altering the relative tariff situation in the region and
igniting a debate over parity issues related to competing trade agreements and arrangements.
Imports from Mexico received much reduced tariffs or duty-free treatment under NAFTA, which

15 USITC, Production Sharing: Use of U.S. Components and Materials in Foreign Assembly Operations, 1995-1998,
pp. A-4 and A-5.
16 USITC. Annual Report on the Impact of the Caribbean Basin Economic Recovery Act on U.S. Industries and
Consumers. Sixth Report. Washington, DC, 1990. pp. 1-6 and 2-9.
17 USITC. The Impact of the Caribbean Basin Economic Recovery Act: Eighteenth Report, 2005-2006. USITC
Publication No. 3954. September 2007. pp. 2-27.

as it phased in over 14 years, conveyed to Mexico an increasingly large benefit. Preferential
access for textile and apparel goods would be applied not only to the value of U.S. content, but
importantly, to the value added in Mexican production. Imports were subject to detailed rules of
origin generally limiting content of traded goods to materials made in the NAFTA countries, thus
excluding CBI countries.
The effects seemed apparent; two-way trade in textiles and apparel between the United States and
Mexico rose 218% from 1993 to 2002, some of it presumably to the detriment of apparel 18
production in the Caribbean. NAFTA eliminated much of the relative trade advantage that the
CBI countries had enjoyed over Mexico since 1984, and gave Mexico a distinct advantage in
apparel production, which was a dominant export sector for many of the Caribbean countries as
well. Mexico’s much larger economy and production capacity for textiles and apparel became an
immediate threat to income and employment in the CBI countries, which began to lobby for U.S.
trade preferences equal to those of Mexico. This became known as the CBI/NAFTA parity issue.
While some in Congress were sympathetic to CBI country claims, particularly after the region’s
devastation from Hurricanes Georges and Mitch in 1998, it took years to gather the support to
pass legislation. The idea was to provide the CBI countries with NAFTA-equivalent preferences
until such a time that they could either accede to NAFTA, or enter into a similar reciprocal FTA
with the United States. Because textile and apparel trade was at the heart of the program, the
legislation had to overcome resistance from import-competing U.S. manufacturers. Nonetheless,
on May 18, 2000, following Congressional passage, the Caribbean Basin Trade Partnership Act
(CBTPA—P.L. 106-200) was signed into law, extending additional benefits for a “transition
period” of eight years ending September 30, 2008, or until a beneficiary country signs an FTA
with the United States. Congress extended these benefits, unchanged, for two years in the Food,
Conservation, and Energy Act of 2008 (H.R. 6124, P.L. 110-246).
Eligibility for CBTPA benefits include all those under CBERA, plus an additional emphasis on
countries meeting their trade obligations under the World Trade Organization (WTO) and making
progress toward some type of FTA with the United States. The most important provisions provide
that certain articles excluded from CBERA that meet NAFTA rules of origin may receive NAFTA
tariff treatment, specifically: canned tuna, petroleum products, footwear, handbags, luggage, flat
goods, work gloves, and leather-wearing apparel.
Textile and apparel articles were also given essentially NAFTA-equivalent treatment. Those
assembled in beneficiary countries are eligible for duty-free and quota-free treatment subject to 19
rules of origin, provided they are assembled from fabrics made and cut from U.S. yarns.
However, articles in which the fabric is also cut in the CBTPA country may also enter duty free, if
the parts are sewn together with U.S. thread. Limited amounts of knit apparel (except socks)
using U.S. yarns are also given duty-free treatment, as are certain brassieres, handloomed,
handmade, and folklore articles, textile luggage, and articles made from materials not available,
or materials demonstrated not to be available in commercial quantities, in the United States. The
apparel duty preferences were later modified in the Trade Act of 2002, requiring that imported 20
knit and woven garments using U.S. fabric be dyed, printed, and finished in the United States.

18 CRS Report RL31723, Textile and Apparel Trade Issues, by Bernard A. Gelb.
19 For a summary, see U.S. Congress, Overview and Compilation of U.S. Trade Statutes. op.cit., pp. 32-33.
20 For details, see USITC. The Impact of the Caribbean Basin Economic Recovery Act: Eighteenth Report, pp. 1-10
thru 1-13.

The CBTPA also prohibits illegal transshipment of textile and apparel products and directs the
President to have the USTR convene meetings with CBTPA beneficiary countries to encourage
movement toward a free trade agreement with the United States.
When the Dominican Republic-Central America-United States Free Trade Agreement (CAFTA-
DR) began to be implemented on March 1, 2006 (P.L. 109-53), the trade preference landscape 21
shifted again. CAFTA-DR leads to nearly full free trade between the United States and member
countries when it is fully implemented. Provisions covering textile and apparel, the largest U.S.
import category from the region, were enhanced from those offered under CBTPA, and made
permanent. They provide for immediate elimination of duties on textiles and apparel that meet
rules of origin, which are even more flexible than in other preferential agreements and FTAs,
including the CBTPA. Stated briefly, provided components are sourced in any one of the member
countries, the finished assembled product may be exported to the United States duty free.
Generally, the intent of the agreement is to build on the history of increasingly flexible CBI
programs that allow apparel producers in the region to combine materials and production in 22
various ways and still receive duty-free access to the U.S. market.
CAFTA-DR, much like NAFTA a decade earlier, created parity problems for other producers in
the region that cannot export under these relaxed rules of origin or reduced tariffs. Mexico was
one, but the United States agreed in principle in January 2007 to harmonize the rules of origin as
applied to NAFTA and CAFTA, which will allow Mexican and Central American producers to 23
use each other’s inputs without penalty, further integrating the region’s apparel production. Haiti
was not included in this deal, which caused Congress subsequently to pass separate legislation
covering Haitian apparel imports (see below). The rest of the CBI countries, however, are at a
disadvantage relative to NAFTA, CAFTA-DR, and Haiti with respect to trade preferences in
general, and their effect on apparel trade in particular.
To respond to concerns over Haiti’s apparel parity issue, as well as its broader development th
challenges as the poorest country in the Western Hemisphere, the 109 Congress amended the
CBI programs with passage of the Haitian Hemispheric Opportunity through Partnership
Encouragement Act of 2006 (HOPE I), Title V of the Tax Relief and Health Care Act of 2006
(P.L. 109-432). It was implemented on March 19, 2007. The act provided special trade rules for
Haitian goods, including duty-free treatment for select apparel imports made in part from less
expensive third country (e.g. Asian) yarns and fabrics, provided Haiti meets eligibility criteria
related to promoting core labor rights, human rights, and anti-poverty policies. To address th
concerns that the HOPE Act was not having the full desired effects, the 110 Congress enhanced
the rules and preferences in the Food, Conservation, and Energy Act of 2008 (H.R. 6124/P.L. 110-

21 The United States implemented the CAFTA-DR on a rolling basis upon each country complying with the
agreement’s legal and regulatory obligations. On January 1, 2009, Costa Rica became the sixth and final country to
implement the agreement.
22 USITC. U.S.-Central America-Dominican Republic Free Trade Agreement: Potential Economywide and Selected
Sectoral Effects. USITC Publication 3717. August 2004. pp. 27-30.
23 Latin American Newsletters. Latin American Mexico and NAFTA Report. February 2007. p. 14.

246)—the Farm Bill, Title XV of which includes the Haitian Hemispheric Opportunity through 24

Partnership Encouragement Act of 2008 (HOPE II).
The duty preferences are significant because the United States is the main destination for Haitian
apparel exports, its dominant export sector, generating as much as 80% of the country’s foreign
exchange. In 2007, apparel constituted over 80% of Haiti’s total exports and 93% of exports to
the United States (81% knit, 12% woven articles), so the sector provides one potential avenue for
employment growth. The preferences also support textile firms in the Dominican Republic, which
have an expanding co-production arrangement with Haiti.
Because HOPE I did not result in dramatic growth in Haitian textile exports to the United States,
inhibited by the limited time frame and complicated rules of origin, Congress passed HOPE II,
which extended tariff preferences for 10 years through September 30, 2018, made the rules more
flexible and simpler, expanded duty free treatment for U.S. apparel imports of knits as well as
woven articles, and allowed for direct shipment of apparel articles to the United States from either
Haiti or the Dominican Republic. HOPE II also requires that Haiti create a new apparel sector
monitoring program (Labor Ombudsman) to ensure compliance with internationally recognized
core labor practices.
The HOPE Act, as amended, differs from other U.S. apparel trade arrangements with the
Caribbean. Unlike those in the CBTPA, of which Haiti is a beneficiary country, and the CAFTA-
DR, which does not include Haiti, the HOPE Act permits duty-free treatment for apparel imports
in limited quantities assembled or knit-to-shape in Haiti with inputs from third-party countries, or
those outside the region that are not a party to either a preferential trade arrangement or free trade
agreement with the United States. The competitive advantage to Haitian firms derives from their
ability to use less expensive inputs sourced from virtually anywhere in the world and still receive
duty-free treatment. To the extent that this advantage is in place for an extended period of time, it
is intended to encourage increased investment in the apparel assembly business in Haiti,
contributing to growth in output, employment, and exports. Critics have argued, however, that
this advantage could come at the expense of other regional producers, although the effects have 25
so far been judged to be very small.

To promote export-led growth in CBI countries, the U.S. Congress has approved multiple trade
preference programs over the past three decades (production sharing, GSP, CBERA, CBI II,
CBTPA, and the HOPE Act), as well as two free trade agreements (NAFTA and CAFTA-DR).
Each one amended trade rules and tariff preferences in ways designed to increase U.S. imports th
from CBI countries. Although legislative action in the 110 Congress focused on enhancing Haiti
trade preferences and extending the CBTPA, there has been a longer term trend toward the
implementation of free trade agreements in the region. Before considering this change, this
section assesses the effects of unilateral trade preference programs by identifying changing trends 26
in U.S. imports from the CBI countries.

24 For details, see CRS Report RL34687, The Haitian Economy and the HOPE Act, by J. F. Hornbeck.
25 See United States International Trade Commission. Textiles and Apparel: Effects of Special Rules for Haiti on Trade
Markets and Industries. Washington, D.C. USITC Publication 4016. June 2008. p. 3-6.
26 This discussion draws on a more detailed analysis in USITC, The Impact of the Caribbean Basin Economic Recovery

Table 1 displays trends in U.S. imports from CBI countries since the CBTPA program began,
with imports presented as entering either as dutiable or duty free under various preference 27
programs. Table 1 is divided into three major sections. In section one, the dutiable value,
calculated duty, and average duty applied to aggregate CBI imports show a general downward
trend from 2000 to 2006. The exception is the rise in dutiable value of imports in 2004 and 2005,
which is associated with increased imports of petroleum products from Aruba, the Netherlands
Antilles, and The Bahamas that are not eligible for CBTPA duty-free treatment. The 2006 decline
reflects an increase in duty-free imports that offset this trend.
Table 1. U.S. Imports from CBI Countries by Dutiable Category, 2000-2006
Duty Category: 2000 2001 2002 2003 2004 2005 2006
-Dutiable Value, all imports ($ mil ) 7,778 5,590 5,462 4,902 5,770 7,181 5,033
-Calculated Duty 915 578 496 513 457 483 190
($ thousands)
-Average Duty (%) 11.8 10.3 9.1 10.5 7.9 6.7 3.8
Dutiable Value— 35.2 27.2 25.8 20.2 21.0 22.7 19.7
All Imports: (%)
-Production sharing 12.7 6.8 4.5 3.4 3.5 2.5 1.3
-Other dutiable 22.5 20.4 21.1 16.4 17.2 20.2 18.3
Duty-free Value—All Imports: (%) 64.7 72.9 74.2 79.8 79.0 77.3 80.3
-NTR 30.1 27.3 27.5 33.2 35.4 34.9 38.6
-Production sharing 21.0 6.7 3.2 1.7 1.8 1.3 0.8
-CBERA 11.7 12.7 13.7 12.2 11.0 11.2 15.4
-CBTPA 0.7 24.9 28.6 30.7 28.8 27.7 23.3
-GSP 0.9 0.9 0.4 1.0 1.3 1.5 1.5
-Other duty-free 0.3 0.4 0.7 0.9 0.7 0.6 0.7
Imports entering CBERA/CBTPA (%) 12.6 40.2 47.1 42.6 39.7 38.8 38.5
Exclusively under CBERA/CBTPAa(%) 6.8 22.9 31.5 30.2 30.1 30.9 31.7
a. Means goods would not have entered duty free under any other program.
Source: USITC. The Impact of the Caribbean Basin Economic Recovery Act. Seventeenth Report, 2003-2004.
September 2005. pp. 2-10, 2-11, and 3-4, and The Impact of the Caribbean Basin Economic Recovery Act,
Eighteenth Report, 2005-2006. September 2007. pp. 2-10 to 2-13 and 3-3.
The average duty on goods from the CBI countries continued to fall, particularly in 2006 when
the CAFTA-DR was implemented for four countries, reducing greatly the value of dutiable

Act, Eighteenth Report, September 2007.
27 To simplify Table 1, a small percentage (less than 1%) of imports that enter under reduced duties per various
programs has been combined with “other dutiable” imports.

imports of textile and apparel products entering under CBTPA. These trends correspond with the
increasing percentage of duty-free goods entering the United States shown in the seventh row. In
disaggregating these data, as discussed below, it is important to distinguish between two types of
trends in the tariff preference programs, those that allow new categories of goods to enter the
United States duty free, counted as increased trade because of trade preferences, and those that
merely switch goods from one preference category to another (e.g. from GSP to CBTPA),
accounting for little net increase in preferential trade.
In the second section of the table, note that the dutiable value of total imports has fallen from
35.2% in 2000 to 19.7% in 2006, associated with two trends: final implementation of the WTO
Uruguay Round commitments, which shifted some imports from the CBERA to the NTR (other)
duty-free category, and more significantly, the implementation of CBTPA for textile and apparel 28
articles. Note the growing relative importance in the percentage of dutiable goods entering the
United States under the “other dutiable” category, or NTR rates.
The real story can be seen in the duty-free categories. The duty-free portion of U.S. imports of
CBI goods has grown from 64.7% to 80.3% in the six years ending 2006. Note, however, that
there has been no significant change in the percentage of duty-free goods entering under the
CBERA, GSP or “other duty free” categories, except for the CBERA category in 2006. Articles
entering under the older production sharing program, by contrast, have fallen sharply. There was a
slight increase in the portion of goods entering NTR duty-free, while those entering under CBTPA
grew suddenly at first, but declined somewhat in 2006. Taken together, these trends point first to a
switch in apparel goods in 2001 that entered under the CBTPA that had previously entered under
production sharing preferences, and a modest increase in the value of new imports eligible for
duty-free treatment. By 2006, the decline in duty-free imports entering under CBTPA due to the
effects of CAFTA-DR is evident, and there was an increase in goods newly entering duty-free 29
goods under CBERA.
In section three, the last two rows of Table 1 highlight that the total imports entering under the
combined CBERA and CBTPA provisions rose from 12.6% of total CBI imports in 2000 to

38.5% in 2006. In addition, the amount that entered exclusively from these preferences, that is,

could not have entered under any other program such as GSP, rose from 6.8% of total imports to 30
31.7%. This trend suggests that the benefits of these two programs as defined in current law
have probably stabilized, and again points to the sharp increase in duty-free imports that occurred
after CBTPA was implemented. This point reinforces the fact that the original CBERA program
appeared to have had limited effect, whereas the CBTPA textile and apparel preferences appeared
to have provided a more robust response.
These trends are consistent with the intent, expectations, and evolution of the preferences
programs, but demonstrate that for nearly 17 years their effects were less than might have been
expected until the CBTPA was implemented. The CBTPA trade appeared quickly, but stabilized
by 2002. Variations in trends in 2005 and 2006 point to two overriding factors: the large price
increase in energy-related imports and the implementation of CAFTA-DR. The increase in the

28 USITC. The Impact of the Caribbean Basin Economic Recovery Act: Seventeenth Report, 2003-2004. USITC
Publication No. 3804. September 2005. p. 2-12.
29 USITC, The Impact of the Caribbean Basin Economic Recovery Act: Eighteenth Report, pp. 2-11 to 2-13.
30 For more detailed data, ibid., pp. 2-13 and 3-3.

NTR duty-free category is the one possible anomaly, which along with understanding the specific
effects of each preference program, requires a more detailed analysis at the product level.
Not all CBI exports were affected equally by the tariff preferences. Major product categories
shown in Figure 2 include imports from current and former CBI countries (including those goods
that enter now under the CAFTA-DR), three of which stand out in importance: mineral fuels, knit
apparel, and woven apparel. In 2006, together they composed 54% of U.S. imports from these
countries. The mineral fuels group stands apart as a combination of products that received new
benefits under CBTPA or entered NTR duty free when the final Uruguay Round commitments
phased in, and were therefore, switched out of the CBERA category. The percentage increase also
reflects large increases in energy prices at that time. All liquefied natural gas and anhydrous
ammonia, as well as most heavy fuel oil and light fuel oil, have NTR rates of zero and account for 31
most of the increase in the portion of duty-free NTR goods.
Figure 2. U.S. Imports from CBI Countries, 2000 and 2006
Data Source: U.S. Department of Commerce.
Trends in the apparel industry are more germane to this report as the key value-added Caribbean
export industry targeted by CBTPA. Table 1 indicates that there has been an increase in the value
of duty-free apparel goods that entered under CBTPA as discussed above, largely attributable to
preferences that encouraged a shift in content mix of apparel that for the first time allows fabrics
to be cut in the region. Yet, as the USITC has noted, from 2000 to 2006, U.S. imports of apparel
goods from the CBI countries declined from 13% of total apparel imports worldwide in 2002 to 32
only 5% in 2006. This trend points to the effects of CAFTA-DR on CBTPA imports of apparel,
and also, that even with growth in imports from the CBTPA preferences, the CBI countries’

31 Ibid., pp. 2-6 and 2-10.
32 Ibid., p. 2-18.

relatively high production costs compared to their Asia competitors makes it difficult for them to 33
maintain U.S. market share.
There were 24 countries in the original CBERA group until the CAFTA-DR took effect (see
Appendix). Once implemented, the CAFTA-DR benefits superseded those provided under
CBERA and the CBTPA. U.S. imports from all 24 countries from 2000 to 2006 are presented in
Table 2.
For 2005, the last year all 24 countries received full-year CBI preferences:
• 50% of U.S. imports originated in only the top three CBI countries; 90% in the
top eight;
• the number one exporter by value (25%) was Trinidad and Tobago, which is
explained by its mineral fuels exports (see also Figure 2);
• the other top exporters to the United States (Dominican Republic, Costa Rica,
Guatemala, Honduras, El Salvador) are all major apparel manufacturers, with
Costa Rica’s trade increasingly dominated by semiconductors, which enter NTR
duty free (details not shown);
• the top six CBI exporting countries, not including energy producers Trinidad and
Tobago and Aruba, accounted for 95.6% of Caribbean textile and apparel exports
to the United States;
For 2007, the second year that the CAFTA-DR was in effect:
• imports from the five countries that had so far implemented the agreement
(bolded in Table 2) were valued at $15.0 billion, or 44.4% of total imports from
the current and former CBI countries. With the inclusion of Costa Rica, the sole
holdout at that time, the total would be $19.0 billion, or 56.1% of total imports
from these countries;
• if imports from CAFTA-DR and energy exporting countries are not included, the
remaining U.S. imports amounted to less than 10% of the total from beneficiary
countries, and only a portion of that amount would be eligible for tariff 34

33 Ibid., p. 2-24 and USITC, The Impact of the Caribbean Basin Economic Recovery Act: Seventeenth Report, pp. 2-18
and 2-19.
34 Another way to make this point is to show the dominance of the CAFTA-DR countries as a portion of imports
entering under CBERA/CBTPA. For 2004, when all these countries were still beneficiaries under the CBI preference
programs, imports from the countries that would later become parties to the CAFTA-DR represented 79.1% of imports
that entered the United States under CBERA or CBTPA.

Table 2. U.S. Imports by CBI Country, 2000-2007
($ millions)
Country 2000 2001 2002 2003 2004 2005 2006 2007
Trinidad and Tobago 2,228 2,380 2,440 4,334 5,842 7,891 8,362 8,789
Dom. Rep. 4,383 4,183 4,169 4,455 4,527 4,604 4,532 4,215
Costa Rica 3,539 2,886 3,142 3,364 3,333 3,415 3,844 3,941
Honduras 3,090 3,126 3,261 3,313 3,640 3,749 3,717 3,912
Guatemala 2,607 2,589 2,796 2,947 3,154 3,137 3,102 3,026
Aruba 1,536 1,034 774 955 1,776 2,920 2,845 2,995
El Salvador 1,933 1,880 1,982 2,020 2,052 1,989 1,857 2,044
Nicaragua 588 604 680 770 990 1,181 1,526 1,603
Neth. Antilles 719 485 362 632 435 922 1,119 782
Jamaica 648 461 396 423 320 376 528 721
Haiti 297 263 255 332 371 447 496 504
Bahamas 275 314 450 479 638 700 453 488
Panama 307 291 303 302 316 327 379 365
Belize 94 97 78 102 107 98 147 106
Guyana 140 140 116 119 122 120 125 123
St. Kitts/Nevis 37 41 49 45 42 50 50 54
Barbados 39 40 34 44 37 32 34 38
St. Lucia 22 29 19 13 14 32 30 33
Brit. Virgin Is. 31 12 41 35 17 34 26 43
Antigua/Barb 3 4 4 13 5 4 6 9
Grenada 27 24 7 8 5 6 5 8
Dominica 7 5 5 5 3 3 3 2
St. Vincent/the Grenadines 9 23 17 4 4 16 2 1
Montserrat 0a 0a 0a 1 0a 1 1 1
Total 22,559 20,911 21,380 24,715 27,750 32,054 33,189 33,803
a. less than 0.5 million.
Data source: U.S. Department of Commerce.
Bold figures reflect that imports are no longer eligible for CBI benefits because the country has implemented the
To summarize, the benefits of CBI trade preferences have been concentrated in a few key
beneficiary countries because of their energy-or apparel-related products, and are diminishing on
a relative basis because of other trade liberalization agreements. The CBTPA has had some
influence on the export patterns of CBI countries, but trends also highlight a shift in duty category
(from HTS9802 production sharing to CBTPA). As mentioned earlier, total U.S. imports of textile
and apparel goods from the CBI countries as a percent of the world import total remained fairly
constant (13%-14%) from 2000 to 2004, but declined to 5% in 2006 when the majority of these
exports began to enter under the CAFTA-DR. These trends raise important questions about

whether and how to increase the relevance of Caribbean preference programs to the remaining
beneficiary countries.

Since first implemented in 1984, Caribbean tariff preference programs were intended to assist
beneficiary countries with enhancing their export-led development strategies. They have
combined U.S. trade preferences with their own proximity-driven niching strategies in a way that
has helped them maintain a relatively small, but important market share in the United States. It is
a strategy that may have led to selective export and economic growth, but the effects may have
run their course given the proliferation of large low-cost Asian producers and increasing
substitution by the United States of the reciprocal FTA for unilateral preferential trade
arrangements in the region. In addition, many economists are skeptical about the efficacy of trade
preferences as a development strategy, pointing to two areas in particular: design and
administration of the preference programs and weak trade effects.
Structural design flaws that limit the effectiveness of unilateral trade preferences is a common
concern. Trade preferences are paternalistic in nature; designed by developed countries to give
“generous” one-way benefits to developing countries, but as unilateral concessions, they are self-35
limiting often for political reasons. For example, critics argue that:
• unilateral agreements are non-binding, often subject to renewal, and can be
denied or suspended (and have been) on a product or country basis, which can
hinder investors from committing more fully to developing economies;
• eligibility criteria are based on foreign policy and political goals of the developed
country, often unrelated to enhancing trade performance, so they are not a
costless proposition for recipients; and,
• program details are subject to domestic economic pressures that typically seek to
exclude import-sensitive articles, which can cause the developed country to apply
higher than average tariffs on these goods for non-beneficiary countries.
The CBI programs are not immune to some of these criticisms. Beneficiary countries have no say
in the design of the tariff preferences, must lobby the U.S. Congress and Executive Branch to
make a case for their continuance, must comply with numerous foreign policy and political
requirements to maintain eligibility, and have not always been able to export key products under
preference programs. Results of the CBERA program disappointed some because of its many
limitations. Even with CBI II making the program permanent and the CBTPA adding many new
products to the list of eligible exports, including textile and apparel articles, success has not been

35 Srinivasan, T. N. The Costs of Hesitant and Reluctant Globalization: India. p. 31. http://www.econ.yale.edu/
~srinivas/ and Özden, Caglar and Eric Reinhardt. Unilateral Preference Programs: The Evidence. In: Evenett, Simon J.
And Bernard M. Hoekman, eds. Economic Development and Multilateral Trade Cooperation. World Bank.
Washington, D.C. 2006. p. 190-192, 197-198 and 204-205, and CARICOM Secretariat. Caribbean Trade and
Investment Report 2005. Caribbean Community Secretariat. Georgetown, Guyana. 2006. p. 61.

Critics also fault preferences for their limited trade effects and the distortions they can introduce
into the economies of recipient countries and the global trading system. U.S. tariff preferences 36
offered to the Caribbean countries often:
• replaced tariff with nontariff barriers, usually quantitative restrictions, as is the
case for some goods entering under the CBERA, CBTPA, and HOPE Act;
• have complicated rules of origin that are costly, cumbersome to implement, and
frequently inhibit use of preferences;
• required use of relatively higher-cost U.S. inputs, offsetting the cost
competitiveness benefit of the tariff concessions;
• induce trade growth explicitly through trade diversion (Caribbean apparel instead
of Asian);
• can bias a country’s investment pattern toward particular industries, limiting
incentives to diversify their economies, and also prolonging other market-based 37
• can induce recipients to limit export promotion and increase barriers to entry in
industries facing CBI quantitative restrictions, and;
• can act as a disincentive to support multilateral trade negotiations, given they can
erode regional preference margins.

For over 40 years, the United States has provided some type of trade preference program to the
countries of the Caribbean Basin. Given changing trade relations and policies in the United States
and the Caribbean, the time for evaluating these programs is ripe. In particular, with the largest of
the (now former) CBI economies implementing CAFTA-DR, an important U.S. trade policy
question is what to do with the smaller, and perhaps most vulnerable, Caribbean nations that still
rely on the CBI preferences to some extent. Options include 1) allow trade preferences to expire;
2) renew them as is or with more generous, targeted, and flexible rules; or 3) replace them with an
One option is to allow the trade preference programs to expire. The CBTPA, perhaps the most
effective of the programs, was set to expire on September 30, 2008, but Congress extended the
preferences unchanged for two years. CBERA is permanent and would require an act of Congress
to terminate. The CARICOM countries have expressed a desire to retain the trade preferences,

36 Özden and Reinhardt, Unilateral Preference Programs: The Evidence, p. 191, and CARICOM Trade and Investment
Report 2005, pp. 61-62.
37 In fact, the two major industries affected show limited promise for growth. Energy-based exports are limited by
available resources and manufacturing is done on such a small scale as to be increasingly less competitive with Asian

even though they have not been big users of the program. Allowing the programs to expire would
likely raise the stakes in the debate over a potential bilateral FTA with the United States. In any
case, even if the preferences are not widely used, eliminating them is a step backwards in the
CARICOM countries’ strategy of seeking special and differential treatment in trade agreements
with developed countries.
A second option is to consider redefining the unilateral preference programs in a way that might 38
provide more benefit to the CARICOM countries. This option recognizes that while the trade
preference programs have not been perfect, they have evolved over time in an attempt to become
more economically relevant to the countries they were designed to help. The evolution from
CBERA through CBI II to CBTPA supports this fact, even if the current preferences are being
eroded by broader trade trends and policies.
The central problem is that except for the energy and chemical exports, which constitute 80% of
CARICOM’s merchandise exports to the United States, there is little for the CARICOM countries
to take advantage of in the CBI preference programs. Apparel goods amount to slightly less than
5% of total CBI exports to the United States and the complexities of U.S. rules of origin and
Caribbean supply constraints raise doubts about the ability of CARICOM countries to expand this
sector significantly. Unless apparel rules of origin are relaxed even further, those products would
not be competitive with those receiving benefits under CAFTA-DR or with Asian goods.
It is conceivable that the CBI programs could be amended to target the specific export sectors of
the CARICOM countries and perhaps deepen existing benefits for certain industries. The
opportunities, however, may be limited. The CARICOM countries are largely service sector
economies (e.g., tourism, financial services, professional services) and do not view enhancing
U.S. market access for goods with the same sense of urgency that many other countries in the
Western Hemisphere do, even if rules of origin and cumulation could be made more flexible.
Trinidad and Tobago, the country that benefits the most from CBTPA given its large energy
related exports, is also most likely to consider an FTA of benefit relative to the smaller island
A third option is to consider a bilateral FTA with CARICOM. It could provide some appeal if
crafted in a way that would benefit the small Caribbean nations, but the difference in
commitments between trade preferences and an FTA could be a hindrance. FTAs operate much
differently than unilateral trade preferences. Trade preferences are unilateral concessions of one
country to another, offering little in the way of recourse to the recipient country if a dispute arises.
FTAs, by contrast, are negotiated agreements with mutual obligations and disputes subject to a
resolution mechanism defined in the FTA. Preferences are also limited commitments, usually
focusing on market access. FTAs are comprehensive, covering a vast array of rules, practices, and
obligations from investment to labor and environment provisions. Preferences are often time

38 Rangaswami, Viji. Nickel and Diming the Poor: U.S. Implementation of the LDC Initiative. Carnegie Endowment for
International Peace. Policy Outlook. July 2006. p. 7.

limited and subject to unilateral suspensions, whereas FTAs are permanent arrangements, codified
by each member in domestic law.
An FTA would be consistent with U.S. trade policy in the rest of the region. The United States’
vision for hemispheric integration has revolved around the comprehensive FTA model as
implemented with Mexico, Canada, Central America, Chile, and possibly in the near future with
Peru, Panama and Colombia. If the integration path were to emanate from a harmonization of
these agreements, having an FTA in place with CARICOM would appear to further the broader
U.S. trade agenda.
The CARICOM countries, by contrast, are a diverse group of mostly island countries with vastly
different economies, and therefore, varying perspectives on trade policy and an FTA with the 39
United States. The more developed economies (energy-rich Trinidad and Tobago and tourism-
driven Barbados) are far more open to the prospects of an FTA than the natural resource-based
countries (Guyana and Jamaica) and the micro economies of the Eastern Caribbean, which have a
fearful reluctance to begin negotiations. All of the CARICOM countries, however, have expressed
some overriding concerns over the limitations of small economies to undertake the obligations of
an FTA without some type of “compensatory mechanism” to replace trade preferences. Among 40
the major concerns are:
• questions over the United States’ willingness to accommodate their need for
special and differential treatment (SDT), such as long phase-in periods to meet
FTA commitments, trade capacity building (TCB) assistance, trade adjustment
assistance (TAA), and perhaps a financial component to implement these 41
• the high transition costs of fiscal adjustment (from a high tariff dependency),
discontinuing protection for manufacturing and agriculture sectors, implementing
obligations like government procurement, intellectual property rights, labor,
environment, sanitary and phytosantiary (SPS) regulations;
• supply-side constraints (dearth of arable land, small-scale production) that limit
their ability to take advantage of market access;
• a perceived lack of support for their growing services trade, particularly
movement of professionals, and concerns over U.S. agricultural subsidies, two
issues the United States is reluctant to address, and
• asymmetrical negotiating capacity.

39 For a historical survey of the different trade regimes, see McBain, Helen. Challenges to Caribbean Economies in the
Era of Globalization. In: Knight, Franklin W. And Teresita Martínez-Verque. Contemporary Caribbean Cultures and
Societies in a Global Context. University of North Carolina Press. Chapel Hill. 2005.
40 Based in part on author interviews during a two-week trip through the Eastern Caribbean in 2006 and CARICOM
Trade and Investment Report, p. 61.
41 CARICOM, Caribbean Trade and Investment Report 2005, p. 61.

A number of issues and circumstances have converged that point up challenges for U.S. trade
policy in the Caribbean region. Among these is the recently renewed, but as yet unchanged,
Caribbean Basin Trade Partnership Act, the benefits of which have been eroded over time by
multilateral trade liberalization and new reciprocal bilateral FTAs. Further, these programs are
little used by the smaller beneficiary countries, which also have expressed a reluctance to move
toward an FTA with the United States without some guarantee of a “development component” to
the agreement, despite the promise of permanent market access and increased investment that an
FTA holds out. The Caribbean countries, long accustomed to dependent economic relationships,
appear content to take a cautious and leisurely path toward any new trade arrangement with the
United States.
For U.S. trade policy, these circumstances present a formidable challenge to any further thoughts
of expanding Hemispheric integration. In fact, broader integration may be difficult to achieve and
still meet the needs of very small developing countries. Their economies are highly vulnerable to
the vicissitudes of global economic trends and weather patterns, and may require new and
creative solutions to make the adjustment to full reciprocal free trade. U.S. trade policy toward
the region has also long had a historical focus on development and regional security issues in
addition to trade liberalization, suggesting that trade liberalization likely will not be the only
factor to determine policy. In the context of deciding whether to continue with trade preferences
in similar or altered form, or opt for an FTA, deeper discussion, let alone agreement, has yet to

Antigua and Barbuda Grenada Panama
Aruba Guyana St. Kitts and Nevis
Bahamas Haiti St. Lucia
Barbados Jamaica St. Vincent and the Grenadines
Belize Montserrat Trinidad and Tobago
Dominica Netherlands Antilles British Virgin Islands

Barbados Haiti St. Lucia
Belize Jamaica Trinidad and Tobago
Guyana Panama

Antigua and Barbuda Grenada St. Kitts and Nevis
Bahamas Guyana St. Lucia
Barbados Haiti St. Vincent and the Grenadines
Belize Jamaica Suriname
Dominica Montserrat Trinidad and Tobago

42 As listed in the Harmonized Tariff Schedule of the United States (2009). The CAFTA-DR implementing Act (P.L.
109-53) modifies the CBERA legislation by adding the designationformer beneficiary country,” meaning a country
that ceases to be designated as a beneficiary country under CBERA because it has become a party to the CAFTA-DR.
These countries include Guatemala, Honduras, Nicaragua, El Salvador, the Dominican Republic, and Costa Rica,
which have implemented the CAFTA-DR, essentially trading their benefits under CBERA for equal or better treatment
under the free trade agreement.
43 As listed in the Harmonized Tariff Schedule of the United States (2009). P.L. 109-53, as with the CBERA, amends
CBTPA status by including a new category of “former beneficiary country, which includes the six CAFTA-DR
countries. In cases where a good is produced in both a former and current CBTPA country, it shall not receive any less
treatment than as if it had been produced by a CBTPA country.
44 For an overview of CARICOM, see CRS Report RL34308, CARICOM: Challenges and Opportunities for Caribbean
Economic Integration, by J. F. Hornbeck.

J. F. Hornbeck
Specialist in International Trade and Finance
jhornbeck@crs.loc.gov, 7-7782