CARIBBEAN BASIN INITIATIVE (CBI)

The Caribbean Basin Initiative (CBI) was a unilateral and temporary United States program initiated by the 1983 "Caribbean Basin Economic Recovery Act" (CBERA). The CBI came into effect on January 1, 1984 and aimed to provide several tariff and trade benefits to many Central American and Caribbean countries. It arose in the context of a U.S. desire to respond with aid and trade to leftist movements that were active in some countries of the region, such as the guerrillas in El Salvador and the Sandinista government in Nicaragua. Provisions in the CBERA prevented the U.S. from extending preferences to CBI countries that it judged to be under the influence of Communists or that had expropriated American property.

The "Caribbean Basin Economic Recovery Expansion Act" of 1990, known as "CBI II", made the CBI permanent. However, once the U.S. entered into the North American Free Trade Agreement (NAFTA) in 1994 with Mexico it became easier for Mexico to export its products to the U.S. CBI countries had lost their advantage relative to Mexico, a major competitor in industries such as textiles and apparel, so they sought to increase their own preferences and achieve "NAFTA parity". Those efforts were not successful until the 2000 Caribbean Basin Trade Partnership Act, which was broadened in 2002. Several exports from the region continue to receive preferential status in the U.S., however those preferences will likely be replaced by bilateral free trade agreements, and possibly by the proposed Free Trade Area of the Americas.

In its fundamental elements, the U.S. trade and tariff policy historically has treated both the Caribbean Basin countries and Mexico, in many respects their competitor and a major U.S. trading partner, in an equal manner. Both are accorded most-favored-nation (nondiscriminatory) treatment, to both apply the general tariff advantages of the “production sharing” (also referred as “offshore assembly”) provisions (which have been, in both cases, extensively used by U.S. firms), and, prior to the entry into force of the North American Free Trade Agreement (NAFTA), both were designated beneficiary countries (BDCs) of the U.S. generalized system of preferences (GSP). Until NAFTA, however, most Caribbean Basin countries had a significant advantage over Mexico because of their participation in the Caribbean Basin Initiative (CBI).

With the entry into force, on January 1, 1994, of the preferential tariff and quota

provisions of the NAFTA, however, the earlier advantage of CBI countries over Mexico was totally eroded. Moreover, much of NAFTA’s further staged implementation put CBI countries at a distinct competitive disadvantage compared to Mexico with respect to a substantial portion of U.S. imports from either area. The gap would become even wider with full implementation of NAFTA liberalization (by January 1, 2008). To mitigate, if not eliminate, the adverse effect of the advantages that Mexico already had gained and would continue to gain relative to CBI countries, legislation was introduced in recent Congresses to authorize for imports from CBI countries tariff and quota treatment that is identical with or very similar to that accorded Mexico under NAFTA. This treatment would be of limited duration and, in some instances, with a specific view toward eventual accession of Caribbean Basin countries to the NAFTA or the proposed Free Trade Area of the Americas, or conclusion of an equivalent bilateral agreement with the United States.

To provide an idea of the nature and scope of changes in trade competitiveness between the CBERA countries and Mexico that have resulted from the implementation of the NAFTA, the relevant preferential or special tariff treatments, as applicable, are described below. The aspects of trade policy that apply generally to all (or most) U.S. trading partners (e.g., most-favored-nation/normal-trade-relations status, or production-sharing provisions) are not included in any detail.