President Obama has designated June as Caribbean-American Heritage month. This seems the appropriate time to examine the status of US-Caribbean trade relations. The following is a background brief prepared for the Institute of Caribbean Studies (ICS) 13th annual Caribbean-American Legislative Forum.
What can the Caribbean expect from its trade relationship with the United States? No more than the Caribbean is able to negotiate for itself. Yet the number of issues left unresolved keep mounting with what appears to be little engagement by either side.
CBI vs FTA
Should the future of U.S.-Caribbean trade continue to rest on the CBI preference program which provides unilateral access to the U.S. market for Caribbean goods? The Caribbean Basin Initiative, or CBI, trade preference program, initially launched in 1983 was made “permanent” in 1990, with an extended component which expires in 2020 or upon passage by legislation of a free trade agreement (FTA) between the United States and one or more beneficiary countries.
This permanence is nevertheless subject to a waiver from the World Trade Organization to allow the United States to provide trade benefits that it does not to other WTO members. The current waiver was granted only after overcoming opposition from other developing countries and a lapse of several years; it expires in 2014. At that point in time the United States will need to request another waiver. Should, or will the United States be willing to expend the political capital to do so?
Meanwhile, much has changed since 1983. The Caribbean region is now a net exporter of services, with that sector accounting for 70% of total annual GDP and employment of the economies of CARICOM member states. The United States has signed FTAs with many of the original CBI beneficiary countries, in effect leaving in the program only the English-speaking Caribbean countries. The Caribbean has signed an Economic Partnership Agreement (EPA) with the European Union but has been unable to find an appropriate formula around which to engage the United States in negotiation of a bilateral trade agreement to replace the CBI.
Or is it perhaps more fitting for the region to engage the United States on the issue of reform of the existing CBI rules? The United States has been working to reform its existing trade preference programs to ensure that the benefits are concentrated on those countries that are truly in need of the margin of preference in order to be competitive. CBI, as well as the Generalized System of Preferences or GSP, remains of great interest and value to the Caribbean region. The region could benefit from reforms to the CBI to address the onerous rules of origin, to include services, and to address shared areas of interest in energy and the environment. At the same time, it should also not take for granted continued inclusion in these existing preference programs as one of the expected results of any reform is the graduation of countries which are considered ready to negotiate a more “mature” trade relationship with the United States. The region’s negotiation of the EPA with the EU could be taken as evidence of such maturity.
Increased Cooperation & Support for Capacity-Building
In the post 9/11 era the United States has increased the regulatory requirements placed on those countries wishing to trade and generally conduct business with its citizens or within its borders:
Food Security: A 2011 U.S. food security law subjects food imports to increased requirements. Importers will be required to verify the safety of foreign suppliers; foods lacking such certification may be rejected. The proposed FDA model for an importing country’s food safety system would require that it be comparable to that of the U.S. food safety system.
Port Security: Legislation introduced in 2006 mandates increased security procedures at foreign ports shipping into the United States and around cargo entering the United States. While some countries in the region have been able to comply with these new requirements, others remain non-compliant. These measures enhance the security environment not only for the United States but also the Caribbean, which may nevertheless need financial and technical assistance to absorb the costs of compliance.
Financial Security: The 2011 International Narcotics Control Strategy Report identified six (6) Caribbean territories as havens for tax evasion, money laundering, and other financial crimes. The named territories are – Antigua & Barbuda, the Bahamas, Belize, the British Virgin Islands, the Cayman Islands, and Haiti. The report acknowledges that the countries have the appropriate laws in place, but lack the capacity and resources to police and prosecute offenders. It is also worth noting that some of these countries have been building off-shore banking and financial sectors. In fact, a bill introduced in 2007 but not yet passed, names fifteen (15) Caribbean countries as tax havens and threatens to place them on a blacklist. Non-compliance with U.S. financial security requirements places countries at risk of being declared ineligible to receive U.S. foreign assistance, including benefiting from U.S. trade preference programs.
Re-Shaping a Third Border Initiative
Geography has, for better or worse, ensured that the United States and the Caribbean will continue to share a “third” border. The Caribbean Basin Security Initiative (CBSI) announced earlier this year by the Obama Administration indicates that it intends to make it a priority to address the shared national security concerns. Meanwhile, the unresolved issues highlighted here are being added to even older issues and threats: poverty-reduction and development, job creation, and threat of natural disasters – all of which could undermine any headway made by the CBSI. It is up to the Caribbean states to engage the United States around this reality.
Prepared for Institute of Caribbean Studies 13th Annual Caribbean-American Legislative Forum.