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

Publication Date: June 2007

Publisher: Library of Congress. Congressional Research Service

Author(s):

Research Area: Trade

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Abstract:

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) begun in the mid-1980s. Since then, the growing number of reciprocal U.S. free trade agreements (FTAs) in the region have effectively replaced preferential trade arrangements, signaling a shift in U.S. trade policy and raising questions with respect to the future of those mostly smaller countries still relying on trade preferences. This report discusses the evolution of U.S. trade policy toward the Caribbean, focusing on the implications of moving from unilateral tariff preferences to reciprocal FTAs.

The U.S. Congress has approved multiple trade preference programs over the past three decades (production sharing, GSP, CBERA, CBI II, CBTPA, and HOPE Act of 2006). Each one amended trade rules and tariff preferences in ways designed to increase imports from CBI countries. Trade grew and many of the goals for development were supported. Evaluations of the benefits, however, suggested that they may not have been as robust as originally expected. Benefits tended to be concentrated in a few countries and products, often skirting industries with the greatest potential to stimulate exports. Also, the benefits of preferences are being eroded by multilateral trade liberalization and recently implemented FTAs.

A number of issues and circumstances are converging during the 110th Congress that will be a challenge for U.S. trade policy in the Caribbean region. Among these circumstances are the expiring trade preference programs, their limited use by remaining eligible countries, and the reluctance of these countries to make the transition to an FTA with the United States 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 accustomed to dependent economic relationships, appear content to take a cautious and leisurely path toward any new arrangement with the United States.

For U.S. trade policy, which is still committed to achieving regional integration, these circumstances present a special challenge. 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 region, see CRS Report RL32160, Caribbean Region: Issues in U.S. Relations, by Mark P. Sullivan