STATEMENT OF BRUCE SMART, UNDER SECRETARY OF COMMERCE, INTERNATIONAL TRADE ADMINISTRATION, U.S. DEPARTMENT OF COMMERCE, ACCOMPANIED BY LAWRENCE H. THERIOT, DIRECTOR, CARIBBEAN BASIN BUSINESS INFORMATION CENTER Mr. SMART. Thank you, Mr. Chairman. I found listening to Ambassador Yeutter and members of the committee to be extremely instructive and interesting. The time was well spent. I have a prepared statement submitted for the record. I would just like to make some brief observations on the subject prior to your questions. These observations are from the perspective of a career businessman. I spent 35 years in various manufacturing enterprises and am only recently in the Government, as is Ambassador Yeutter. But I think I concur, in general, with the findings that he has expressed here. I think it is very important to view the whole CBI Program in the proper perspective because there is a great danger that if we pass a program and publicize it, as we must to make it effective, we raise expectations that cannot be realistically filled by the program. Let me explain my concerns. First of all, the problems in the CBI area are extremely large. There are 42 million people there spread over 21 countries, some of which have as few as only a few thousand citizens, others up to 6.4 million. Of that 42 million people, we estimate that about 14 million are in the labor force, and of those 3 million are unemployed and a significantly added number are underemployed. With a GNP of about $50 billion spread across those 21 countries and those 14 million people in the labor force, it would take a great deal of trade to make a significant dent in that unemployment figure. You might figure that it takes something like $5 billion of trade to remove each million people unemployed. Compare this to Ambassador Yeutter's objective of $150 million for textiles. This is clearly a very small part of the $5 billion needed to help 1 million unemployed. The per capita GNP of the area is low. It averages around $1,300 a person. And as was pointed out before, the region's exports to the United States have declined 24 percent in the last 2 years because of the fall in petroleum exports. Because of this condition, the CBI is extremely important. If the problem were simpler, it obviously would be less needed. I think we have made a good start. We have got 285 projects, by a recent count. They represent $208 million of investment and 35,000 jobs. But these must be recognized as small projects, usually by small investors and operating in small economies. Larger projects, by larger companies, take longer to gestate. But we recently have seen an involvement in the area by Coca-Cola, Westinghouse, Motorola, and General Mills, all of which is encouraging. How fast this modernization and diversification of the area will proceed is hard to predict. Each country is different and in most of these projects we are trying to get nontraditional activities started because many of the most natural activities are exempt from GSP or from the CBERA. And most of them, where they involve industries that have quotas for imports to the United States, are not eligible for quota relief. To get a nontraditional enterprise going requires more training, more promotion, more government understanding, and more incentives than might be necessary to get similar results with a natural or traditional activity. What we need to do is covered in detail in my written testimony. But it boils down to two things. We need to work with the CBI governments in a variety of areas to remove the disincentives that may exist to investment by Americans or by others. And we need to focus the attention of U.S. companies on what their opportunities down there are. The Department of Commerce probably has more people than most other agencies combined working on this. We have perhaps 25 people in regional offices in the area, led by 8 professional U.S. and Foreign Commercial Service officers. We have a department of 6 people back in Washington totally dedicated to the CBI Program, and probably another 10 or 12 operating on CBI country desks, who are heavily involved. So we are talking about some 40 people committed to this program. We are setting up the CBI Ombudsman that Ambassador Yeutter referred to. We are cochairing, with him, the CBI Business Promotion Council, which will include businessmen from the American industries particularly interested in this area. We are escalating our attention because we believe this is an important program. But I have to close by saying that governments can only facilitate what the private sector ultimately has to do for itself. We will maintain a vigorous commitment, but I am concerned that we not overpromise and imply that somehow, through this program, we can solve all the economic ills of this area, because I believe sincerely that we can make a difference, but not do all the jobs with this one effort. [The prepared statement follows:] PREPARED TESTIMONY OF BRUCE SMART Subcommittee on Oversight the Good morning, Mr. Chairman. I welcome this opportunity to review progress, in one of this administration's priority programs: Caribbean Basin Initiative, or CBI. Since the start of the CBI in 1984, the Department of Commerce has been assigned responsibility for implementing the provisions of the program through promotion of investment and trade with Central America and the Caribbean islands. Although we are still early in the term of this twelve-year program, I have a progress report on three aspects of CBI: overall trade and investment results, including private private sector reaction, U.S. Government implementation progress, and Caribbean Basin government implementation progress. In my discussion I will show that although the task is difficult, the US and local governments and the private sector are making progress toward our ultimate goal: economically vibrant democracies throughout the Caribbean Basin. We are confident this goal can be reached. Trade and Investment Results In this category, I must report mixed results after two years. -2 Overall, exports to the United States from Caribbean Basin countries dropped from $9.5 billion in 1983 to $7.3 billion in 1985. This is a 23 percent decline, a trend frequently cited by critics of the CBI to claim that the program is not effective. In response I must emphasize, however, that this decline is largely accounted for by the severe slump in petroleum product demand and prices. Other traditional exports of Caribbean Basin countries, such sugar, bauxite and alumina, also are in decline. The most recent reduction of sugar quotas, a result of the Farm Bill passed in the last session of Congress, will worsen the problem and lend further credence to the commonly-voiced complaint that what the United States gives the Caribbean with one hand we take away with the other. Fortunately, Caribbean Basin countries are taking steps to diversify exports and reduce their reliance on traditional products. As proof of this trend, non-oil exports from CBI countries to the United States showed an 11 percent increase in 1985 compared to 1983. Exports to the U.S. of non-traditional products such as furniture, electronics, seafood, winter fruits and vegetables, and garments increased almost 14 percent between 1983 and 1985. Nothing breeds success like success itself. To focus business attention on CBI success stories, the Department of Commerce Caribbean Basin Business Information Center and American Embassy CBI -3 teams surveyed new business activity during the first 18 months of the CBI. They counted 285 new 285 new investments in CBI beneficiary countries, worth $208 million and generating roughly 35,000 new jobs. Our embassies report continued investment interest and growth. New projects involve data processing, electronics contract manufacturing and hotel development. Prominent success stories include major U.S. multinationals such as Coca-Cola in Belize, and Westinghouse and International Multifoods in the Dominican Republic, as well as small U.S. firms like Slater Electronics in Jamaica, Anthony International Specialty Foods in Costa Rica, and Computer Products in Antigua. There are also opportunities for U.S. subsidiaries in Caribbean Basin countries to export to Canada, Europe, and South America. Rather than close down unprofitable subsidiaries, U.S. companies should explore the option of redirecting production to provide intermediate products needed by company operating units worldwide. U.S. subsidiaries operating in the region may be able to take advantage of duty-free entry to the European Community under the Lome Convention and to Canada under the recently announced CARIBCAN program. To help spur additional investments, the President just announced a new program of special access for CBI apparel imports, designed to complement the existing 807 program. The new program has two |