IMPACT AND EFFECTIVENESS OF THE CARIBBEAN BASIN INITIATIVE THURSDAY, FEBRUARY 27, 1986 HOUSE OF REPRESENTATIVES, The subcommittee met, pursuant to notice, at 9:05 a.m., in room 1100, Longworth House Office Building, Hon. J.J. Pickle (chairman of the subcommittee) presiding. Chairman PICKLE. The hearing will come to order. Today we are continuing our oversight hearings on the first few years of the Caribbean Basin Initiative. On Tuesday, both witnesses and members of the subcommittee brought out both the benefits of the CBI and its lack of success to date. There are major points of weakness that concern us. First, the fall in price of commodities such as oil, sugar, and bauxite has drastically reduced the volume of CBI exports to the United States. Second, the CBI legislation itself, specifically the list of exempt products, may be a real stumbling block in increased exports for the Caribbean. Final, there is a real concern about the adequacy of coordination of the CBI project within the U.S. agencies, particularly with the various U.S. Customs Service's offices. Additionally, the administration discussed its plan for the expansion of the 807 Program for textiles in CBI nations. The proposal is expected to increase U.S. textile exports by $150 million annually. The administration has also disclosed plans for a future legislative proposal to increase sugar quotas for CBI nations while keeping overall sugar imports at the same level. While it is still very early in the CBI, the experience of the first 2 years is a source of very real concern to all of us. It has fallen short of its two major goals. It has not increased exports in nontraditional areas and has not significantly increased private U.S. investment in the CBI region. If these trends continue, I fear that the CBI will be a repeat of "Alliance for Progress" of the sixties: in other words, a U.S. program conceived with good intentions that does not work. Now, we have a full day ahead of us. I am looking forward to this testimony to aid the Oversight Subcommittee in developing recommendations to make the CBI more effective. (503) Our first witness this morning is our colleague, the Honorable Mervyn M. Dymally from California. We are pleased to have you with us, Congressman. If you will proceed, your entire statement will be made a part of the record and we would be glad for you to summarize it. STATEMENT OF HON. MERVYN M. DYMALLY, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF CALIFORNIA Mr. DYMALLY. Thank you very much, Mr. Chairman. I shall be very brief, and one reason for my brevity is because you have touched on some of the points which I hope to raise. I simply want to raise three points, and they may have been touched before by the committee but I felt a responsibility to do so again. One, I think that one of the basic weaknesses in CBI negotiations is the emphasis of this administration on bilateral instead of multilateral negotiations. Because of the small, fragile economies, the regional institutions believed that they could do a much better job of coordination, and I refer specifically to Caribcan and the Caribbean Development Bank and other regional institutions in the Caribbe an. Two, the bilateral tax information exchange sometimes discriminates against some countries because the laws governing bank disclosure and tax information differ from country to country, and it might be more appropriate for the IRS and Treasury to negotiate with various islands rather than to have one basic law applicable to all of the region when each country has a different law. In some instances the information is given out by the central bank. In other instances it is given out by the tax department. So in one country the tax department by law cannot give out that information but the banks can. So the Treasury Department, it seems to me, ought to have a little more flexibility when we rewrite this law rather than applying one basic statute to apply to 15 different areas, each of which has a different law governing exchange information. The problem is that in one country, at least, giving out this information could bring an entire collapse of its economy, so there needs to be more flexibility in the negotiating process and in the language as we reexamine that exchange of information. The final point has to do with 936. It remains important that the benefits of flag countries should remain intact under 936. This type of incentive, however, should be included, if not made more flexible, under CBI. The consensus of the Caribbean countries is that such revisions present a great potential for quick economic recovery. So I believe that 936 ought to be examined carefully so it could be made applicable to some of the Caribbean countries rather than just one flag territory. Mr. Chairman, that concludes my testimony. [The prepared statement follows:] PREPARED TESTIMONY OF CONGRESSMAN MERVYN M. DYMALLY before the SUBCOMMITTEE ON OVERSIGHT HOUSE COMMITTEE ON WAYS AND MEANS Mr. Chairman, I am pleased to have this opportunity to testify before the Subcommittee on Oversight of the House Ways and Means Committee during your hearings on the status of the Caribbean Basin Initiative (CBI) as passed under the Caribbean Economic Recovery Act of 1983. Since its inception, I have been a persistent critic of CBI. As it was proposed, revised and implemented, this initiative continues to emphasize and enhance United States interests first, second and last. Undoubtedly, our foreign policy should focus on achieving our objectives primarily, but foreign policy becomes ineffective when the interests of the other countries are ignored during this process. During preliminary hea rings on CBI, the Congressional Black Caucus Task Force on the Caribbean argued that the initiative implied a message to the countries in the region "do and behave the way we want you to behave, or suffer the consequences." Certainly, CBI has contributed to some economic gains in the region and it has continued to support our foreign policy there; it could easily have accounted for major gains had certain needs been addressed. I hope that my testimony will shed some light on some of these needs, and that this Committee will make necessary changes in CBI to accommodate these needs. Specifically, I wish to touch on three concerns: (1) the need for multi-lateral relationships with regional institutions and among the island (2) nations; (2) the need to review the reasonableness of bilateral tax information exchange; and, (3) the need to consider an expansion of Section 936 of the Internal Revenue Code. MULTI-LATERAL AND REGIONAL COOPERATION Perhaps, the most serious deficiency of CBI is its support for bilateral negotiations. This deficiency pits one Caribbean nation against another, and creates competition within the region rather than cooperation. These island nations are encouraged to individually negotiate trade and tariff agreements with the United States. In the two years of CBI operation, we have witnessed a significant difference in the economic accomplishments of individual countries which result primarily from the inability of each country to negotiate separate agreements with the United States. These countries have been slow in reaching agreements because of a fear that their ideas for economic recovery may not meet the agenda set by not only the United States but other donor-countries as well. Realizing this shortcoming, I managed to include in the Internatioal Security and Cooperation Act of 1985--Foreign Aid Bill--an International Advisory Commission for the Caribbean Region. A forum that would allow discussions of economic issues confronting the region between the Caribbean countries, the United States and other donor countries of the region. The main thrust of that proposal is to establish an avenue for input from the Caribbean countries into the agendas of donor countries relative to the development of their region. Despite early encouragement and support from the State Department, the final version signed into law reduced the (3) Commission from a mandatory request on the President to a mere discretionary presidential authority. The State Department decided that it prefers supporting a World Bank led organization--Caribbean Group for Cooperation for Economic Development. This is a consultative group comprised of donor countries aimed at stregthening international cooperation with regard to economic assistance to the region, and promote sound economic policies to improve the environment for investment and trade expansion. I cannot disagree with the intent of this organization, but I do disagree with the exclusion of Caribbean officials from this group. It is agrued that the opportunity does exist for Caribbean countries to participate in the meetings of the World Bank group. But, I suggest to you that when these discussions are sponsored by donor nations it is difficult for Caribbean participants to influence the agenda of these meetings. What is of significance to donor countries is not necessarily the interests of the Caribbean countries. I am not suggesting a rescue mission for my Advisory Commission, but I am suggesting that multi-national organizations such as that offered by the World Bank needs to open its agenda setting processes to the inputs of Caribbean officials. Along the same lines, I submit to you that there are regional institutions such as the Caribbean Common Market and the Caribbean Development Bank that needs cooperation for purposes of development of the region as a whole. Quite often, these regional institutions operate on a country by country system. I am suggesting that under CBI or by some other measure, we should encourage these institutions to coordinate their efforts in order to improve |