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 Good morning, Mr. Chairman. I welcome this opportunity to review progress, in one of this administration's priority programs: the 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 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 as 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, 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. non-oil exports from CBI 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 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 -4 purposes: to assist CBI countries by guaranteeing market access for their clothing exports to the U.S., and to help the U.S. industry by making the highest levels of access available only to CBI clothing exports made from material manufactured and cut in the U.S. Because U.S. investors increasingly look to CBI beneficiaries as bases for 807 operations, we believe that this new preferential access will increase investment in the region even further. We are confident that when our investment survey is updated in October 1986, the success tally will be even greater. A main element of the U.S. textile import program is to prevent import surges that would harm the domestic industry. The program's trigger mechanisms for CBI imports will help ensure that such surges do not occur. As with the other parts of the textile import program, consultations with U.S. producers are an important element in setting quota levels. In this special program, we will take industry views into consideration in determining the trigger points for individual products from CBI countries. In addition, the program offers substantial benefits to the domestic textile and apparel industry. The highest access levels go to goods using U.S.-made and U.S.-cut fabric, a condition that will help U.S. manufacturers. For the many U.S. clothing manufacturers already importing clothing to remain competitive, the program adds the possibility of manufacturing in an area close to U.S. markets, the Caribbean, in combination with the guaranteed access levels. |