U.S. Trade Plan Does Little to Boost Caribbean Basin Economies

The Reagan Administration’s much-touted drive to boost trade and investment in the ailing Caribbean and Central America has largely been disappointing, government officials and other experts say.

Countries in the region remain impoverished, with many heavily in debt and burdened by high unemployment and stagnant or uneven economic growth.

They are still struggling to attract the kind of foreign companies that they believe will give a significant lift to their economies, creating more jobs and increasing export sales to bring in badly needed money.

They had hoped that the U.S. program, the Caribbean Basin Initiative, or CBI, would have done more in its first three years to draw that kind of investment.

Panama ‘Not Satisfied’

“Basically, we’re not satisfied,” said Julio E. Sosa, executive director of the National Investment Council in Panama. The program, he said, has attracted no major new companies to Panama.

In war-torn El Salvador, an official of the Foreign Trade Ministry, who spoke only on condition of anonymity, said the results have been minimal.

“The levels of exports have not increased dramatically from El Salvador to the United States,” he said.

Eduardo Fernandez, a financial consultant here in Santo Domingo, said, “The flow of business that was . . . expected has not materialized.”

The U.S. Caribbean Basic Economic Recovery Act granted duty-free treatment, as of Jan. 1, 1984, for most exports to the United States from Caribbean and Central American countries for 12 years.

The United States also has increased economic assistance to the region, up from $323 million in 1980 to $1.1 billion in the fiscal year that ended Sept. 30. Roughly one-third of the aid is earmarked for development assistance to help restructure industries, diversify exports and provide technical know-how.

22 Nations Taking Part

President Reagan proposed the CBI program to help develop the economies of the sickly region and encourage political and social stability on what some call the United States’ third border.

The 22 countries taking part are Antigua and Barbuda, Aruba, the Bahamas, Barbados, Belize, the British Virgin Islands, Costa Rica, Dominica, the Dominican Republic, El Salvador, Grenada, Guatemala, Haiti, Honduras, Jamaica, Montserrat, the Netherlands Antilles, Panama, St. Christopher and Nevis, St. Lucia, St. Vincent and the Grenadines and Trinidad and Tobago.

Not participating are Anguilla, the Cayman Islands, Guyana, Nicaragua, Suriname and the Turks and Caicos Islands.

The CBI program, many analysts maintain, was oversold at the outset. Expectations were too high.

Elliot Abrams, assistant secretary of state for inter-American affairs, acknowledged that there is a “problem of frustration based on unrealistic expectations.”

“Clearly, the CBI is having an impact, but there is, as yet, little visible difference in living standards in the Caribbean Basin,” he told a congressional panel earlier in the year.

‘Modest Success’

Lawrence Theriot, director of the Commerce Department’s CBI Information Center in Washington, said in a telephone interview that the CBI has had “modest success.”

The Commerce Department, he said, projected an 11.5% average annual growth rate for the countries’ exports of non-traditional products, such as electrical goods, ethanol and apparel, from 1983 through 1986.

The increase, he said, was a “respectable performance” but “not enough to compensate for the drag” from the falloff in traditional exports such as bauxite and sugar.

A recent report from the U.S. International Trade Commission found that the value of imports from the CBI countries plummeted 23.7% from 1983 through 1985.

The report said the sharp drop was due mostly to plunging prices for crude oil and lower volumes purchased.

When oil-exporting countries were excluded, it said, U.S. imports from Central America rose 13.4% and 19% from the eastern Caribbean.

But, it said, imports worldwide grew 33.8%.

Focus Attention on Region

Despite the weak export performance, officials argue that the CBI has done much to focus attention on the region, drawing in such companies as apparel makers attracted by the area’s low labor costs. Those companies are excluded from duty-free status under the CBI, but they do get special tariff treatment for goods containing U.S. components.

Moreover, local firms have become more export oriented, they said.

“Suddenly, both sides are finally much more interested in each other, and they are doing business. That is really the major benefit,” said Peter Alois, U.S. Embassy commercial officer in San Jose, Costa Rica.

In addition to apparel manufacturing, U.S. and local companies have invested in electrical and electronic component assembly, agriculture, ethanol production, fish processing and wood products.

Just how many companies have sunk money into the area is unclear.

The General Accounting Office, the U.S. congressional watchdog, was highly critical in a recent report of the Commerce Department’s record keeping.

It said the department reported that 285 new companies had opened for business in the CBI’s first 1 1/2 years and credited the program for the “vast bulk.”

The GAO, however, said that many companies were ineligible for the program’s trade benefits and that others received reduced tariffs under previous measures.

Seven businesses, it said, “involved domestic services, including hotels and a pizza parlor.”

New Survey Begun

The Commerce Department has begun a new survey.

A host of reasons have been offered for the program’s inability to spur more investments. They range from poor transportation, water and power systems in the developing countries to protectionist fever in the United States.

“Everyone underestimated the difficulty of building industry from scratch,” the Commerce Department’s Theriot said.

Panama’s Sosa said: “There were certain structural problems in our economies that did not allow . . . for rapid growth in exports.”

The Salvadoran trade official said exports have been hindered by problems with transportation, quality control and marketing in the United States.

“Our productive sector,” he said, “is inefficient.”

Trade Barriers Cited

Officials also complained that special-interest groups in the United States try to throw up trade barriers against competitive products.

“In some cases, when we identify a product that would benefit (from the CBI), then, of course, protectionism rears its ugly head,” said V. Corrine McLarty, managing director of Jamaica’s National Investment Promotion agency.

Theriot acknowledged the protectionist push but said the Reagan Administration has kept the program intact and even expanded some benefits.

Businessmen have complaints about customs and bureaucratic delays in the developing countries.

When a foreign investor has customs problems, “it really turns him off,” said Delroy F. Lindsay, executive director of the Private Sector Organization of Jamaica, an umbrella group for businesses.

The Dominican Republic so far is the CBI’s star, attracting investments and accounting for nearly 35% of U.S. imports under the program in 1985.

Analysts attribute the country’s success to its economic policies, developed infrastructure and agricultural base.