Caribbean Basin Interim Trade Program: CBI/NAFTA Parity

Caribbean Basin Interim Trade Program: CBI/NAFTA Parity

Order Code IB95050
CRS Issue Brief for Congress
Received through the CRS Web
Caribbean Basin Interim Trade Program:
CBI/NAFTA Parity
Updated January 12, 2005
Vladimir N. Pregelj
Foreign Affairs, Defense, and Trade Division
Congressional Research Service ˜ The Library of Congress

CONTENTS
SUMMARY
MOST RECENT DEVELOPMENTS
BACKGROUND AND ANALYSIS
Some Basics
Caribbean Basin Preference
Pre-NAFTA Special Tariff Treatment of Mexico
Mexico’s Benefits under the NAFTA and Their Effect on CBERA Beneficiaries
Parity Legislation and Action
105th Congress
106th Congress
107th Congress
108th Congress
Trade Data
CHRONOLOGY
CONGRESSIONAL HEARINGS, REPORTS, AND DOCUMENTS
FOR ADDITIONAL READING
CRS Sources
Other Sources

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Caribbean Basin Interim Trade Program: CBI/NAFTA Parity
SUMMARY
The entry into force, on January 1, 1994,
one House and two Senate bills were reported
of the North American Free Trade Agreement
favorably, but the House bill was defeated and
(NAFTA) has eliminated the advantage that
the Senate measures did not come to vote.
the beneficiaries of the Caribbean Basin Eco-
nomic Recovery Act (CBERA) and related
Parity legislation was introduced again in
provisions of the Caribbean Basin Initiative
both houses of the 106th Congress as free-
(CBI) had enjoyed in trade with the United
standing measures or as part of broader legis-
States relative to Mexico, and gave Mexico an
lation. Diverse versions of House and Senate
increasingly significant competitive edge over
parity legislation were eventually reconciled in
the CBERA countries. The scheduled further
the conference report on comprehensive trade
implementation of the NAFTA would have
legislation, passed by both houses and signed
resulted in a substantial advantage to Mexico
by the President May 18, 2000 (Caribbean
over the CBERA countries and vitiate in part
Basin Trade Partnership Act — CBTPA; Title
the purpose of the CBERA.
II, P.L. 106-200). The parity program has been
established with respect to 24 countries by
Beginning with the 103rd Congress,
Presidential proclamation and implemented
Congress considered legislation to provide,
with respect to 14 of them by a determination
temporarily, to CBI beneficiary countries tariff
by the USTR of their compliance with the
and quota treatment equivalent to that ac-
statutory requirements.
corded to Mexico under the NAFTA. The
legislation also would set up mechanisms for
Legislation enhancing and broadening
the accession of such countries to the NAFTA
the scope of the CBTPA preferential treatment
or an equivalent bilateral agreements with the
was included in different versions in broader
United States. Due to its controversial nature,
legislation considered in the 107th Congress,
based on the perceived adverse consequences
and was eventually passed by both houses,
for the U.S. textile industry and substantial
signed by the President August 6, 2002 (P.L.
estimated negative effect on the U.S. budget,
107-210) and implemented by Proclamation
however, the legislative process reached an
7626.
impasse in mid-1995. Although at the time
favorably reported in several instances, the
Legislation introduced in the 108th Con-
parity legislation was not enacted.
gress as an amendment to CBERA to provide
to Haiti substantially enhanced preference for
In the 105th Congress, parity provisions
exports of textile apparel to the United States
were added by the House to its budget
died in committee. On the other hand, legisla-
reconciliation bill but omitted by the Senate
tion to provide duty-free treatment to many
and in conference. Parity provisions in a
categories of footwear imported from CBERA
somewhat different language also were
and CBTPA beneficiaries was enacted as part
introduced in several other measures, of which
of a comprehensive trade bill.
Congressional Research Service ˜ The Library of Congress

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MOST RECENT DEVELOPMENTS
In the 106th Congress, CBI/NAFTA parity measures were included in two instances in
legislation of broader scope, providing enhanced trade preferences and assistance to Central
American and Caribbean countries affected by the Hurricanes Mitch and Georges: the
Central American and Caribbean Relief Act and the Caribbean and Central America Relief
and Economic Stabilization Act; also introduced were two freestanding measures, one in
either chamber, eventually resulting in a conference version passed on May 4, 2000, by the
House and on May 11 by the Senate; it was signed by the President May 18, 2000 (Caribbean
Basin Trade Partnership Act - CBTPA; Title II, P.L. 106-200). Twenty-four countries have
been designated by Presidential proclamation as prospective beneficiaries of the program,
14 of which have been determined by the USTR to be in compliance with the statutory
customs requirements for participation in the CBTPA program and are its actual
beneficiaries.
In the 107th Congress, legislative language to enhance and broaden the scope of the
CBTPA preference, was included in legislation of broader scope (H.R. 3009, Trade Act of
2002) and passed by both houses in different versions; its conference version (H.Rept. 107-
624) passed the House (215-212) and the Senate (64-34), was signed by the President on
August 6, 2002 (P.L. 107-210) and implemented by Presidential Proclamation 7626.
In the 108th Congress, H.R. 1031 and S. 489 have been introduced as an amendment to
CBERA to provide to Haiti a special preference for exports of textile apparel to the United
States; individual sections of H.R. 1047 (conference version passed by the House, awaiting
approval by the Senate), S. 671 (returned to the Senate calendar), and H.R. 3521, would
authorize duty-free treatment of many categories of footwear from CBERA and CBTPA
beneficiaries, and that under less restrictive rules of origin.
BACKGROUND AND ANALYSIS
Some Basics
In its fundamental elements, the U.S. trade and tariff policy historically has treated both
the Caribbean Basin countries and Mexico, in many respects their competitor and a major
U.S. trading partner, in an equal manner. Both are accorded most-favored-nation
(nondiscriminatory) treatment, to both apply the general tariff advantages of the “production
sharing” (also referred as “offshore assembly”) provisions (which have been, in both cases,
extensively used by U.S. firms), and, prior to the entry into force of the North American Free
Trade Agreement (NAFTA), both were designated beneficiary countries (BDCs) of the U.S.
generalized system of preferences (GSP). Until NAFTA, however, most Caribbean Basin
countries had a significant advantage over Mexico because of their participation in the
Caribbean Basin Initiative (CBI).
With the entry into force, on January 1, 1994, of the preferential tariff and quota
provisions of the NAFTA, however, the earlier advantage of CBI countries over Mexico was
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totally eroded. Moreover, much of NAFTA’s further staged implementation put CBI
countries at a distinct competitive disadvantage compared to Mexico with respect to a
substantial portion of U.S. imports from either area. The gap would become even wider with
full implementation of NAFTA liberalization (by January 1, 2008). To mitigate, if not
eliminate, the adverse effect of the advantages that Mexico already had gained and would
continue to gain relative to CBI countries, legislation was introduced in recent Congresses
to authorize for imports from CBI countries tariff and quota treatment that is identical with
or very similar to that accorded Mexico under NAFTA. This treatment would be of limited
duration and, in some instances, with a specific view toward eventual accession of Caribbean
Basin countries to the NAFTA or the proposed Free Trade Area of the Americas, or
conclusion of an equivalent bilateral agreement with the United States.
To provide an idea of the nature and scope of changes in trade competitiveness between
the CBERA countries and Mexico that have resulted from the implementation of the
NAFTA, the relevant preferential or special tariff treatments, as applicable, are described
below. The aspects of trade policy that apply generally to all (or most) U.S. trading partners
(e.g., most-favored-nation/normal-trade-relations status, or production-sharing provisions)
are not included in any detail.
Caribbean Basin Preference
The Caribbean Basin trade preference is the centerpiece of the Caribbean Basin
Initiative (CBI), proposed in February 1982 by President Reagan as a comprehensive but
temporary program “to promote economic revitalization and facilitate expansion of
economic opportunity in the Caribbean Basin region.” The preference and some other less
comprehensive benefits were enacted in 1983 by the Caribbean Basin Economic Recovery
Act (CBERA) and put into effect as of January 1, 1984. The CBERA has been amended
several times, most substantively by the Caribbean Basin Economic Recovery Expansion Act
of 1990 (“CBI II”), which added several improvements and made the program permanent.
In order not to be in violation its international obligations under the General Agreement
of Tariffs and Trade (GATT 1947) because of preferential treatment of CBI countries, the
United States has requested and, in February 1985, obtained from the GATT Contracting
Parties a waiver of its obligation under GATT Article I to accord to all GATT signatories
most-favored-nation (nondiscriminatory) treatment, for the period January 1, 1984 through
September 30, 1995. The waiver was renewed in November 1995 through December 31,
2005 and continues to be in force under the WTO Agreement.
In its key provisions, the CBERA authorizes unilateral preferential treatment (either
duty-free, or at duty rates lower than those applicable generally) for most articles imported
from 24 Caribbean Basin countries designated as its beneficiaries (Antigua and Barbuda,
Aruba, Bahamas, Barbados, Belize, British Virgin Islands, Costa Rica, Dominica, Dominican
Republic, El Salvador, Grenada, Guatemala, Guyana, Haiti, Honduras, Jamaica, Montserrat,
Netherlands Antilles, Nicaragua, Panama, St. Christopher and Nevis, St. Lucia, St. Vincent
and the Grenadines, and Trinidad and Tobago). Eligible for the duty-free preference under
the CBERA are all otherwise dutiable products except import-sensitive articles: textiles and
apparel subject to textile agreements, footwear ineligible for the GSP as of January 1, 1984,
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canned tuna, petroleum and its products, and watches and watch parts containing any
material originating in countries denied the most-favored-nation status.
Certain import-sensitive leather articles, originally ineligible for duty-free treatment
(handbags, luggage, flat goods, work gloves, and certain leather wearing apparel), have been
accorded by the 1990 amendment preferential tariff treatment at reduced but still positive
rates. This preference consists of a 20% cut in the regular (MFN) duty rates in effect at the
end of 1991, phased-in through five stages beginning on January 1, 1992, and completed on
January 1, 1996. The reduction, however, could not exceed 2.5% ad valorem or, for general
rates reduced in the Uruguay Round, be 1% ad valorem greater than that reduction.
To be accorded the duty-free or reduced-rate preference, an eligible article must be a
“product of” (as defined in the U.S. general rules of origin) a CBERA beneficiary country
and imported directly from it, and at least 35% of the article’s import value must have
originated in one or more CBERA beneficiaries. In this context, Puerto Rico and the U.S.
Virgin Islands are counted as CBERA beneficiaries, and up to 15% of the 35% of the
article’s qualifying import value may be accounted for by value originating in the U.S.
customs territory (other than Puerto Rico).
Duty-free importation of sugar and beef products is subject to a special eligibility
requirement that the beneficiary country submit and carry out a stable food production plan
ensuring that increased production of sugar and beef will not adversely affect the overall food
production of the country.
CBERA duty-free treatment may be suspended for any otherwise eligible article by
Presidential proclamation implementing a remedial measure under the import-relief
provision (Section 203) of the Trade Act of 1974 or the national-security provision (Section
232) of the Trade Expansion Act of 1962.
Not part of the CBERA but applicable only to CBERA beneficiaries is a provision
under which any articles (other than textiles, apparel, and petroleum and its products)
assembled or processed in a CBERA country entirely from components or ingredients made
in the United States may be imported free of duty or quantitative restrictions.
Although textile apparel is ineligible under the CBERA for any type of tariff preference,
a special access program (SAP) is in effect for apparel assembled in a CBERA country and
imported under the “production sharing” tariff provision (i.e., with regular duty rates applied
to a duty-base excluding the value of U.S. origin components) provided it is assembled from
fabric formed as well as cut in the United States. Such apparel may be imported from
CBERA countries in quantities above the regular import quotas up to the bilaterally agreed
“guaranteed access levels” (GALs) (although with no reduction in the duty rate). GAL
agreements are in force with Costa Rica, Dominican Republic, El Salvador, Guatemala, and
Jamaica (but, in most instances, GAL imports have been replaced by those under the more
favorable provisions of the parity legislation; see p. 9).
Most CBERA beneficiaries (Aruba, Bahamas, Netherlands Antilles, and Nicaragua
excepted) also are beneficiaries of the GSP (described below), and may utilize its benefits
alternatively to those of the Caribbean preference.
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The overall statistical picture of U.S. imports from the 24 CBERA countries in the year
2002 (in parentheses, respectively, the year 2001, the first year of CBTPA treatment) shows
that out of the total value of $21,254.8 million ($20,678.9 million), $15,698.9 million;
73.9% ($14,138.6 million; 63.8%) was imported free of duty, of which $2,809.0 million;
17.9% ($2,623.0 million; 17.4%) under the CBERA preference and $93.1 million; 0.6%
($178.9 million; 1.2%) under the GSP; the remaining $6,735.8 million ($7,147.8 million)
(excluding duty-free imports under the CBTPA, for which see pp.11 and 12) was duty-free
under the regular rates, some minor preferential programs, or as the duty-free share of the
production-sharing provisions. Including the value of imports subject to reduced rates, total
U.S. imports under the CBERA program (duty-free and at reduced rates) amounted to
$2,918.4 million ($2,706.3 million) (13.7% resp.13.1% of total U.S. imports from CBERA
countries).
Pre-NAFTA Special Tariff Treatment of Mexico
Before the NAFTA entered into force, Mexico was a designated beneficiary developing
country (BDC) of the GSP and, as such, enjoyed certain benefits that were similar to, if
somewhat less generous than those of the CBERA beneficiaries. While the GSP authorizes
duty-free importation (but has no provisions for imports at reduced rates), the range of
articles eligible for the preference is narrower than that of the CBERA. Generally ineligible
by law under the GSP are textile and apparel articles subject to textile agreements; watches,
except those that the President determines will not cause injury to U.S. domestic watch or
watch band, strap, or bracelet manufacturing or assembly industry; import-sensitive
electronic articles; import-sensitive steel articles; import-sensitive semi-manufactured and
manufactured glass products; footwear, handbags, luggage, flat goods, work gloves and
leather wearing apparel; and any other articles determined by the President as import
sensitive in the GSP context. The GSP also is of temporary duration and must be renewed
periodically by enactment. The most recent renewal remains in effect through December 1,
2006.
GSP eligibility can be suspended for individual articles imported from individual
countries, usually following a review of the specific situation; it is also suspended when such
imports exceed specified statutory levels, a criterion referred to as the “competitive need
limit.” The latter suspension may be waived under specified conditions. Under these
provisions, suspension of GSP eligibility was in effect prior to NAFTA for imports from
Mexico falling within some 90 tariff items, mostly fresh vegetables, copper ore and primary
copper, and sundry auto parts.
In a rule of origin similar to that of the CBERA, an eligible import qualifies for the GSP
preference if it is a product of a BDC and imported directly from it, and at least 35% of the
article’s import value has originated in the country of export or in two or more countries that
are members of the same association of countries (Andean Group, Association of South East
Asian Nations, Caribbean Common Market, Southern Africa Development Community, and
West African Economic and Monetary Union), of none of which, however, Mexico is a
member. Unlike the CBERA, the GSP does not allow the value of the components of U.S.-,
Puerto Rico-, or U.S. Virgin Islands-origin to count toward the required 35% BDC-origin
value requirement.
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A “special regime” arrangement for textile apparel, virtually identical to the CBI’s
special access program, also was in effect with Mexico prior to the entry into force of the
NAFTA.
Total U.S. imports from Mexico in 1993, the last year before the onset of the
implementation of NAFTA, amounted to (in millions) $38,667.7, of which $19,800.5
(51.2%) was duty free, further broken down into $4,498.1 (11.6%) under regular rates,
$9,871.9 (25.5%) under the production sharing provisions and $5,430.5 (14.0%) under the
GSP. Dutiable imports totaled (in millions) $18,867.2 (48.8%), of which $9,095.8 (23.5%)
represented the dutiable portion of production-sharing products and $9,771.4 (25.3%)
imports under regular duty rates.
A summary comparison of special trade benefits available to CBI countries with those
available to Mexico before the entry into force of the NAFTA shows that CBI countries
enjoyed a distinct advantage over Mexico because:
(a) The range of articles accorded preferential treatment under the CBERA is
significantly broader than under the GSP because CBERA ineligibility applies only to those
product categories specifically listed in the statute; under the GSP, however, not only is the
range of articles excluded from the preference by statute broader, but additional discretionary
and “competitive need” exclusions have been made.
(b) Under the “rule of origin” for the eligibility of a Mexican product for the GSP, its
qualifying value could not include any value of U.S., Puerto Rican, or U.S. Virgin Islands
origin, which is included under the CBERA.
(c) Import-sensitive articles eligible under CBERA for reduced-rate preference are
excluded altogether from GSP eligibility.
(d) Duty- and quota-free treatment that applies to qualifying articles assembled or
processed in a CBERA country entirely from components or ingredients originating on the
United States did not apply to articles similarly processed in Mexico.
(e) The CBERA is a permanent program, whereas the GSP is authorized for a specific
period of time and must be periodically reauthorized by legislation in order to remain in
force.
Mexico’s Benefits under the NAFTA and Their Effect on
CBERA Beneficiaries
When Mexico acceded to the NAFTA, its tariff position with the United States changed
radically and improved substantially relative to that of the CBI countries as well as
absolutely.
Although Mexico’s GSP eligibility was revoked as of January 1, 1994 — the date
NAFTA went into effect — the earlier duty-free status of articles imported from Mexico
under the GSP was continued in force under the NAFTA on a permanent basis (rather than
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being contingent on extensions of the GSP authority), although under the somewhat less
favorable NAFTA rules of origin. Moreover, duty-free status was accorded for the first time
to many previously dutiable articles, including most of the articles subject to the GSP
competitive need limits or discretionary suspensions, and to many articles duty free under
the CBERA but ineligible for the GSP, including handmade or folklore textile and apparel
articles. These actions equalized Mexico’s duty-free preferential status with that of CBI
countries, thus eliminating their earlier advantages over Mexico.
Also on January 1, 1994, the first stage of reductions that eventually (at the latest by
January 1, 2008) are to eliminate the pre-NAFTA tariffs in a specified number of annual cuts
was implemented. Further staged tariff reductions have taken place on January 1 of every
year since. This process created an initially still marginal actual advantage for Mexico —
which eventually would have become substantial — with respect to articles ineligible for the
Caribbean Basin duty-free preference (e.g., textiles and textile apparel), which, under the
NAFTA, are in the phase-in process toward eventual duty-free and quota-free status.
Similarly, the NAFTA staged reductions had already resulted in the elimination of CBERA’s
erstwhile advantage over Mexico with respect to import-sensitive articles eligible for the
CBERA 20%-reduced duty rates. The phasing-in of these NAFTA reductions (to zero) has
been completed for most products as of January 1, 1998 and for many more as of January 1,
2003. Still being phased-in (to be completed by January 1, 2008) are tariff cuts on a limited
number of products the cumulated duty reduction as of January 1, 2004, amounted to 73.3%.
In 2002 (in parentheses, annual data for 2003), total U.S. imports from Mexico
amounted to $134,121.2 million ($137,199.3 million), $113,922.5 million ($130,352.8
million), 84.9% (95.0%) of this free of duty, including $69,372.8 million ($86.430.8 million)
(51.7%; 66.3%) under the NAFTA and the remainder under other tariff programs. NAFTA
imports of products whose duty rates are still in the process of being phased-out amounted
to $15,374.2 million ($1,319.3 million), for a total of imports under the NAFTA of $84,747.0
million ($87,750.1 million) (63.2%; 64.0%) of all imports from Mexico).
Imports of articles ineligible for duty-free treatment under the CBERA in 2000
accounted for over one-half, by value, of all U.S. imports from the group (including the total
value of partially nondutiable products of production sharing (see p.3)). The most crucial and
potentially injurious to CBERA countries was the NAFTA treatment of textiles and apparel
articles which, in addition to constituting the largest single category by far of U.S. imports
from CBERA countries, do not qualify for that preference and are subject to relatively high
duty rates. Some of the adverse effect of this NAFTA treatment on the CBERA countries
was mitigated by the relatively long (6 or 10 annual stages, in many cases even 15 stages)
phasing-in period of the NAFTA duty elimination. Another mitigating factor was the
extensive use by American firms in imports of apparel from CBERA countries of the
production-sharing provision, where the portion of the value of the import represented by its
U.S.-origin components already is duty free, which effectively reduces its duty cost to the
U.S. importer. The same tariff treatment, however, also has been available generally to
similar imports from Mexico and that at decreasing duty rates.
Moreover, the NAFTA authorized eventual duty- and quota-free importation from
Mexico of textile and apparel goods that had previously fallen under the “special regime” and
of those that had not qualified for “special regime” (see p. 4) treatment because of additional
processing, such as bleaching or dyeing, that was beyond mere assembly. In addition,
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reduced rates were authorized under NAFTA within an overall quota for imports of textile
apparel and other articles assembled in Mexico from components cut in the United States
from fabrics imported from any third country. Reduced rates also were authorized, within
separate quotas, for textile and apparel articles of wool, cotton and man-made fiber
assembled in a NAFTA country from components cut or made from fabric or yarn originating
outside the NAFTA area.
Less crucial for the CBERA countries as a group was the NAFTA treatment of
petroleum and its products. Its adverse effect on the competitiveness of CBERA-origin
petroleum was limited: petroleum products accounted for a relatively small share (by value)
of total U.S. imports from the group, U.S. regular duty rates on products in this category are
very low (equivalent to a fraction of or slightly over 1%) and took10 years to be eliminated
(by January1, 2003) under the NAFTA. Moreover, this action affects directly only the three
CBERA petroleum exporting countries: Bahamas, Netherlands Antilles, and Trinidad and
Tobago.
The adverse effect of the NAFTA on U.S. imports of footwear from the CBERA
countries also was less serious: footwear accounts for a relatively small share of imports from
either source and much of it is imported into the United States under the production-sharing
provision. The NAFTA duty elimination was phased-in in ten stages (i.e., by January 1,
2003), thus mitigating the severity of the change.
The CBERA ineligibility of watches and watch parts containing any material originating
in non-MFN countries was, in practice, irrelevant since no imports of such watches were
taking place.
To recapitulate: the implementation of the NAFTA not only eliminated all earlier tariff
advantages of the CBI countries over Mexico, but created actual — and increasing —
advantages for Mexico over the CBERA countries, specifically with respect to articles
eligible under the NAFTA, but ineligible for the CBERA preference. With the further
phasing-in of the NAFTA reductions, the CBERA competitive disadvantage vs. Mexico
would be increasing and eventually become quite serious.
On the other hand, although not directly related to the NAFTA problem, the overall
advantages of the CBERA (as well as of the NAFTA) are being diluted in any event by the
phasing-in of the implementation of concessions agreed to by the United States in the
Uruguay Round of multilateral negotiations and applied to imports from virtually all
countries. For some imports (e.g., certain footwear ), the implementation of these
concessions is still in progress, to be completed by January 1, 2008.
Parity Legislation and Action
Legislation intended to remedy the perceived most serious aspects of the NAFTA’s
adverse consequences for the CBERA countries — the actual advantages that Mexico had
already gained, and would continue to gain, over the CBERA countries — was introduced
in the 103rd and the 104th Congress, but saw no action beyond committee hearings.
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The legislation was held back primarily because of its in practice inevitable focus on
textiles and apparel, and that in two aspects: (1) textiles and apparel, the principal category
of articles affected by the proposals, are considered highly import sensitive and there was
concern that significant increases in their imports would be disruptive of the domestic textile
industry, and (2) because of their relatively high import duty rates, their reduction and
eventual elimination would entail a significant loss of customs (hence, budget) revenues.
The most important — and, in terms of affected trade, broadest — feature of
CBI/NAFTA parity legislation would be the new preferential treatment of textiles or apparel
imported from CBERA countries: articles that were subject to import quotas and were
ineligible for the CBERA preference. In its main aspects, such treatment would consist of
quota-free or at least increased-quota imports, subject to an identical progressive elimination
of customs duties on imports from CBERA countries as would apply to such imports
originating in Mexico; it would, however, also subject them to the somewhat stricter
NAFTA-like rules of origin.
Opponents of parity legislation claimed early on that, since NAFTA’s entry into force
on January 1, 1994, imports from CBI countries of textiles and apparel, a product category
that allegedly would be severely adversely affected by the implementation of the NAFTA,
not only had not abated but had increased significantly. In view of the pay-as-you-go budget
requirements, an additional important adverse consideration has been the projected decrease
in customs revenues that gradual freeing of the still dutiable articles (mostly textiles and
textile apparel, which are dutied at relatively high rates) would bring about. Customs duty
losses resulting from the CBI/NAFTA parity legislation were initially (1995) estimated
variously at $1.1 billion over 5 years and $1.7 billion over 10 years.
105th Congress
The Congressional Budget Office (CBO), as cited in S.Rept. 105-280, estimated that
the CBI/NAFTA parity legislation in the proposed Trade and Tariff Act of 1998 (S. 2400)
would result in revenue losses (by fiscal year, in millions of dollars) of $98 in 1999, $138 in
2000, $147 in 2001, and $26 in 2002; and an Administration estimate of the cost of its most
recent proposal places it at $326 million in 2000 and $444 million in 2001. The latest
projections by the CBO of reductions of federal revenues (S.Rept. 106-160) due to the
CBI/NAFTA parity legislation estimate such losses (in millions) in FY2000 at $252, in
FY2001 at $260, in FY2002 at $272, in FY2003 at $289, in FY2004 at $309, and in FY2005
at $83. In view of the projected termination of the program at the end of 2005, no losses have
been projected for subsequent fiscal years.
Although several versions of CBI/NAFTA parity legislation were considered in the
105th Congress, none was enacted. The United States-Caribbean Trade Partnership Act, a
subtitle of H.R. 2014 (Budget Reconciliation Act), was passed by the House, but omitted in
its Senate, conference, and enacted versions. A freestanding measure with the same title and
virtually identical operative provisions (H.R. 2644) was reported favorably in the House, but
defeated in the floor vote. Two measures entitled United States-Caribbean Basin Trade
Enhancement Act were reported favorably in the Senate but did not come to a vote: a
freestanding bill (S. 1278), and a subtitle in the Trade and Tariff Act of 1998 (S. 2400),
incorporating similar provisions.
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106th Congress
In the 106th Congress, parity legislation was introduced in four different versions, of
which only two received some legislative consideration. No action was taken on the United
States-Caribbean Basin Trade Enhancement Act (Title I of the Central American and
Caribbean Relief Act (S. 371)) or the Administration proposal (H.R. 1834), also named
United States-Caribbean Basin Trade Enhancement Act (CBTEA).
The other two bills, the United States-Caribbean Trade Partnership Act (Title I of
the Caribbean and Central America Relief and Economic Stabilization Act (H.R. 984)) and
the United States-Caribbean Basin Trade Enhancement Act (S. 1389), received some
legislative action. H.R. 984 was reported favorably (H.Rept. 106-519, pt. 1) March 13,
2000, but not voted on. S. 1389 was reported favorably (S.Rept.106-160) September 16,
1999, and its language was added to H.R. 434. The language of these two measures was
used as the basis for the eventual compromise language agreed to in conference on the final
version of H.R. 434. (For a comparative survey of the principal provisions of these four by
now obsolete bills, see CRS Report RS20174, CBI/NAFTA Parity Proposals: A
Comparison.)
The language of S. 1389 as reported has been included in its entirety as Title II (Trade
Benefits for Caribbean Basin) in S.Amdt. 2325 to an expanded H.R. 434, passed by the
Senate (76-19) November 3, 1999. Reconciliation of the parity provisions of the House and
Senate versions of H.R. 434, focusing primarily on the preferential treatment of textile
products, took place in protracted informal consultations between the two houses.
A formal conference report on H.R. 434 (H.Rept. 106-606) was filed May 4, 2000,
passed the House that same day (309-110) and the Senate on May 11, 2000 (77-19). It was
signed by the President May 18, 2000 (P.L. 106-200) (Trade and Development Act of 2000),
but not immediately implemented. Its implementation was authorized by Presidential
proclamation 7351 of October 2, 2000 (65 F.R. 59329; October 4, 2000), but the preferential
treatment provided by it was to become effective with respect to each of its individual
beneficiary countries upon the determination by the U.S. Trade Representative, published in
the Federal Register, that the country has satisfied the customs requirements for such
treatment.
The key provisions of the enacted version of the United States-Caribbean Basin
Trade Partnership Act - CBTPA (Title II of P.L. 106-200) reflect the policy, stated in the
legislation, to offer to Caribbean Basin countries willing to prepare to become parties to a
free-trade agreement with the United States treatment equivalent to that accorded to NAFTA
countries, and to seek Caribbean Basin countries’ participation in a free-trade agreement by
2005. The provisions focus primarily on the preferential treatment of textile products. The
conference version has retained many provisions of the initial legislation and added others.
It extended the transitional period of preferential treatment to run from October 1, 2000,
through September 30, 2008, or, if earlier, the date a free-trade agreement between the
United States and a CBTPA country enters into force.
Several eligibility criteria have been added (to those for the basic CBERA preference)
specifically for a country’s designation as a CBTPA beneficiary country for the transitional
program with respect to the country’s WTO obligations and accession to the FTAA,
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intellectual rights protection, worker rights, elimination of worst forms of child labor,
counter-narcotics certification, participation in the Inter-American Convention Against
Corruption, and government procurement.
With regard to textile articles, the enacted version has provided duty- and quota-free
treatment as follows:
(1) Apparel assembled in a CBTPA beneficiary country from fabric made in the United
States from U.S.-made yarn, and cut in the United States; or from fabric made in the United
States from U.S.-made yarn, cut in the CBTPA country, and sewn together in a CBTPA
country with U.S.-made thread.
(2) Apparel articles (except socks) knit-to-shape from U.S.-made yarn in a beneficiary
country, or articles (other than non-underwear T-shirts) assembled from fabric knit in the
United States or in a beneficiary country from U.S.-made yarn, and cut in a beneficiary
country. Duty-free treatment of knit-to-shape articles applies to 250 million square meters
equivalent (SME) for the year beginning October 1, 2000, with 16% annual increases through
September 30, 2004, and, after that, through September 30, 2008, at the level for 2004, or
in quantities set by law. The annual limit for non-underwear T-shirts has been set at 4.2
million dozen for the year beginning October 1, 2000, with 16% annual increases through
September 30, 2004, and after that at the latter level, or in quantities set by law.
(3) Brassieres cut and assembled in the United States and/or one or more beneficiary
countries during the six-year period beginning with October 1, 2001, if the cost of the U.S.-
made fabric components used in their manufacture by their individual producer during the
preceding year is at least 75% of their customs value; if the U.S.-component requirement is
not met in any year, the producer will not be eligible for the preference until the year
following the year in which the value of U.S.-made fabric components is at least 85% of the
customs value of the brassieres produced by the individual producer.
(4) Apparel articles assembled in a beneficiary country from fibers, fabric, or yarn not
formed in the United States or a beneficiary country, that are not widely available in
commercial quantities (as described in Annex 401 of the NAFTA). The President is
authorized to proclaim, upon request and under specified procedure, this preference for other
fibers, fabric, or yarn.
(5) Certified handloomed, handmade, and folklore articles.
(6) Preferential treatment is not denied to articles containing limited quantities of
foreign-origin findings or interlinings, or de minimis quantities of fibers or yarns of non-U.S.
or non-CBTPA origin, or nylon filament yarn made in a country with which the United States
has a pre-January 1, 1995 free-trade agreement (Canada, Mexico, and Israel).
(7) Textile luggage assembled in a CBTPA beneficiary country from fabric made in the
United States from U.S.-made yarn, and cut in the United States; or from fabric made in the
United States from U.S.-made yarn, and cut in a CBTPA country.
Penalties are provided for exporters transshipping textile articles ineligible for the
preference, and for countries not taking transshipment prevention measures; and NAFTA-
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like emergency action is provided to remedy or prevent injury to a U.S. industry by surges
in imports.
Other import-sensitive articles (ineligible for CBERA duty-free treatment, but some of
which are dutied at CBERA preferential reduced rates) are to be dutied at NAFTA-Mexico
rates (if lower than CBERA rates).
The measure contains definitions of concepts used and a variety of administrative
provisions: customs procedures are to be identical to those under NAFTA, and the U.S.
Customs Service was required to study and prepare a report, to be submitted to Congress by
the U.S. Trade Representative by October 1, 2001, on cooperation by CBTPA countries in
preventing quota circumvention.
The President is authorized to withdraw or suspend the designation of any country as
a CBTPA beneficiary or withdraw, suspend, or limit the preferential treatment under the
CBTPA of any article of any country, if its performance under the specific eligibility criteria
for CBTPA preference is not satisfactory.
The measure changes several reporting requirements: beginning with December 31,
2001, the triennial USTR report on the overall operation of the CBERA is changed, for the
duration of the transitional period, to a biennial report with added information on each
CBTPA country’s performance under the special eligibility criteria; and beginning with
September 30, 2001, the annual report by the U.S. International Trade Commission to
Congress and the President on the economic impact of the CBERA on U.S. industries and
consumers (including those in Puerto Rico) is changed to a biennial report.
The measure provides, under specified conditions, CBERA-like duty-free treatment for
spirituous beverages made in Canada with rum produced in the U.S. Virgin Islands or a
CBERA beneficiary country.
The President is directed to convene a meeting of the USTR and trade ministers of the
CBTPA countries for the purpose of reaching an agreement on initiating negotiations for
CBTPA countries’ entering into free-trade agreements with the United States.
! The implementation of the CBTPA was authorized by Presidential
proclamation 7351 of October 2, 2000 (65 F.R. 59329; October 4, 2000),
designating 24 Caribbean Basin countries as beneficiaries of the program,
and put into effect as of the same date with respect to 10 countries (Belize,
Costa Rica, Dominican Republic, El Salvador, Guatemala, Haiti, Honduras,
Jamaica, Nicaragua, and Panama) by a USTR determination of their
compliance with the statutory customs requirements (65 F.R. 60236;
October 1, 2000); Guyana was added to the list effective November 9, 2000
(65 F.R. 69988; November 21, 2000).
! Because of its late implementation date, the year 2000 imports under the
CBTPA program were minimal, all taking place in December 2000 and
duty-free, and amounted to $157.0 million.
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107th Congress
Legislation to enhance the benefits of the CBTPA was introduced October 3, 2001 in
the House as Section 5 of the Andean Trade Promotion and Drug Eradication Act (H.R.
3009) and passed by it with some changes. Initially, it merely specifically declared knit-to-
shape apparel components formed in the United States as equivalent to cut-fabric
components as qualifying for the CBTPA for preferential treatment, when assembled in a
CBTPA beneficiary country. This provision was intended to reverse the U.S. Customs
Service’s ruling excluding knit-to-shape components from the definition of cut-fabric
components. The amended version of H.R. 3009, reported November 14, 2001 by the Ways
and Means Committee (H.Rept. 107-290) and passed by the House November 16, 2001,
made eligible for the preference also apparel assembled in CBTPA beneficiaries with U.S.-
made thread from components cut from U.S.-made fabric, or knit-to-shape, either in the
United States or a CBTPA beneficiary. It also significantly increased the annual ceilings for
the preferential treatment of knit-to-shape apparel (other than socks) and non-underwear T-
shirts.
H.R. 3009 was reported by the Senate Finance Committee December 14, 2001 (S.Rept.
107-126) without any CBTPA-related provisions and was passed by the Senate May 23,
2002. The omission of CBTPA provisions was primarily triggered by the controversy over
the denial of preferential treatment to CBTPA-assembled components of fabric “fully
formed” in the United States that were not also dyed and finished in the United States, which
was strongly supported by certain sectors of the U.S. textile and apparel industry. Conference
version of H.R. 3009 (Trade Act of 2002), reported July 26, 2002 (H.Rept. 107-624) in
Section 3107 reinstated provisions which increased substantially the ceilings for knit-to-
shape apparel (T-shirts, and socks excluded), clarified that U.S. knit-to-shape components
are to be treated like U.S. cut-fabric components, required that all dyeing, printing and
finishing of components (except sewing thread) be done in the United states, and specifically
excluded the cost of trimmings and finding from the cost of U.S. fabric components. The
conference version was passed by the House (215-212) July 26 and by the Senate (64-34)
August 1, 2002. The President signed it August 6, 2002 (P.L. 107-210).
Legislation of limited scope also was introduced, but not further considered: S. 510,
introduced March 9, 2001, would have provided CBTPA preferential treatment for certain
cotton and man-made fiber bed linens; H.R. 1589, introduced April 25, 2001, would have
done the same for socks and hosiery excluded by the present legislation; H.R. 4158 and S.
2081, introduced April 10, 2002, and H.R. 4848, would have provided a specific list of
footwear to be denied preference eligibility as import-sensitive; and S. 2257, introduced
April 25, 2002, would have added limited-value shoulder pads to findings and trimmings not
denied preference eligibility.

During the 107th Congress, the USTR determined the qualification for the CBTPA
program of three more countries: Trinidad and Tobago effective February 6, 2001 (66 F.R.
9888), and Barbados, and Saint Lucia effective June 1, 2001 (66 F.R. 31272).
On October 16, 2002, two identical bills (H.R. 5650 and S. 3123) were introduced (but
not further considered) to amend the CBERA by providing to Haiti a substantially enhanced
preference for exports of textile apparel to the United States by according such apparel,
assembled in Haiti, duty-free entry regardless of the country of origin of the component parts.
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108th Congress
H.R. 1031 and S. 489, identical with H.R. 5650 and S. 3123 (107th Congress) except for
relevant effective dates, were introduced on February 27, 2003, but saw no further action other
than a hearing on this topic, held on September 22, 2004, by the House Ways and Means
Subcommittee on Trade.
Authority to accord duty-free treatment to imports of certain footwear from CBERA
beneficiaries was contained in identically worded provisions of three measures. Section 1709
of S. 671, Section 1708 of H.R. 1047, and Section 3528 of H.R. 3521. Eventually enacted
as Section 1558 of the Miscellaneous Trade and Technical Corrections Act of 2004 (P.L. 108-
429), the provision amended Section 213(b)(1)(B) of the CBERA, which, because of the
products’ import-sensitivity, denies eligibility for CBERA duty-free treatment of any footwear
ineligible for GSP preference on August 5, 1983, by limiting such ineligibility to only 21 tariff
items under the CBERA and allowing duty-free treatment to four of these items when
imported from CBTPA beneficiaries. The amendment also, in effect, relaxes, for the latter,
the rule of origin to the level used under the GSP rather than the more restrictive one of the
NAFTA.
Trade Data
In 2001, the first full year of the CBTPA program, imports under its preference
accounted for a substantial share (29.5%; $5,592.9 million) of total U.S. imports from its
beneficiaries ($18,939.7 million) and for 35.6% ($5,139.6 million) of duty-free imports
($14,451.4 million ); $453.3 million of imports under the CBTPA were still subject to duties.
The largest share (6,618.9 million; 45.8%), of duty-free imports overall, however, entered
under nonpreferential (general) zero duties, and $2,601.9 million (18.8%) under basic CBERA
preference. In 2002, CBTPA duty-free imports ($6,061.1 million) accounted for 30.9% of
total imports ($19,587.7 million) and for 40.1% of duty-free imports from CBTPA
beneficiaries ($15,123.6 million), with $1,016.9 million still CBTPA-dutiable. Imports under
general zero-duty rates amounted to $6,261.5 million (41.4%), under basic CBERA to
$2,701.7 million (17.9%) and under the GSP to $92.5 million (0.6%) of duty-free imports.
Overall CBTPA imports accounted for 36.1% of total imports from CBTPA countries.
During the year 2003, imports from CBTPA countries ($22,457.1 million) registered
significant increases (19.9%) over the year 2002. CBTPA duty-free imports rose to $7,452.7
million (39.8% of duty-free imports, 33.2% of total imports), but were still exceeded by
nonpreferential duty-free imports ($8,268.7 million; 44.1%, and 36.8%, respectively). Also
increased were duty-free imports under the basic CBERA ($2,755.7million) and GSP ($252.6
million). This upward trend continued in 2004, when, during the first eleven months of 2004,
out of the $22,436.2 million total, imports under the CBTPA (all duty-free) accounted for
$7,147.0 million; under the CBERA $2,507.2 million ($101.8 million at reduced rates),
$315.0 million under the GSP, and $8,491,8 million duty-free under regular rates; all duty-
free imports: $18,482.1 million (82.4% of total imports).
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CHRONOLOGY
(from January 1, 2003 on)
12/03/04 — Measure signed by the President (P.L. 108-429).
11/19/04 — Senate agreed to conference report by unanimous consent.
10/08/04 — Conference on H.R. 1047 held; measure reported favorably (H.Rept. 108-771);
report agreed to in the House without objection.
03/04/04 — H.R. 1047 amended by the Senate by substituting for it the language of S. 671
and passed by unanimous consent in lieu of S. 671, which was returned to the
Senate calendar.
— S. 671 amended by unanimous consent (S.Amdt. 2678).
12/09/03 — H.R. 3521 referred to Senate Committee on Finance.
11/20/03 — H.R. 3521 passed by the House by voice vote under suspension of the rules.
11/19/03 — H.R. 3521 introduced.
03/21/03 — H.R. 1047 placed on the Senate calendar.
03/20/03 — S. 671 reported as an original bill (S.Rept. 108-28) and placed on the Senate
calendar.
03/05/03 — H.R. 1047 passed by the House (415-11) under suspension of the rules
03/04/03 — H.R. 1047 introduced, authorizing in Section 1708 CBERA and CBTPA duty-
free treatment of certain footwear.
02/27/03 — H.R. 1301 and S. 489 introduced to provide to Haiti a substantially enhanced
preference for exports of textile apparel to the United States.
CONGRESSIONAL HEARINGS, REPORTS, AND DOCUMENTS
U.S. Congress. Conference Committees .Miscellaneous Trade and Technical Corrections Act
of 2004. Conference report (to accompany H.R. 1047).Washington, U.S. Govt. Print.
Off., October 8, 2004. 196 p. (At head of title: 108th Congress. 2d Session. H.Rept. 108-
771.)
——Trade Act of 2002 Conference report (to accompany H.R. 3009). Washington, U.S.
Govt. Print. Off., July 26, 2002. 266 p. (At head of title: 107th Congress, 2d Session.
H.Rept. 107-624).
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——Trade and Development Act of 2000. Conference report (to accompany H.R. 434).
Washington, U.S. Govt. Print, Off., May 4, 2000. 146 p. (At head of title: 106th
Congress, 2d Session. H.Rept. 106-606).
U.S. Congress. House. Committee on Ways and Means. Andean Trade Promotion and Drug
Eradication Act. Report together with additional and dissenting views (to accompany
H.R. 3009). Washington, U.S. Govt. Print. Off., November 14, 2001. 43 p. (At head of
title: 107th Congress. 1st Session. H.Rept. 107-290).
——Caribbean and Central America Relief and Economic Stabilization Act. Report together
with additional and dissenting views (to accompany H.R. 984). Washington, U.S. Govt.
Print. Off., March 13, 2000. 52 p. (At head of title: 106th Congress. 2d Session. H.Rept.
106-519, Part 1).
U.S. Congress. Senate. Committee on Finance. Andean Trade Preference Expansion Act.
Report (to accompany H.R. 3009). Washington, U.S. Govt. Print. Off., December 14,
2001. 56 p. (At head of title: 107th Congress. 1st Session. S.Rept. 107-126).
——Miscellaneous Trade and Technical Corrections Act of 2003. Report (to accompany S.
671). Washington, U.S. Govt. Print. Off., March 20, 2003. 192 p. (At head of title:
108th Congress. 1st Session. S.Rept. 108-28).
——United States-Caribbean Basin Trade Enhancement Act; report (to accompany S. 1389).
Washington, U.S. Govt. Print. Off., September 16, 1999. 29 p. (At head of title: 106th
Congress. 1st Session. S.Rept. 106-160).
FOR ADDITIONAL READING
CRS Sources
CRS Report RS20174, CBI/NAFTA Parity Proposals: A Comparison, by Vladimir N. Pregelj.
Other Sources
U.S. International Trade Commission. Apparel Inputs in “Short Supply” (2002); Effect of
Providing Preferential Treatment to Apparel from Sub-Saharan African and Caribbean
Basin Countries. Compilation of Reports Requested in 2002. Investigation No, 332-436.
Publication 3581. February 2003. ii + 32 + 5 p.
[http://www.usitc.gov/webpubs.htm]
——. Commercial Availability of Apparel Inputs (2003): Effect of Providing Preferential
Treatment to Apparel from Sub-Saharan African, Caribbean Basin, and Andean
Countries. Compilation of Reports Requested in 2003. Investigation No. 332-450.
Publication 3677. March 2004. iii + 38 + 5 p.
[http://www.usitc.gov/webpubs.htm]
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——. The Impact of the Caribbean Basin Economic Recovery Act; Fifteenth Report 2001-
2002. Investigation No. 332-227. Publication 3636. September 2003. ix + 97 + 37 p.
[http://www.usitc.gov/webpubs.htm]
U.S. Office of the United States Trade Representative. Fourth Report to Congress on the
Operation of the Caribbean Basin Economic Recovery Act. December 31, 2001. 60 +
4 p.
[http://www.ustr.gov/reports]
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