For over 40 years, the United States has relied on unilateral trade preferences as an integral part of its foreign economic policy. Trade preferences give market access to selected developing country goods, duty free or at tariffs below normal (NTR) rates, without requiring reciprocal trade concessions. The Caribbean Basin (see Figure 1 ) has benefitted from multiple preferential trade arrangements, the best known being those linked to the Caribbean Basin Initiative (CBI) implemented on January 1, 1984, and revised periodically by Congress. The GSP permits developed countries to grant unilateral tariff preferences for selected imports from developing countries to promote export-led growth. The Caribbean Basin Economic Recovery Act (CBERA) of 1983

The impetus to create a Caribbean trade preference program arose from concern over the region's economic collapse and political radicalization that materialized in the early 1980s. A number of special provisions also applied. Nonetheless, on May 18, 2000, following congressional passage, the Caribbean Basin Trade Partnership Act (CBTPA— P.L. 110 - 246 ), and again through September 30, 2020, in the Haiti Economic Lift Program (HELP) Act of 2010 ( P.L. 111-171 ). Unlike the CBTPA, of which Haiti is a beneficiary country, and the CAFTA-DR, which does not include Haiti, the HOPE Act permits duty-free treatment for apparel imports in limited quantities assembled or knit-to-shape in Haiti with inputs from third-party countries, or those outside the region that are not a party to either a preferential trade arrangement or free trade agreement with the United States. U.S. tariff preferences offered to the Caribbean countries often
replaced tariff with nontariff barriers, usually quantitative restrictions, as is the case for some goods entering under the CBERA, CBTPA, and HOPE Act; have complicated rules of origin that are costly, cumbersome to implement, and frequently inhibit use of preferences; require use of relatively higher-cost U.S. inputs, offsetting the cost competitiveness benefit of the tariff concessions; induce trade growth explicitly through trade diversion (Caribbean apparel instead of Asian or Central American) and potentially in industries where there is no inherent comparative advantage; can bias a country's investment pattern toward particular industries, limiting incentives to diversify their economies, and also prolonging other market-based adjustments; can induce recipients to limit export promotion and increase barriers to entry in industries facing CBI quantitative restrictions, and; can act as a disincentive to support multilateral trade negotiations, given they can erode regional preference margins. U.S.-Caribbean Basin Trade Relations: Policy Options

For over 40 years, the United States has provided some type of trade preference program to the countries of the Caribbean Basin. Reform Trade Preference Programs

A second option is to consider redefining the unilateral preference programs in a way that might provide more benefit to the CARICOM countries. Still, there appears to be interest in exploring the revision of preference programs to include services exports. Outlook

A number of issues and circumstances have converged that point up challenges for U.S. trade policy in the Caribbean region. Further, these programs are little used by the smaller beneficiary countries, which also have expressed a reluctance to move toward an FTA with the United States without some guarantee of a "development component" to the agreement, despite the promise of permanent market access and increased investment that an FTA holds out. The Caribbean countries, although having restructured their trade relationships with Europe, appear content to take a cautious and leisurely path toward any new trade arrangement with the United States. In fact, broader integration may be difficult to achieve and still meet the needs of very small developing countries. Their economies are highly vulnerable to the vicissitudes of global economic trends and weather patterns, and may require new and creative solutions to make the adjustment to full reciprocal free trade. U.S. trade policy toward the region has also had a historical focus on development and regional security issues in addition to trade liberalization, suggesting that trade liberalization likely will not be the only factor to determine policy. In the context of deciding whether to continue with trade preferences in similar or altered form, or opt for an FTA, agreement has yet to materialize.
For over 40 years, the United States has relied on unilateral trade preferences to promote export-led development in poor countries. Congressionally authorized trade preferences give market access to selected developing country goods, duty free or at tariffs below normal rates, without requiring reciprocal trade concessions, although their extension is conditioned on extensive eligibility criteria and the use of U.S. inputs in many cases. The Caribbean Basin has benefitted from multiple preferential trade arrangements, the first being the Caribbean Basin Initiative (CBI), passed by Congress in the Caribbean Basin Economic Recovery Act of 1983. Other programs include the Caribbean Basin Trade Partnership Act (CBTPA) of 2000, which provides tariff preferences for imports of apparel products, and the Haiti HOPE Act of 2006 (amended in 2008 and 2010), which gives even more generous preferences to imports of Haitian apparel.
Since the preferences have been implemented, U.S.-Caribbean trade has grown, but evaluations of the early programs suggest that their effects were not as robust as originally hoped. Benefits tended to be concentrated in a few countries and products, limiting export promotion and deterring product diversification. Over time, benefits have been "eroded" by multilateral trade liberalization and other regional U.S. preference programs. Bilateral free trade agreements, particularly the CAFTA-DR, have actually replaced unilateral preferences with permanent, more attractive tariff reductions and trade rules for former CBI countries such as the Dominican Republic and Central American countries. As the main exporters of apparel in the Caribbean Basin, they were among the primary beneficiaries of the Caribbean trade preference programs.
In recent years, Congress had leaned toward short-term extensions of the Caribbean and other preference programs. A number of members seek a comprehensive review of these programs with an eye on harmonizing and revamping their various provisions. Congressional concern over eligibility criteria, simplifying rules of origin, targeting the least developed countries, and standardizing benefits are among a number of broad issues being debated as part of the preference reform agenda. In addition, there are a number of issues and circumstances converging that may suggest the need for reorienting U.S. trade policy in the Caribbean region.
The most effective trade preferences appear to be the apparel provisions provided under the CBTPA and the HOPE Act, as amended. Both were extended through September 30, 2020, in the Haiti Economic Lift Program (HELP) Act of 2010 (P.L. 111-171). These provisions, however, are not well suited to the services- and energy-based economies of the smaller Eastern Caribbean countries. Also, there is a reluctance by these countries to make the transition to an FTA without some guarantee of a "development component" to the agreement. These concerns persist, despite the promise of permanent market access and increased investment that an FTA holds out. The Caribbean countries appear content to take a cautious path toward any new trade arrangement with the United States.
Achieving broader regional integration may be difficult to reconcile with the needs of very small developing countries, which are highly vulnerable to the vicissitudes of global economic trends and may require new and creative solutions, particularly if U.S. policy is still driven by the historical focus on development and regional security issues in addition to trade liberalization. In the context of continuing with trade preferences in similar or altered form, or opting for an FTA, the solution is not immediately obvious.