• TABLE OF CONTENTS
HIDE
 Copyright
 Front Cover
 Title Page
 Table of Contents
 Abstract
 Introduction
 Present trade patterns
 Relevant provisions of the CBI...
 Florida investor opportunities...
 Likely competitive impacts
 Concluding remarks
 Suggested references






Group Title: Staff paper - Food and Resource Economics Department - 285
Title: The Caribbean Basin Initiative and its potential impact upon agriculture in South Florida
CITATION PAGE IMAGE ZOOMABLE PAGE TEXT
Full Citation
STANDARD VIEW MARC VIEW
Permanent Link: http://ufdc.ufl.edu/UF00053897/00001
 Material Information
Title: The Caribbean Basin Initiative and its potential impact upon agriculture in South Florida
Series Title: Staff paper Food and Resource Economics Department, Institute of Food and Agricultural Sciences, University of Florida
Physical Description: 13 leaves : ; 28 cm.
Language: English
Creator: Polopolus, Leo
Publisher: Food and Resource Economics Dept., Institute of Food and Agricultural Sciences, University of Florida
Place of Publication: Gainesville Fla
Publication Date: [1985]
 Subjects
Subject: Agriculture -- Economic aspects -- Florida   ( lcsh )
Produce trade -- Florida   ( lcsh )
Agriculture and state -- Florida   ( lcsh )
Produce trade -- Government policy -- Florida   ( lcsh )
Agriculture and state -- United States   ( lcsh )
Produce trade -- Government policy -- United States   ( lcsh )
Caribbean Basin Initiative, 1983-   ( lcsh )
Agriculture -- Economic aspects -- Caribbean Area   ( lcsh )
Produce trade -- Caribbean Area   ( lcsh )
Foreign economic relations -- United States -- Caribbean Area   ( lcsh )
Foreign economic relations -- Caribbean Area -- United States   ( lcsh )
Genre: government publication (state, provincial, terriorial, dependent)   ( marcgt )
bibliography   ( marcgt )
non-fiction   ( marcgt )
 Notes
Bibliography: Bibliography: leaf 13.
Statement of Responsibility: by Leo C. Polopolus.
General Note: "August 1985."
Funding: Staff paper (University of Florida. Food and Resource Economics Dept.) ;
 Record Information
Bibliographic ID: UF00053897
Volume ID: VID00001
Source Institution: Marston Science Library, George A. Smathers Libraries, University of Florida
Holding Location: Florida Agricultural Experiment Station, Florida Cooperative Extension Service, Florida Department of Agriculture and Consumer Services, and the Engineering and Industrial Experiment Station; Institute for Food and Agricultural Services (IFAS), University of Florida
Rights Management: All rights reserved, Board of Trustees of the University of Florida
Resource Identifier: aleph - 000870263
oclc - 13796166
notis - AEG7336
lccn - 86620895

Table of Contents
    Copyright
        Copyright
    Front Cover
        Front Cover
    Title Page
        Page i
    Table of Contents
        Page ii
    Abstract
        Page iii
    Introduction
        Page 1
    Present trade patterns
        Page 2
    Relevant provisions of the CBI program
        Page 3
        Duty free imports
            Page 3
        Beneficiary countries
            Page 3
        Exempt products
            Page 4
        Rule of origin requirements
            Page 5
            Page 6
        Import and emergency relief provisions
            Page 7
    Florida investor opportunities in CBI countires
        Page 8
    Likely competitive impacts
        Page 9
    Concluding remarks
        Page 10
        Page 11
        Page 12
    Suggested references
        Page 13
Full Text





HISTORIC NOTE


The publications in this collection do
not reflect current scientific knowledge
or recommendations. These texts
represent the historic publishing
record of the Institute for Food and
Agricultural Sciences and should be
used only to trace the historic work of
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Copyright 2005, Board of Trustees, University
of Florida










Staff Paper Series


FOOD AND RESOURCE ECONOMICS DEPARTMENT
Institute of Food and Agricultural Sciences
University of Florida
Gainesville, Florida 32611



























THE CARIBBEAN BASIN INITIATIVE AND ITS POTENTIAL
IMPACT UPON AGRICULTURE IN SOUTH FLORIDA

by

Leo C. Polopolus


Staff Paper 285


August 1985


Staff papers are circulated without formal review
by the Food and Resource Economics Department.
Content is the sole responsibility of the authors.












Food and Resource Economics Department
Institute of Food and Agricultural Sciences
University of Florida
Gainesville, Florida 32611


















TABLE OF CONTENTS


Page

INTRODUCTION 1

PRESENT TRADE PATTERNS 2

RELEVANT PROVISIONS OF THE CBI PROGRAM 3

Duty Free Imports 3

Beneficiary Countries 3

Exempt Products 4

Rule of Origin Requirements 5

Import and Emergency Relief Provisions 7

FLORIDA INVESTOR OPPORTUNITIES IN CBI COUNTRIES 8

LIKELY COMPETITIVE IMPACTS 9

CONCLUDING REMARKS 10

SUGGESTED REFERENCES 13













ABSTRACT


THE CARIBBEAN BASIN INITIATIVE AND ITS POTENTIAL

IMPACT UPON AGRICULTURE IN SOUTH FLORIDA


The Caribbean Basin Initiative represents an attempt by the United
States to promote economic revitalization and expansion of economic oppor-
tunity in the Caribbean Basin region. The centerpiece of this program
is one-way free trade for potentially 28 countries. Imports of agri-
cultural products from the Caribbean region into the United States are
likely to be directly competitive with the agricultural production mix
of South Florida, i.e., winter vegetables, subtropical fruits, citrus,
sugar, tropical vegetables, and ornamentals. Sugar imports, however,
are constrained by the United States sugar program. Other factors may
result in fewer competitive imports from the Caribbean region than are
otherwise deemed possible.



Key words: Caribbean Basin Initiative, agricultural trade, fruits and
vegetables, South Florida, ornamental plants, and sugar.















THE CARIBBEAN BASIN INITIATIVE AND ITS POTENTIAL
IMPACT UPON AGRICULTURE IN SOUTH FLORIDA

LEO C. POLOPOLUS*


INTRODUCTION

President Ronald Reagan initially proposed in 1981, and the Congress

of the United States enacted in 1983 the Caribbean Basin Economic Re-

covery Act, commonly known as the Caribbean Basin Initiative or CBI. The

CBI is designed to promote economic revitalization and expansion of

economic opportunities in the Caribbean Basin region. The primary vehicle

for economic revitalization of the region is a waiver of prevailing duties

on most products imported into the United States from designated bene-

ficiary CBI countries.

The United States developed this program for responding to the eco-

nomic crisis in the Caribbean in close consultation with governments and

private sectors of potential recipients and other donor countries. In

1981 Secretary of State Alexander Haig and Trade Representative William

E. Brock met in Nassau with Foreign Ministers of Canada, Mexico, and

Venezuela. They agreed to sponsor a multilateral action program for the

region within which each country would develop its own program. Venezuela

and Mexico are making a major contribution to the Basin, particularly

through their joint oil facility. Canada has announced major increases

in its foreign assistance to the area and already provides duty free entry

on 98 percent of its imports from the Caribbean. Columbia, which more



*Presented before the Agricultural Plan Review Committee of Metro-
politan Dade County, Miami, Florida, August 27, 1985.









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recently joined as a donor country, intends to increase its financial

assistance to the Basin and to develop means of providing preferential

access to its market.

The centerpiece of the United States program is one-way free trade

for potentially 28 CBI countries. Prior to this program, 27 percent of

the exports from these countries entered duty free under the Generalized

System of Preferences (GSP) or under permanent MFN duty free treatment.

If petroleum is excluded, two-thirds of Caribbean imports entered duty

free. Nevertheless, it is argued by the proponents of the CBI that many

of the duties which remain in place are in sectors of primary export

potential for Caribbean countries.


PRESENT TRADE PATTERNS


Imports from the CBI countries to the United States presently account

for approximately 4 percent of total United States imports. While the

United States now has a negative overall trade balance when all countries

of the world are considered, the United States has an annual $2.9 billion

trade surplus with the Caribbean Basin. A positive trade balance exists

with 23 of the 28 potential beneficiary countries. The overall intent of

the CBI program is to improve political stability within.the Caribbean

Region through economic development in the region.

Historically, countries in the Caribbean Region have depended upon

exports of sugar, coffee, and bauxite for foreign exchange. Declining

prices of these products and the higher cost of imported petroleum has

turned attention to product diversification. Within this context, CBI

countries are obviously interested in exports of agricultural products

adaptable to their soil and climatic conditions. Unfortunately for South

Florida agriculture, the potential list of exportable crops from CBI









-3-

countries mirrors closely the agricultural production mix of Dade County

fresh winter vegetables, tropical vegetables, subtropical fruits, and

tropical ornamentals.

Thus, a successful outcome of CBI policy, i.e., increased exports

from CBI countries to the United States, would negatively impact upon

much of South Florida agriculture, but would not adversely affect agri-

cultural interests in the traditional corn and wheat belts of America.

The real question is whether or not the CBI program will actually lead to

a sufficient volume of competitive agricultural imports to cause economic

injury to the agricultural economy of South Florida.


RELEVANT PROVISIONS OF THE CBI PROGRAM


The basic provisions of the Caribbean Basin Economic Recovery Act

include the following:

1. Duty free imports on eligible articles;

2. Designation of beneficiary country;

3. Exempt products;

4. Rule-of-origin requirements; and

5. Import and emergency relief.

Duty Free Imports

As noted earlier, the CBI program provides basic authority for the

President of the United States to establish one-way, duty free treatment

on imports of eligible articles from beneficiary countries of the region.

Beneficiary Countries

The following countries and territories are candidates for desig-

nation as beneficiary countries:









-3-

countries mirrors closely the agricultural production mix of Dade County

fresh winter vegetables, tropical vegetables, subtropical fruits, and

tropical ornamentals.

Thus, a successful outcome of CBI policy, i.e., increased exports

from CBI countries to the United States, would negatively impact upon

much of South Florida agriculture, but would not adversely affect agri-

cultural interests in the traditional corn and wheat belts of America.

The real question is whether or not the CBI program will actually lead to

a sufficient volume of competitive agricultural imports to cause economic

injury to the agricultural economy of South Florida.


RELEVANT PROVISIONS OF THE CBI PROGRAM


The basic provisions of the Caribbean Basin Economic Recovery Act

include the following:

1. Duty free imports on eligible articles;

2. Designation of beneficiary country;

3. Exempt products;

4. Rule-of-origin requirements; and

5. Import and emergency relief.

Duty Free Imports

As noted earlier, the CBI program provides basic authority for the

President of the United States to establish one-way, duty free treatment

on imports of eligible articles from beneficiary countries of the region.

Beneficiary Countries

The following countries and territories are candidates for desig-

nation as beneficiary countries:









-3-

countries mirrors closely the agricultural production mix of Dade County

fresh winter vegetables, tropical vegetables, subtropical fruits, and

tropical ornamentals.

Thus, a successful outcome of CBI policy, i.e., increased exports

from CBI countries to the United States, would negatively impact upon

much of South Florida agriculture, but would not adversely affect agri-

cultural interests in the traditional corn and wheat belts of America.

The real question is whether or not the CBI program will actually lead to

a sufficient volume of competitive agricultural imports to cause economic

injury to the agricultural economy of South Florida.


RELEVANT PROVISIONS OF THE CBI PROGRAM


The basic provisions of the Caribbean Basin Economic Recovery Act

include the following:

1. Duty free imports on eligible articles;

2. Designation of beneficiary country;

3. Exempt products;

4. Rule-of-origin requirements; and

5. Import and emergency relief.

Duty Free Imports

As noted earlier, the CBI program provides basic authority for the

President of the United States to establish one-way, duty free treatment

on imports of eligible articles from beneficiary countries of the region.

Beneficiary Countries

The following countries and territories are candidates for desig-

nation as beneficiary countries:









-4-


Anguilla Jamaica
Antigua and Barbuda Nicaragua
The Bahamas Panama
Barbados Saint Lucia
Belize Saint Vincent and the Grenadines
Costa Rica Suriname
Dominica Trinidad and Tobago
Dominican Republic Cayman Island
El Salvador Montserrat
Grenada Netherlands Antilles
Guatemala Saint Christopher Nevis
Guyana Turks and Caicos Islands
Haiti British Virgin Islands
Honduras

The President, however, is not required to designate a particular

country for tariff free status if the following conditions exist: (1) it

is a communist country; (2) does not meet certain criteria regarding

expropriation of United States property; (3) fails to recognize arbitral

awards to Unites States citizens; (4) affords "reverse" tariff preferences

to other developed countries; (5) engages in piracy of copyrighted broad-

cast material; and (6) has not entered into an extradition treaty with the

United States. Thus, Nicaragua does not meet the conditions for desig-

nation as a beneficiary country. Cuba is not even a potential candidate

under any set of criteria.

Exempt Products

The Act exempts the following items from duty free status:

Textiles and apparel;

Footwear, handbags, luggage, flat goods, work gloves, and

leather wearing apparel;

Canned tuna;

Petroleum and petroleum products;









-5-


Watches and watch parts; and

Limitations on duty free entry of sugar.

In addition to the above, beneficiary countries are required to sub-

mit a staple food production plan as a condition for duty free entry of

sugar and beef. The purpose of this requirement is to ensure that the

present level of food production and nutrition in the CBI country will

not be adversely affected by changes in land use and land ownership as a

result of increased production of sugar and beef products in response to

duty free treatment under the CBI.

The Act also establishes special rules limiting the eligibility of

sugar for duty free treatment. The rules are intended to assure that duty

free imports from CBI countries will not interfere with or impair the

price support program for sugar as mandated by the Congress. Thus, the

CBI program has the intent of guaranteeing beneficiary countries a re-

liable but limited market for their sugar at preferential prices. At the

same time, it assures that such imports will not cause harm to United

States sugar producers. All potential beneficiary countries are receiving

a GSP duty free treatment in the United States sugar market, except for

the Dominican Republic, whose imports exceed competitive need limitations.

The President has imposed sugar quotas based upon each country's historical

share of the market.

Rule of Origin Requirements

A provision of major concern to United States producers is the rule-

of-origin requirement of the program. The Act requires that an article

of commerce must be produced in the designated CBI country to qualify for

duty free treatment. More specifically, an article must meet the follow-

ing three basic tests:









-6-


1. Direct importation;

2. 35 percent minimum local content; and

3. A product wholly of the country or "substantially

transformed" into a new or different article.

These provisions seek to address concerns about potential "pass

through" operations and "runaway plants". Requiring a minimum local con-

tent of 35 percent conforms eligibility for duty free entry under CBI to

the requirement for duty free treatment under GSP.

No article or material shall be considered to have been grown, pro-

duced, or manufactured in a beneficiary country by virtue of having merely

undergone simple combining or packaging operations, mere dilution with

water or mere dilution with another substance that does not materially

alter the characteristics of the article. Duty free entry under the CBI

may be accorded to an article only if the sum of the cost or value of

the material produced in a beneficiary country or countries, plus the

direct costs of processing operations performed in a beneficiary county

or countries, is not less than 35 percent of the appraised value of the

article at the time it is entered.

For example, reconstituting limeade from Mexico by adding water to

limeade concentrate in a CBI country would not be entitled to duty free

status, even though the processing operation adds value equivalent to

35 percent of the total value.

Because of the homogeneous, ubiquitous, and/or fungible nature of

many agricultural commodities and products, it may be difficult to enforce

the rule-of-origin provisions of the CBI. A breakdown of enforcement,

irrespective of legislative intent, could lead to extraordinary increases

in duty free imports of orange juice, lime juice, beef, and other agri-

cultural products produced in non-CBI countries, but transshipped from











-CBI countries. The types of agricultural products likely to test the

United States custom regulations include the agricultural products of

major importance to Florida -- citrus, beef, and horticultural products.

It is unlikely that rule-of-origin problems will occur with illegal

"pass-throughs" of corn, wheat, soybean, and dairy products.

Import and Emergency Relief Provisions

The standard import relief procedures and measures under the Trade

Act of 1974 are available to domestic industries with respect to imports

entering under the CBI, with certain modifications. That is, once duty

free treatment is proclaimed under the CBI on an article, it cannot be

removed for the remaining period unless it is removed as an import re-

lief or national security measure. Thus, the Act is designed to provide

domestic industry and labor the standard avenues for obtaining safeguard

measures against injurious imports while providing more secure perfer-

ential duty free access to the United States market for imports from CBI

beneficiary countries than existed under previous law.

The Act establishes a special procedure to protect perishable agri-

cultural products during the pending of a normal import relief proceeding.

If an import relief petition is filed regarding a perishable product and

alleging injury from CBI beneficiary countries, the petitioners may also

file with the United States Secretary of Agriculture a request for emer-

gency relief. Within 14 days the Secretary of Agriculture must determine

whether there is reason to believe a perishable product from a beneficiary

country is being imported in such increased quantities so as to be a

substantial cause of serious injury or threat to .the domestic industry

producing a like or directly competitive product. Upon recommendation

from the Secretary of Agriculture, the President could withdraw duty free

treatment. The President, however, cannot proclaim higher than normal











duty rates if injurious competitive imports are affirmed. Perishable pro-

ducts are defined to include live plants, most fresh or chilled vegetables,

fresh mushrooms, most fresh fruit, fresh cut flowers, and concentrated

citrus fruit juices.

The perishable product emergency relief provisions are of particular

importance to agricultural producers in South Florida. The law is written

to permit timely remedy of injurious imports. These provisions could pro-

vide some degree of protection to domestic producers from a sudden surge

of duty free imports.


FLORIDA INVESTOR OPPORTUNITIES IN CBI COUNTRIES


There is limited evidence that some Florida investors are seeking

relocation of their agricultural operations in CBI countries or at least

diversifying their operations with agricultural production in both Florida

and CBI regions. Interest is centered upon the Dominican Republic, Belize,

Jamaica, Costa Rica, and Honduras. Geographic diversification has the

potential of higher returns through lower production costs, absence of

winter freezes, and transfer of United States production and processing

technology on horticultural products.

While labor costs are considerably lower in CBI countries when com-

pared with Florida conditions, it is not certain that overall unit pro-

duction, marketing, and transportation costs are lower. There is generally

an absence of marketing institutions to grade, inspect, and standardize

the quality of products. Containers are not standardized, and refrigeration

and/or freezing equipment are not readily available. For perishable pro-

ducts, the additional transport time required for ocean freighters

adversely affects the quality of these products delivered to the United

States market.











While a separate economic analysis is needed for each agricultural

product from each of the 28 CBI countries, the lower labor cost factor

does not necessarily translate to delivered-in costs to the United States

market at or below South Florida's costs of production. Also, the level

of soluble solids of oranges, for example, may be much below standards in

Florida and Brazil, even though box yields may be comparable. Long term

agricultural experiments may be required to improve the internal and/or

external qualities of various agricultural products to compete in United

States and world markets.


LIKELY COMPETITIVE IMPACTS


The CBI countries not only are capable of producing the major agri-

cultural commodities of Dade County, but their market timing would be

quite coincidental. That is, imports of such items as avocadoes, limes,

and palms from CBI countries would likely arrive in the United States

markets during similar market periods or seasons. These imports would

also impact similar geographic markets, i.e., Eastern United States

markets as opposed to West Coast markets. The actual competitive threat

of CBI imports, however, is subject to the limitations of overall cost

effectiveness in each producing country, as well as transportation costs

to the United States markets.

Prior to the CBI program, there was a mixed pattern of duties levied

upon horticultural commodities and products imported into the United States.

Duties were in effect for such items as orange and lime juices from CBI

countries, but not generally for fresh vegetables. Thus, the CBI program

has technically removed the remaining tariffs for all horticultural com-

modities and products imported from beneficiary countries of the Caribbean

region. More significantly, the CBI program has sent a signal to producers









-10-

of fruits, vegetables, and ornamentals in the CBI region that the United

States welcomes imports of these products, irrespective of the previous

duty status.

For commodities under Federal Marketing Order programs, e.g., Florida

limes, Florida avocadoes, and Florida tomatoes, producers in CBI countries

are required to meet grade and size regulations of federal orders. Also,

imports must meet federal plant and animal disease restrictions. Florida

agriculture has a tremendous stake in protection from injurious plant and

animal diseases known to exist within the CBI region.

While the CBI is intended to improve political stability, imports of

competitive agricultural products are expected to be much less than maxi-

mum because of political instability in the region. Unemployment rates

remain high, per capital incomes low, and population growth rates remain

quite high. Both El Salvador and Nicaragua are torn with military con-

flagration. These factors contribute to political instability, which in

turn can adversely affect incentives for private investment in production

agriculture and marketing.


CONCLUDING REMARKS


The Caribbean Basin Initiative is a creative program of the United

States to stimulate economic development of the region by offering duty

free entry of products into the United States market. Potentially, agri-

cultural producers in South Florida could be negatively impacted from

bona fide imports of agricultural commodities, bona fide imports of pro-

cessed products, import products blended with only 35 percent of value

added from the CBI region (and.the remaining 65 percent of product value

added from non-CBI countries), and illegal imports of products "passed

through" CBI countries but originally produced in non-CBI countries.









-11-

Compared with other parts of the United States, the South Florida

region is likely to have the highest incidence of adverse economic impact

from the CBI program. This potential result is due to the fact that the

agricultural products of South Florida winter vegetables (tomatoes,

potatoes, sweet corn, beans, cucumbers, and peppers), tropical vegetables

malangass, boniatos, and calabaza), subtropical fruits avocadoess, mangoes,

and papayas), citrus (oranges, limes, and grapefruit), sugar, and orna-

mentals (palms, ferns, orchids, and flowering trees) -- are produced

generally throughout the CBI region but not generally throughout the other

parts of the United States.

The CBI program is not likely to reach its maximum negative impact

upon South Florida agriculture because of the following factors:

1. The combined cost of production, marketing, and transportation

may not be less than Florida's cost delivered to comparable

United States markets;

2. Political instability in the CBI region may reduce capital

investments in production and marketing infrastructure;

3. The CBI program provides duty free status to beneficiary

countries only until September 1995, a relatively short

planning horizon for major capital investments;

4. United States producers of perishable products have an

opportunity to seek special emergency relief for a sudden

surge of injurious imports from CBI countries;

5. Existing federal marketing orders superimpose another level

of regulations to enforce minimum grade and size standards

on imports of tomatoes, limes, and avocadoes; and









-12-

6. The sugar industry in South Florida is currently protected

from injurious additional imports via the United States

sugar program.

Additional evaluations of the likely impact of the CBI upon South

Florida agriculture are needed that more fully document the relative

production, marketing, and transportation costs on country-by-country

and commodity-by-commodity bases. Current and prospective trade patterns

need to be examined under a variety of scenarios.

Until more definitive studies are completed, it is concluded that

the CBI program will have a negative impact upon South Florida agriculture.

What is not known is the relative severity of the adverse impact.









-13-


Suggested References


United States Congress, P.L. 98-67, Title II, Caribbean Basin Initiative,
1983.

United States Federal Register, Department of Treasury, Customs Service,
19CFR, Part 10, Vol. 49, No. 237, December 7, 1984.




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