The main asset offered in the Caribbean is the area's magnificent climate and unparalleled natural beauty which combine to make the region one of the world's great vacation destinations. Tourism is central to the economy of this entire region and is therefore the key to any long term stability.

It is not our purpose to recommend a particular course of action to this subcommittee but rather to suggest that a proper acknowledgment of tourism as a primary industry for the Caribbean Basin should lead to investigations by the subcommittee of the current impediments to development of this industry. From these investigations, methods of increasing economic investment in tourism can be developed and implemented. It is clear from its first two years of operations, that the tax incentives for business conventions has not provided the needed impetus. While this acknowledgment of equality with the North American area is necessary and should be continued, it should not be seen as an appropriate response which prevents this subcommittee from seeking additional economic stimulus.

The problems and complexities involved in developing the tourism industry are many and it is beyond the scope of this brief statement to spell them out. What is called for at this stage is a recognition of the primary importance of the tourism industry and a willingness to look into its problems, to develop responses that solve these problems and to promote an economic climate that encourages further development of the hotel industry and related supporting industries in the Caribbean Basin.

We appreciate the opportunity to provide this statement to be included in the record of testimony on the Caribbean Basin Initiative.

Sincerely,

ALM/bjl

Albert L. McDermott
Washington Representative

STATEMENT OF THE

AMERICAN IRON AND STEEL INSTITUTE

The American Iron and Steel Institute is pleased to present the following comments for inclusion in the public record of the House Ways and Means Oversight Subcommittee hearings on the impact and effectiveness of the Caribbean Basin Initiative. The American Iron and Steel Institute is the principal trade association of the U.S. steel industry.

In the Subcommittee's press release of Februry 5, 1986 announcing the oversight hearings, comments were requested on "problem areas [regarding the CBI that] need to be identified and addressed by the Committee in a timely fashion."

In the American Iron and Steel Institute's testimony before the Committee on Ways and Means in 1983 on the Caribbean Basin Initiative, the AISI stated its strong conviction that CBI benefits should not apply to steel products (steel products include steel mill products and fabricated steel products). We noted that, if the CBI did not exclude steel products, the program would necessarily conflict with other government policies concerning steel trade by which the U.S. government was attempting to limit steel imports unfairly traded imports. In the final legislation passed by Congress and signed by President Reagan, other import-sensitive industries such as textiles, apparel, luggage, etc., were exempted from the CBI for import sensitivity reasons. Unfortunately, steel was not excluded.

-

especially

A principal concern of the AISI at that time was that major steel exporting countries could circumvent tariffs, quotas, antidumping or countervailing duties, etc., by processing their steel products in the Caribbean Basin. Such fabrication in the Caribbean Basin, using low cost fabricating operations, could easily take advantage of the Customs Service's rules of origin and enter the U.S. market duty-free under the Caribbean Basin Initiative.

Unfortunately, our fears regarding the Caribbean Basin Initiative are

coming to pass. For example, last fall the U.S. Customs Service ruled that sheet products produced in Brazil and fabricated into oil country tubular goods in Panama would thereby acquire Panamanian nationality and, in addition, could enter the United States duty-free under the CBI. This Panamanian OCTG facility, once built, would therefore have the effect of increasing the importation of OCTG into the United States, and indirectly increasing Brazilian shipments of steel mill products as well. The Customs Service has other CBI related country of origin determinations under review also, such as galvanizing sheet, drawing wire rod into wire, etc. All of the schemes have as their purpose the circumvention of the President's steel program. Such schemes become even more attractive, obviously, in the Caribbean Basin, where the Caribbean Basin Initiative benefits can be used to lower costs of

importations into the U.S.

We believe that it is critical that the Congress reassess the CBI with regard to steel products shipments from the Basin. We believe that current law has provided an additional incentive for countries covered by the President's steel import program to increase their shipments of steel products to the U.S. through minor fabrication operations in the Basin. Such developments undermine the purposes of the President's program and the Steel Import Stabilization Act of 1984: to grant a period of relief from imports to the domestic steel industry in order to allow the U.S. industry time to modernize its facilities.

In sum, we believe that the prediction we made in 1983 that the CBI would be used to increase unfairly traded and disruptive imports of steel products into the United States is increasingly likely to materialize unless Congress acts to eliminate steel products from those covered by the CBI. We strongly urge Congress to take this action.

On behalf of the Bicycle Manufacturers Association of America, Inc. ("BMA"),* we wish to make the following comments in connection with the Subcommittee on Oversight's hearings to review the impact and effectiveness of the Caribbean Basin Initiative ("CBI"). These comments focus on that portion of the CBI known as the Caribbean Basin Economic Recovery Act ("CBERA"), 19 U.S.C. § 2701-2706, under which the United States extends duty-free treatment to all but certain specifically excluded products manufactured in countries located in the Caribbean Basin.

As a general philosophical matter, BMA has no objection to U.S. government programs designed to foster the development of the world's lesser-developed countries, especially when those countries are deemed to be of strategic importance to the United States. BMA strongly believes, however, that U.S. government programs designed to spur development in the lesser developed countries should not operate essentially at the expense of U.S. industries and their workers. Ideally, duty preference systems like the CBERA should function primarily by allowing imports from the beneficiary countries to displace imports from non-beneficiary countries. BMA rejects the proposition that the

The regular members of BMA are Huffy Corporation, Murray Ohio Manufacturing Company and Roadmaster Corporation. These firms together account for the vast majority of bicycles manufactured in the United States. BMA also has 15 associate member companies which manufacture bicycle parts and components.

United States should assist the development efforts of the lesser developed countries by sacrificing the economic welfare of its own industries and workers; the objective of a duty preference program should be to give imports from the beneficiary countries a competitive edge over imports from other sources vis-a-vis the U.S. customs laws.

The CBERA Lacks an Effective Mechanism for Avoiding Injury to Domestic Industries

Unfortunately, the CBERA does not presently contain an effective mechanism by which the effects of the duty preference program on U.S. industries can be monitored and benefits under the program terminated for certain products where competitive injury to U.S. industries is threatened. For a number of product areas in which the Caribbean countries have either a demonstrated or a very strong potential competitiveness textiles and apparel articles, footwear and certain leather products, tuna, petroleum, and watches Congress saw fit to make CBERA benefits wholly unavailable (or in the case of sugar, available on a limited basis) in order to prevent competitive injury to a number of already import-sensitive U.S. industries. See 19 U.S.C. S 2703(b). Apart from these statutory exclusions, all other products are eligible for duty-free treatment under the CBERA program. Both the U.S. International Trade Commission and the Department of Labor are required by the law to conduct periodic reviews of the effects of the CBERA program (see id. SS 2704, 2705), but the statute does not expressly make these reviews a forum for domestic industries to complain about the effects of the duty preference program, much less seek exemptions from its coverage.

In this respect, the CBERA stands in notable contrast to the United States' primary duty preference program, the Generalized System of Preferences ("GSP program"). See 19 U.S.C. SS 2461-2466. The statute creating the GSP program provides for an elaborate mechanism under which the effects of the program on competing U.S. industries are closely monitored and benefits terminated once certain "competitive need limits" are reached (e.g., imports from the beneficiary developing country exceed 50 percent of the value of total U.S. imports of the product in question). Moreover, the statute also allows U.S. industries to petition for withdrawal of GSP benefits even before such "competitive need limits" are reached in cases where the competitive health of the industry is being undermined. Under this so-called "graduation" process, many products have become ineligible for GSP treatment and countless U.S. jobs saved.

To this point in time, the absence of an administrative mechanism for securing the withdrawal of CBERA benefits has not greatly concerned BMA, nor did it appear at the time the CBERA was enacted that bicycle production in the Caribbean Basin countries might pose a realistic threat to the U.S. bicycle industry. It now appears, however, that a number of Caribbean countries are seeking to establish bicycle assembly operations, possibly in cooperation with established parts manufacturers in Korea and Taiwan, for the specific purpose of supplying the U.S. market with bicycles on a dutyfree basis. BMA submits that such a course of events would be contrary to the interests of one of this country's most import-impacted manufacturing industries. The prospect of duty-free bicycles entering the United States in increasing numbers is, in addition, inconsistent with ongoing congressional efforts to increase, rather than decrease, the modest tariff protection currently afforded U.S. bicycle manufacturers.