should do. I assume that would also go for the Congress not to pass the tax bills that would take away the incentives. Mr. PAPAVIZAS. Yes. Mr. ANTHONY. Then you also make some suggestions. Would you have any priorities as to which one of those suggestions you would hope this subcommittee would endorse? Mr. PAPAVIZAS. Well, I think probably section 936 should be a very high priority, and since it has already passed the House I think-I would think that that should at least provide some additional incentive for CBI countries to enter into a tax exchange information agreement. Whether it will be enough, only time will tell. There is definitely a need for more incentive. Mr. ANTHONY. What would be your next preference after section 936 inasmuch as that is already in H.R. 3838? Mr. PAPAVIZAS. I would say that the administration and Congress should be consistent about their policies and reward countries that work through the CBI framework and enter into agreements, such as Barbados already has, and not allow the sort of side deals that Bermuda is obtaining, essentially, by obtaining the convention tax credits without entering into a formal tax information exchange agreement. Mr. ANTHONY. One final question. A lot of negotiations are going on with the various countries to try to establish either a tax treaty or exchanging of tax information. Yet, since the CBI has been signed into law, only Barbados has come onstream. Some others appear to be fairly close. There's always the suspicion that the reason some of these countries do not is because of the huge infusion of illegal cash either through drugs or through some other illegal activities-the money-laundering operations. Do you feel that these countries have established themselves as financial centers so that these activities actually do go on and could go on? Mr. PAPAVIZAS. Well, that's a little bit of a tough question. I would say that money laundering is not really the problem, if the objective is to obtain more of these agreements. As an example, Belize-I think no one would say that there's a money-laundering problem in Belize, and yet Belize has more or less taken the position that it has no incentive to enter into such an agreement. In other words, at least it doesn't have sufficient incentive to overcome the problems it would have to encounter to negotiate and enter into such an agreement. So money laundering and attracting ill-begotten gains may be a problem in a few CBI countries, but I don't think that's really the problem with obtaining more of these agreements. Mr. ANTHONY. Well, I thank you very much. I would like to, for the chairman of the subcommittee, thank this panel, but not only this panel but all of the witnesses who have participated today. It has been very informative and the subcommittee will stand in recess until Thursday at 9 o'clock. [Whereupon, at 3:30 p.m., the subcommittee hearing was recessed until Thursday, February 27, 1986.] IMPACT AND EFFECTIVENESS OF THE CARIBBEAN BASIN INITIATIVE THURSDAY, FEBRUARY 27, 1986 HOUSE OF REPRESENTATIVES, The subcommittee met, pursuant to notice, at 9:05 a.m., in room 1100, Longworth House Office Building, Hon. J.J. Pickle (chairman of the subcommittee) presiding. Chairman PICKLE. The hearing will come to order. Today we are continuing our oversight hearings on the first few years of the Caribbean Basin Initiative. On Tuesday, both witnesses and members of the subcommittee brought out both the benefits of the CBI and its lack of success to date. There are major points of weakness that concern us. First, the fall in price of commodities such as oil, sugar, and bauxite has drastically reduced the volume of CBI exports to the United States. Second, the CBI legislation itself, specifically the list of exempt products, may be a real stumbling block in increased exports for the Caribbean. Final, there is a real concern about the adequacy of coordination of the CBI project within the U.S. agencies, particularly with the various U.S. Customs Service's offices. Additionally, the administration discussed its plan for the expansion of the 807 Program for textiles in CBI nations. The proposal is expected to increase U.S. textile exports by $150 million annually. The administration has also disclosed plans for a future legislative proposal to increase sugar quotas for CBI nations while keeping overall sugar imports at the same level. While it is still very early in the CBI, the experience of the first 2 years is a source of very real concern to all of us. It has fallen short of its two major goals. It has not increased exports in nontraditional areas and has not significantly increased private U.S. investment in the CBI region. If these trends continue, I fear that the CBI will be a repeat of "Alliance for Progress" of the sixties: in other words, a U.S. program conceived with good intentions that does not work. Now, we have a full day ahead of us. I am looking forward to this testimony to aid the Oversight Subcommittee in developing recommendations to make the CBI more effective. (503) Our first witness this morning is our colleague. the Eccorable Merryn M. Dymally from California We are pleased to have you with da, Congressman. If you will proceed your entire statement will be made a part of the record and we would be glad for you to summarize it. STATEMENT OF HON. MERVYN M. DYMALLY. A REPRESENTATIVE IN CONGRESS FROM THE STATE OF CALIFORNIA Mr. DYMALLY. Thank you very much. Mr. Chairman. I shall be very brief, and one reason for my brevity is because you have touched on some of the points which I hope to raise. I simply want to raise three points, and they may have been touched before by the committee but I felt a responsibility to do so again. One, I think that one of the basic weaknesses in CBI negotiations is the emphasis of this administration on bilateral instead of multilateral negotiations. Because of the small, fragile economies, the regional institutions believed that they could do a much better job of coordination, and I refer specifically to Caribcan and the Caribbean Development Bank and other regional institutions in the Caribbe an. Two, the bilateral tax information exchange sometimes discriminates against some countries because the laws governing bank disclosure and tax information differ from country to country, and it might be more appropriate for the IRS and Treasury to negotiate with various islands rather than to have one basic law applicable to all of the region when each country has a different law. In some instances the information is given out by the central bank. In other instances it is given out by the tax department. So in one country the tax department by law cannot give out that information but the banks can. So the Treasury Department, it seems to me, ought to have a little more flexibility when we rewrite this law rather than applying one basic statute to apply to 15 different areas, each of which has a different law governing exchange information. The problem is that in one country, at least, giving out this information could bring an entire collapse of its economy, so there needs to be more flexibility in the negotiating process and in the language as we reexamine that exchange of information. The final point has to do with 936. It remains important that the benefits of flag countries should remain intact under 936. This type of incentive, however, should be included, if not made more flexible, under CBI. The consensus of the Caribbean countries is that such revisions present a great potential for quick economic recovery. So I believe that 936 ought to be examined carefully so it could be made applicable to some of the Caribbean countries rather than just one flag territory. Mr. Chairman, that concludes my testimony. [The prepared statement follows:] PREPARED TESTIMONY OF CONGRESSMAN MERVYN M. DYMALLY before the SUBCOMMITTEE ON OVERSIGHT HOUSE COMMITTEE ON WAYS AND MEANS Mr. Chairman, I am pleased to have this opportunity to testify before the Subcommittee on Oversight of the House Ways and Means Committee during your hearings on the status of the Caribbean Basin Initiative (CBI) as passed under the Caribbean Economic Recovery Act of 1983. Since its inception, I have been a persistent critic of CBI. As it was proposed, revised and implemented, this initiative continues to emphasize and enhance United States interests first, second and last. Undoubtedly, our foreign policy should focus on achieving our objectives primarily, but foreign policy becomes ineffective when the interests of the other countries are ignored during this process. During preliminary hearings on CBI, the Congressional Black Caucus Task Force on the Caribbean argued that the initiative implied a message to the countries in the region "do and behave the way we want you to behave, or suffer the consequences." Certainly, CBI has contributed to some economic gains in the region and it has continued to support our foreign policy there; it could easily have accounted for major gains had certain needs been addressed. I hope that my testimony will shed some light on some of these needs, and that this Committee will make necessary changes in CBI to accommodate these needs. Specifically, I wish to touch on three concerns: (1) the need for multi-lateral relationships with regional institutions and among the island (2) nations; (2) the need to review the reasonableness of bilateral tax information exchange; and, (3) the need to consider an expansion of Section 936 of the Internal Revenue Code. MULTI-LATERAL AND REGIONAL COOPERATION Perhaps, the most serious deficiency of CBI is its support for bilateral negotiations. This deficiency pits one Caribbean nation against another, and creates competition within the region rather than cooperation. These island nations are encouraged to individually negotiate trade and tariff agreements with the United States. In the two years of CBI operation, we have witnessed a significant difference in the economic accomplishments of individual countries which result primarily from the inability of each country to negotiate separate agreements with the United States. These countries have been slow in reaching agreements because of a fear that their ideas for economic recovery may not meet the agenda set by not only the United States but other donor-countries as well. Realizing this shortcoming, I managed to include in the Internatioal Security and Cooperation Act of 1985--Foreign Aid Bill--an International Advisory Commission for the Caribbean Region. A forum that would allow discussions of economic issues confronting the region between the Caribbean countries, the United States and other donor countries of the region. The main thrust of that proposal is to establish an avenue for input from the Caribbean countries into the agendas of donor countries relative to the development of their region. Despite early encouragement and support from the State Department, the final version signed into law reduced the |