Mr. McGRATH. Some land values are going up; some land values

are not.

Mr. SCHULZE. Thank you.

Chairman PICKLE. Mr. Rannik, you have been in the Dominican Republic for some time. And you testified that the CBI is working. Have you had any trouble getting your goods out of Santo Domingo?

Mr. RANNIK. No, sir, not really.

Chairman PICKLE. I notice that the Dominican Republic has probably had more exports than almost any CBI country. Why is that?

Mr. RANNIK. Well, I think it's for a number of reasons. The United States has been a traditional trading partner of the Dominican Republic right through history, whereas Jamaica, for example, has been a trading partner, Great Britain, Haiti has been more oriented toward Europe and so forth. The eastern Caribbean, perhaps, as well.

Another reason is our proximity to Puerto Rico, and the large amount of shipping service that this provides, and I think also the private sector in the Dominican Republic pounced on the CBI as something they could turn to their advantage rather early in the game, and we are only 2 years into the program, and maybe it's premature to say, but I think that we probably lead our neighbors in taking advantage of the trade provisions.

Chairman PICKLE. There have been a lot of widespread rumors and complaints that we can't get the goods out of U.S. ports because of Customs, Agriculture, EPA, OPIC, you name it. There have even been instances where they've had pay-offs in CBI ports. Have you experienced any of that with your businesses, or in the Dominican Republic?

Mr. RANNIK. Yes, sir, I think we probably have a typical level of that sort of thing in terms of what's common in that region of the world. Government bureaucracy, redtape, hassles and that sort of thing, take place to a far greater extent than they do in the United States, and I think anybody that does business overseas learns to either live with it or quits in disgust.

Chairman PICKLE. Thank you, gentlemen, very much for your testimony.

The next panel will be composed of Mr. Gerry Joseph, Mr. Samuel Mitchell, Mr. Stephen Lande, Mr. J. Royal Parker, Ms. Marshal Echols and Mr. Bennett Marsh. If all you individuals will come forward.

Let me identify these individuals while they are getting seated. Mr. Gerry Joseph is president of Joseph & Schiller.

Samuel Mitchell is president of Chicago Association of Commerce and Industry.

Mr. Stephen Lande is vice president of Manchester Associates, Ltd.

Mr. J. Royal Parker, president of J. Royal Parker Associates.
Marsha Echols is an attorney in Washington, DC.

And Mr. Bennett Marsh is president of Trade Advisory Services. Our first witness will be Mr. Gerry Joseph, president of Joseph & Schiller. And I believe we are ready to receive your testimony. Mr.

Joseph, if you will summarize, then we are going to ask you to stay with the time limits.

STATEMENT OF GERRY JOSEPH, PRESIDENT,

JOSEPH & SCHILLER, INC.

Mr. JOSEPH. Thank you.

Good morning, Chairman Pickle and other Congressmen.

My name is Gerry Joseph, I am a licensed customhouse broker. I have offices in Miami Beach, Florida and in West Palm Beach. Our firm is responsible for clearing somewhere between five and

Chairman PICKLE. Mr. Joseph, will you pull that microphone closer to you and speak up a little bit more?

Mr. JOSEPH. Certainly.

Chairman PICKLE. That's better.

Mr. JOSEPH. Our firm is responsible for clearing somewhere between 5,000 and 10,000 shipments a year, which take advantage of the duty preference opportunities offered by the U.S. tariff under CBI, GSP and 806, 807.

We handle approximately the same number of exports from the United States to these countries which involve the components which are going to ultimately be assembled and returned to the United States.

In the area of shortfalls, it is my perspective that the major problem with the CBI has been that it has led too many people in the United States and in the beneficiary countries to expect too great an economic impact in too short a period of time.

It is simply unreasonable to expect that the elimination of what are generally very small duties would be sufficient to induce businessmen to rapidly pursue CBI ventures. This is because a substantial percentage of products are already otherwise duty-free under GSP or partially exempt from duty under 807 or 806, and because in any event most of the rates of duty are so low, to start with, that their removal is insufficient to offset the costs and risks in starting up a new venture in the Caribbean.

It has been my experience that most of the transactions that we deal with-and we do deal with thousands of them-they are simply not predicated on the elimination of duties. They are primarily based on the availability of a low cost labor force, generally good transportation, and ease of vendor surveillance compared to trying to accomplish the same thing in the Far East.

In terms of strength, I think the most important thing that the CBI has done has been to cause American and foreign businessmen, not only in the Caribbean, but also throughout South America and Europe and even in the Far East, to focus their attention on the resources that do exist in the Caribbean.

I think the U.S. Department of Commerce has done an outstanding job of creating interest in exploring the opportunities that exist there. The CBI has definitely encouraged United States and foreign businessmen alike to actively pursue trade between the Caribbean and the United States.

In terms of recommendations, I would like to only add a couple of them here that you have already heard.

First, I think that the United States should modify the value test to permit duty-free treatment of eligible articles which are wholly assembled and manufactured from products of the United States and beneficiary countries, without regard to BDC value content.

This will make it easier for American businessmen to try the Caribbean at low risk, with the idea of increasing Caribbean content gradually.

I don't believe that there is a lot to lose from a U.S. protectionist standpoint and, in fact, I am quite sure that there will be a net increase in the use of U.S. labor and materials in the products that would be returned.

Second, it would obviously benefit the beneficiary countries if we provided some benefits to textile and leather products under the CBI in terms of at least reduce duty benefits, if not free.

And finally, although it is not in my testimony, one of the phenomena we are seeing right now in the area of transportation is that FAR 36 is definitely increasing costs in air transportation between the Caribbean. The airlines are generally increasing their air rates. Their service is going down because they don't have availability of aircraft which can comply with the noise rules and, in fact, many of my customers now are considering setting up their own air transportation to solve the problems that they are having. What FAR 36 has done, in Miami, has been to trade noise pollution for airplane pollution. These airlines now are having to go back to piston aircraft. We are crawling back into the Stone Ages down there, and I think it's bad. It's increasing costs and it's definitely, definitely hurting service.

Thank you.

[The prepared statement follows:]

STATEMENT OF GERRY JOSEPH, PRESIDENT, JOSEPH & SCHILLER, INC.

Thank you for the opportunity to express my views on the impact and effectiveness of the Caribbean Basin Initiative. The following are answers to the questions you posed in your letter to me dated 2/11/86.

1. I am a licensed Customs broker with offices in Miami and West Palm Beach, Florida. Our firm is responsible for clearing (Customs) 5,000-10,000 shipments per year which take advantage of the duty-preference opportunities offered by the U.S. Tariff under C.B.I., GSP and 806-807.

2. These shipments originate in the countries covered by the CBI, plus Colombia. 3. We handle approximately the same number of exports from the U.S. involving components to be used in producing the products which are returned to the U.S. 4. Most of these shipments are entered subject to provisions of 806/807. They are primarily wearing apparel which is not eligible as duty-free under the CBI.

5. We have been involved with the Caribbean Basin countries for nine years.

6. Our company has enjoyed very satisfactory growth since its inception, which we believe is largely due to the fact that we have specialized in entries involving 806/ 807, CBI and GSP.

7. N/A.

8. It is our experience that only a small percentage of transactions occur primarily as a result of duty-free treatment.

9. a. Shortfalls: The major problem with CBI is that it has led many people in the U.S. and in the beneficiary countries to expect too great an economic impact in too short of a period. It is unreasonable to expect that the elimination of duty would be sufficient to induce businessmen to rapidly pursue CBI business ventures. This is because of the fact that a substantial percentage of products are otherwise duty-free under GSP or partially exempt from duty under 807/806 and because, in any event, most rates of duty are so low to start with that their removal is insufficient to offset the cost and risk that a businessman encounters in starting up a venture in the Caribbean. Most transactions that I am aware of were primarily predicated on the

availability of low cost labor, good transportation and ease of vendor surveillance (compared to travel to the Far East).

b. Strengths: From my perception, the most important thing that the CBI has done, has been to cause American and foreign businessmen to focus their attention on the resources that exist in the Caribbean. The U.S. Department of Commerce has done an outstanding job of creating interest in the Caribbean and assisting businessmen in exploring the opportunities that exist there. The CBI has definitely encouraged U.S. and foreign businessmen, alike, to more actively pursue trade between the Caribbean and the U.S. (and other countries).

10. Recommendations:

a. I believe the U.S. should modify the "value test" to permit duty-free treatment of eligible articles which are wholly-assembled/manufactured from products of the U.S. and BDC countries without regard to BDC value content. This will make it easier for American businessmen to "try" the Caribbean at low risk with the idea of increasing Caribbean content gradually. There would be little to lose from a US. protectionist perspective and, in fact, may even result in a net increase in the use of U.S. labor and materials.

b. Provide textile products some benefits under the CBI, in terms of quota relief and/or reduced (if not free) duties.

In summary, I feel that the economic impact of the CBI will take years to develop. Although the manual dexterity of the Caribbean worker is basically very good, these countries must develop a trained and skilled labor force. There is a terrible shortage of competent middle management and mechanics to keep machinery working. Because of these facts, most businessmen find it prudent to start with simple projects and slowly expand the scope of work done by the beneficiary country. The investor who moves too quickly often suffers severe losses resulting from missed schedules (i.e., cancellations/penalties), high percentage of seconds and extensive demands on home office management and technical labor. When you consider that it often takes years for a new factory to move "down the learning curve" to achieve standard efficiency, it is not surprising that we have not seen rapid investment in the Caribbean.

Thank you for your consideration of my comments.

Chairman PICKLE. Thank you, Mr. Joseph. I have questions, but we are going to proceed.

Mr. Samuel Mitchell, president of Chicago Association of Commerce and Industry. Mr. Mitchell.

STATEMENT OF SAMUEL R. MITCHELL, PRESIDENT, CHICAGO ASSOCIATION OF COMMERCE & INDUSTRY

Mr. MITCHELL. Mr. Chairman, members of the committee, the Chicago Association of Commerce and Industry has been interested and involved in the goals of the Caribbean Basin Initiative from its onset. In 1983 we received a grant from the Agency for International Development to institute our Caribbean Basin promotion center, also called the CBPC, which has generated more than $29 million in trade between the Midwest and Caribbean countries of Costa Rica, the Dominican Republic and Honduras.

The center employs a small, highly skilled staff which informs U.S. buyers and Caribbean suppliers of trade opportunities and investment leads. The CBPC maintains a library and organizes seminars in the interest of communicating the word that business opportunities abound in the Caribbean Basin.

We focus our efforts on products for which there seems to be an opportune link between businesses in the two areas. For numerous reasons we have selected 10 product categories as priorities: fresh produce, semi-finished food products such as purees, pastes and concentrates, candy and confectionery items, flowers and ornamental plants, assembly of electronic equipment, apparel, furniture and

wood products, toys and games, recreational equipment and building materials.

Approximately 75 percent of the trade we help generate involves apparel, a product which does not benefit from duty-free treatment imposed by CBI legislation. We have been involved in trade deals in which the lifting of custom duties for the products, thanks to CBI, was a key factor. Honeydew melons and canteloupes, for example, are items for which a previously high duty was removed by the CBI creating increased exports.

Given the number of key products which have been exempt from the CBI, it is the public relations or motivational aspects of CBI that makes the difference. The increased visibility of Caribbean exporters at U.S. trade shows, the enhanced availability of information about Caribbean countries, the existing investment possibilities, and the business contracts which spawn new ideas.

The one-way trade enhancement, which many believe CBI seeks to achieve, needs to be discussed. In our experience the benefits of CBI often result in new business opportunities for U.S. companies. This is illustrated through a story on a Dominican Republic business named Agro-Inter. This firm exports fresh fruits and vegetables for the U.S. market. In the last quarter alone, sale of one of Agro-Inter's export products, snow peas, was $50,000. This company has generated jobs and opportunities in its region, but its benefits also come into the United States. Agro-Inter buys its seed from Santa Clara, CA, its packaging and boxes and dry ice in Miami. It uses U.S. airlines and truck lines to transport its products, and occasionally employs U.S. customs brokers and sales personnel.

Another specific business transaction in which the CPBC was recently involved, and which highlights how CBI enhances our work is a sweet success story. In the last quarter, CBPC completed a sales agreement under which the Sara Lee Co. in Chicago purchases chilled peeled bananas from Costa Rica for use in banana cakes. This agreement will result in $70,000 in trade annually for Costa Rica.

To arrange for this contract, CBPC worked a year to bring the various parties together; two Costa Rican companies, the Greater Chicago Food Brokers and the Sara Lee Co.

Also thanks to CBI legislation, the customary 3 percent ad valorem tax on frozen bananas did not apply, which gave Sara Lee additional trade incentives. Because of the number of parties involved, this deal would have been difficult to establish without an intermediary like CBPC.

We are among those organizations involved in specific, day-to-day efforts to build business relationships between our region and the Caribbean Basin. We have seen progress and expect that the contacts made will generate other business opportunities.

We have also encountered problems, as any new endeavor does. I would like to mention one specific problem which the committee might contemplate as it reviews the effectiveness of CBI.

Uncertainty exists regarding the future plans for quotas on products never previously produced in the Caribbean. Businesses cannot be certain the general provisions of CBI will apply to whatever a new product is when they go to consider it.