Overview of Caribbean Trade Preferences

The United States provides unilateral trade preferences to many countries as part of its foreign economic policy. U.S. trade preference programs give market access to eligible goods from beneficiary developing countries by providing duty-free treatment or tariffs below normal rates, without requiring reciprocal trade concessions. The goal is to promote economic growth and development in developing countries by stimulating export promotion and investment. Other goals may be political or aimed at encouraging countries to use U.S. inputs in foreign manufacturing. Congress authorizes trade preference programs in specific laws, and usually extends them for specific periods.

The Caribbean Basin has been the beneficiary of numerous U.S. preferential trade programs, known collectively as the Caribbean Basin Initiative (CBI). The first such program was the 1983 Caribbean Basin Economic Recovery Act (CBERA) (see Figure 1).¹ CBI aims to facilitate economic development and serves as an important element in U.S. economic relations with the region.² Several Caribbean countries are also beneficiaries of the larger and older Generalized System of Preferences (GSP).³

CBI trade preferences are granted under the following authorities:

• CBERA, enacted in 1983, allows the President to grant unilateral duty-free treatment for imports of eligible articles from CBI beneficiary countries.⁴ A 1990 amendment to CBERA expanded the program and made it permanent.
• The Caribbean Basin Trade Partnership Act (CBTPA) of 2000 amended the CBERA and enhanced existing CBERA preferences by expanding preferential treatment to certain U.S. imports of apparel made in the region.⁵ Congress has renewed CBERA several times, most recently in October 2020, extending it until September 30, 2030.⁶
• Beginning in 2006, the United States enacted various amendments to CBERA to provide Haiti with additional preferential benefits by (1) allowing the use of yarns and fabrics from countries other than the United States, (2) introducing a quota program, and (3) expanding the number of eligible apparel products from Haiti. The programs for Haiti are set to expire in September 2025.⁷

According to the U.S. Trade Representative (USTR), the CBI, after more than 30 years, has established a framework for engagement with Caribbean countries in a number of trade policy areas with "meaningful outcomes."⁸ An economic study by the U.S. International Trade Commission suggests that the effect of Caribbean trade preference programs, while negligible on the U.S. economy, has been positive for a number of Caribbean Basin countries.⁹ Haiti has been the greatest beneficiary, largely because of more flexible rules of origin for apparel.

Figure 1. Caribbean Beneficiary Countries in U.S. Trade Preference Programs

Source: CRS and "General Notes," Harmonized Tariff Schedule of the United States 2023 Basic Edition. Note: CBERA=Caribbean Basin Economic Recovery Act, CBTPA=Caribbean Basin Trade Partnership Act, HOPE=Haitian Hemispheric Opportunity through Partnership Encouragement Act, GSP=Generalized System of Preferences. Beneficiary countries: Antigua and Barbuda, Aruba, Bahamas, Barbados*, Belize*, British Virgin Islands, Curacao*, Dominica, Grenada, Guyana*, Haiti*, Jamaica*, Montserrat, St. Kitts and Nevis, St. Lucia*, St. Vincent and the Grenadines, Trinidad and Tobago*. (*Countries in CBERA and CBTPA).

The Caribbean Basin Economic Recovery Act (CBERA) of 1983

Congress created the first regionally targeted U.S. trade preference program with the 1983 CBERA, which provides limited duty-free entry of select U.S. imports from beneficiary Caribbean countries. CBERA has been a core element of the U.S. foreign economic policy response to economic and political conditions in Caribbean countries. The region's proximity, vulnerability, and instability have been of strategic interest to the United States since at least the 1980s. Although CBERA was the first important new preference program at the time, its effects were limited because of the exclusion of key products considered "import sensitive" (i.e., domestic industries that are sensitive to import competition) in the United States, especially apparel items.

Provided a good is wholly the "growth, product, or manufacture" of, and imported directly from a beneficiary country, it may enter the United States duty free or at a reduced rate of duty under CBERA. Exceptions include articles defined by Congress as import sensitive, including petroleum products, footwear, handbags, luggage, flat goods, work gloves, leather wearing apparel, canned tuna, and watches and watch parts. CBERA rules of origins require that 35% of an article's value of labor and parts must originate in a beneficiary country, although up to 15% of the 35% could be of U.S. origin.¹⁰

A number of special provisions apply. All imports under CBERA are subject to safeguard measures (resumption of tariffs) if the imports are shown to increase in quantities that hurt U.S. producers.¹¹ Additionally, CBERA accords special treatment to some import-sensitive goods. For example, it gives duty-free entry to ethanol imports, if produced under certain conditions, and sugar imports, if produced under a tariff rate quota (TRQ).

Designated beneficiary countries are required meet specific eligibility criteria. The President may deny or suspend preferential benefits if the country (1) is a Communist country; (2) has seized U.S. property without compensation; (3) fails to recognize or enforce awards arbitrated in favor of U.S. citizens; (4) affords preferential treatment to goods from other countries to the detriment of U.S. commerce; (5) broadcasts U.S. copyrighted material without permission; (6) has not signed an extradition agreement with the United States; or (7) is not taking steps to afford internationally recognized worker rights.¹² The President also considers other factors, such as level of economic development, market access, and protection of intellectual property rights.

Caribbean Basin Trade Partnership Act (CBTPA)

On May 18, 2000, the CBTPA was signed into law (P.L. 106-200), amending CBERA by expanding benefits for Caribbean countries until September 30, 2008, or until a beneficiary country entered into an FTA with the United States. Congress extended these benefits, unchanged, for two years in the Food, Conservation, and Energy Act of 2008 (P.L. 110-246), and again through September 30, 2020, in the Haiti Economic Lift Program (HELP) Act of 2010 (P.L. 111-171). On October 2020, Congress extended CBTPA through September 30, 2030 (P.L. 116-164).

CBTPA significantly enhanced existing preferences under CBERA and expanded the degree of preferential treatment applied to U.S. imports of apparel made in the Caribbean Basin region.¹³ It provides duty- and quota-free treatment for apparel made in CBI countries as long as those products meet rules of origin requirements (see "Rules of Origin" below). Certain knit apparel made in beneficiary countries from fabrics formed from U.S. yarns in the Caribbean Basin also qualify for trade preferences, subject to yearly limits. In addition to the apparel preferences, CBTPA provides tariff treatment equivalent to the North American Free Trade Agreement (NAFTA) for certain items previously excluded from duty-free treatment (see textbox below). CBTPA also amended CBERA to provide trade preferences to certain liqueurs and spirits produced in Canada from rums that are the growth, product, or manufacture of a beneficiary country or the U.S. Virgin Islands.¹⁴

When NAFTA¹⁵ entered into force on January 1, 1994, U.S. imports from the CBI region faced increasing competition from Mexican products, igniting a debate over parity issues related to treatment of U.S. imports under competing trade agreements and arrangements. Bilateral trade in textiles and apparel between the United States and Mexico increased significantly after NAFTA, adversely affecting producers in the Caribbean region. Mexico's new trade advantages, larger economy, and production capacity threatened income and production in the CBI countries. Caribbean beneficiaries began to lobby for U.S. trade preferences equal to those of Mexico, known at the time as the CBI/NAFTA parity issue. Beginning with the 103^rd Congress, Congress considered legislation to temporarily provide Caribbean beneficiary countries tariff and quota treatment equivalent to that accorded to Mexico under NAFTA.¹⁶

Trade Preferences for Haiti

In December 2006, Congress passed the Haitian Hemispheric Opportunity through Partnership Encouragement Act of 2006 (HOPE I; P.L. 107-210) to make Haiti eligible for further trade benefits. HOPE included special trade rules that give preferential access to U.S. imports of Haitian apparel. The purpose of this preferential treatment was to promote investment in Haiti's apparel industry as one element of a broader economic growth and development plan.¹⁷ Early assessments of HOPE I, however, showed that this preferential treatment was not as effective as expected.¹⁸ In 2008, Congress responded by amending HOPE I to extend and enhance preferences for Haiti under the HOPE II Act of 2008 (P.L. 110-246).¹⁹ In 2010, the earthquake in Haiti caused considerable damage to the apparel sector. Congress responded to the apparel industry's needs by amending the HOPE Act with the Haiti Economic Lift Program (HELP) Act of 2010 (P.L. 111-171).²⁰

HOPE I

HOPE I, enacted in 2006, allowed for the duty-free treatment of select apparel imports from Haiti made with less expensive, third-country inputs (e.g., nonregional yarns, fabrics, and components) provided that these imports met rules of origin and eligibility criteria. Under CBTPA, apparel imports from Haiti qualify for preferential duty treatment only if they are made from yarns and/or fabric from the United States, Haiti, and/or other CBI beneficiary countries, including Puerto Rico and the U.S. Virgin Islands.²¹ Eligibility requirements for HOPE I included government efforts in establishing a market economy, strengthening the rule of law, eliminating barriers to U.S. trade and investment, establishing policies to reduce poverty and combat corruption, and protecting internationally recognized worker rights. HOPE I also established a value-added quota program. Other provisions included the following:²²

• Direct shipment requirements for all eligible exports from Haiti.
• Cap on total qualified apparel imports equal to 1%-2% of total U.S. apparel imports.
• Short-supply rule allowing duty-free treatment of goods made from fabrics in "short supply," as defined in all other U.S. trade agreements.²³
• Quotas for apparel articles in which up to 60% of the value added had to come from the United States or a country party to a U.S. FTA or trade preference program. An additional quota or trade preference level (TPL) of 70 million square meter equivalents (SMEs) annually for duty-free treatment of woven apparel that did not have to meet the value-added rule (allowing all inputs for these articles to be sourced from anywhere in the world).
• Duty-free treatment of motor vehicle wire harnesses imported from Haiti containing at least 50% value of materials produced in Haiti, the United States, FTA partner countries, or regional preference program beneficiary countries.

HOPE II

HOPE II, enacted in 2008, maintained and expanded HOPE I. It provided for duty-free access for up to 70 million square-meter equivalents of knit apparel, with some exclusions, annually. It also provided for additional allowances to obtain duty-free treatment or manufacture of qualifying fabric shipped to Haiti for production of apparel. It extended the preferences for 10 years and expanded coverage of duty-free treatment to more apparel products, particularly knit articles, and simplified the rules of origin, making them easier to use. Other provisions included

• allowance of direct shipment of final goods from either Haiti or the Dominican Republic;
• clarification of quantitative limitation rules (caps);
• labor eligibility requirements, including the establishment of an independent Labor Ombudsperson's office, mandatory participation of producers in the Technical Assistance Improvement and Compliance Needs Assessment and Remediation (TAICNAR) Program, and development of a system to ensure participation in the TAICNAR Program;²⁴
• requirement that the President (1) identify producers who have failed to comply with core labor standards and related labor laws of Haiti and (2) seek to help such producers comply with core labor standards; and
• requirement that Haiti make continual progress toward establishing the protection of internationally recognized worker rights.²⁵

Under the HOPE II Act, the President must identify producers on a biennial basis who have failed to comply with core labor standards and related labor laws of Haiti. The President delegated the Secretary of Labor, in consultation with USTR, the authority to identify producers that are not in compliance and provide remediation assistance to them.²⁶

HELP

HELP, passed in 2010, provided duty-free treatment for additional textile and apparel products from Haiti. These preferences are scheduled to expire on September 30, 2025. HELP made a number of additional major changes CBTPA. Specifically, HELP

• softened the value-added rule by allowing the value-added threshold to remain at 50% through 2015, the 55% threshold through 2017, and the 60% threshold through 2018, which allowed Haitian producers time to move up the value-added chain;
• increased the woven apparel TPL rule by allowing the cap to grow to 200 million SMEs, with certain restrictions;
• increased the knit apparel TPL rule to 200 million SMEs, subject to the same restrictions for woven apparel;
• expanded the list of products eligible for duty-free treatment under special assembly rules; and
• required U.S. Customs and Border Protection (CBP) to verify that apparel articles imported into the United States are not transshipped illegally and to develop a plan to evaluate and improve Haiti's customs capabilities.

Rules of Origin

To qualify for duty-free treatment, eligible products under CBI must meet certain rules of origin (ROO) requirements. In addition, most products must meet a regional value content (RVC) threshold, which requires that a minimum percentage of the product be produced in the beneficiary developing country.²⁷ Most CBI-eligible products must meet a 35% RVC requirement. The programs allow for cumulation, which means the value of a product produced in one or more beneficiaries may be combined in the RVC calculation. Furthermore, up to 15% of the required 35% may consist of U.S.-origin inputs. Any products claiming preferential treatment under the programs must be shipped directly from the beneficiary countries.

While the 35% RVC requirement applies to most eligible products, eligible textiles and apparel products under CBTPA and HOPE have specific ROO requirements. Generally, textile and apparel products qualify for duty-free treatment if they were "substantially transformed" in the beneficiary country, resulting in a change in tariff classification under the Harmonized Tariff Schedule of the United States (HTSUS). This is known as the "tariff-shift" method.

CBTPA. Preferential duty treatment extended to certain textile and apparel articles under CBTPA must meet ROO for the same products under USMCA. In general, textiles and apparel ROO under USMCA, and CBTPA by extension, have a yarn-forward rule: the yarn and subsequent production processes must originate from a USMCA or beneficiary country. Under CBTPA, eligible products may receive duty-free and quota-free treatment provided they are assembled from fabrics made and cut from U.S. yarns. The program provides exceptions to apparel articles assembled from fabrics or yarn that are not available in commercial quantities.²⁸ The President may also, at the request of interested parties and upon receiving advice from relevant advisory committees and the U.S. International Trade Commission, extend preferential treatment to fabrics and yarn that are not available in commercial quantities in the United States or CBTPA countries.

HOPE and HELP. The HOPE Act expanded the list of textiles and apparel products eligible for duty-free treatment provided they meet the program's ROO requirements. HOPE II expanded coverage to certain knit articles. The HELP Act of 2010 expanded the quantitative limitations on certain duty-free U.S. imports and made the earned import allowance less restrictive.²⁹ Certain woven and knit apparel products may use inputs from third countries (i.e., inputs not originating from Haiti or the United States) and still qualify for duty-free treatment. Some apparel products are required to meet a 60% value content requirement to be eligible for duty treatment.³⁰

CBI Import Trends

U.S. merchandise imports from CBI countries decreased from a peak of $15.5 billion in 2011 to $5.3 billion in 2016 (Figure 2). Much of this drop was due to a decline in the prices of crude petroleum oil imports from Trinidad and Tobago.³¹ In 2022, merchandise imports from CBI countries totaled $11.6 billion, a small share of total U.S. imports from Latin America and the Caribbean, which totaled $603.1 billion in 2022. Imports claiming preferential benefits under a CBI program make up a small share of total U.S. merchandise imports from the region.

Figure 2. U.S. Merchandise Imports from CBI Countries: 2010-2022 billions of nominal U.S. dollars

Source: Compiled by CRS using data from U.S. International Trade Commission (USITC) DataWeb. Note: NTR=Normal Trade Relations.

The top three import categories entering under U.S. CBI preference programs in 2022 were mineral fuels and oils ($884.1 million, or 47% of total CBI imports), organic chemicals ($438.3 million, or 23% of total), and knitted apparel ($237.5 million, or 13% of total), as shown in Figure 3. Other import categories included plastics and edible preparations, including vegetables, fruits, and nuts. Between 2000, when CBTPA first came into effect, and 2022, U.S. imports of apparel under CBI increased over 2000%, from $10.5 million to $237.6 million.³²

Trinidad and Tobago is the leading supplier of U.S. imports from Caribbean preference programs, accounting for 47% ($884.8 million) of these imports in 2022, mainly due to energy-related imports such as crude petroleum and methanol. Methanol imports from Trinidad and Tobago, however, are declining, in part due to increasing U.S. domestic production capacity.³³ Guyana ranked second, accounting for 25% ($476.0 million) of these imports, followed by Haiti, Jamaica, and Bahamas (see Table 1). Although total U.S. imports from CBI countries have increased steadily, the share of imports receiving preferential duty treatment under CBI programs is relatively small (16% in 2022).

Figure 3. U.S. Imports Under CBI, by Product and Country: 2022

Source: CRS using data from the U.S. International Trade Commission DataWeb. Notes: Products are at the Harmonized Tariff Schedule (HTS) two-digit level.

Trade with Haiti

Haiti has been the greatest beneficiary of CBI trade preferences in the apparel industry due to the benefits it receives from more flexible rules of origin for apparel than other beneficiaries. The apparel sector is Haiti's largest manufacturing sector and the largest source of manufacturing jobs. CBERA trade preferences, as enhanced by CBTPA, HOPE, and HELP, have been important in promoting Haiti's apparel industry and apparel exports to the United States.³⁴ U.S. total merchandise imports from Haiti increased from $296.7 million in 2000 to $1.0 billion in 2022 (253%). Imports entering under Caribbean preference programs increased from $25 million in 2000 to $253.3 million in 2022, an increase of over 900% (see Figure 4). Those imports accounted for about 31.9% of total U.S. merchandise imports from Haiti. Over 90% of U.S. imports from Haiti in 2022 consisted of apparel items or clothing: knitted or crocheted apparel imports totaled $807.0 million, while other apparel items or clothing totaled $155.0 million.

Figure 4. U.S. Imports from Haiti: 2000-2022 millions of nominal U.S. dollars

Source: Compiled by CRS using data from U.S. International Trade Commission DataWeb.

Impact and Utilization Rates

Caribbean trade preference programs contained provisions to minimize the impact on U.S. producers. For example, the purpose of the selected tariff lines for duty-free access and the rules of origin is to mitigate the impact of the preferences on domestic producers. Some U.S. apparel producers may benefit from preferences if their supply chain includes imports of products from the Caribbean covered under these preference programs, which would lower their overall costs relative to other global producers. These cost factors could help U.S. producers retain U.S. market share in the United States and abroad.

CBERA requires the USTR to submit periodic reports to Congress describing the results of the general review of beneficiary countries and their performance under the eligibility criteria. The 14^th report is the most recent report and encompasses the period of 2019-2020.³⁵ The report states that, in combination with economic reform and other actions taken by beneficiary countries to liberalize their trade regimes, the trade benefits of Caribbean trade preferences have helped beneficiaries diversify their exports and have contributed to economic growth in the region. The report estimated that the effect of CBI on the U.S. economy was negligible during the reporting period of 2019-2020, and is likely to remain so.³⁶

CBI countries' overall utilization of the program's preferential benefits have been low, according to the USTR. Two reasons for this limited use of preferences are (1) increasing import competition from other countries, which makes Caribbean exports less competitive in the United States, and (2) exporters' general lack of awareness of the program.³⁷ Moreover, exporters may forego participation in the preference program due to the costs of compliance. Utilization varies across countries and products. In 2021, Antigua Barbuda, the British Virgin Islands, and Montserrat did not claim CBI preferences for roughly $1.6 million worth of eligible products exported to the United States, including petroleum oil, lithium-ion batteries, bicycles, and various parts for mechanical and electrical machineries or appliances.³⁸ On the other hand, over 90% of imports from Grenada and St. Lucia claimed preferential benefits, primarily in agricultural products from Grenada and prepared food products from St. Lucia.

Issues for Congress

Congress plays an active role in policy regarding the Caribbean, in both legislation and oversight. The 118^th Congress may consider the effectiveness of Caribbean trade preference programs in providing assistance to beneficiary countries, as well as the economic effects on the United States. Other major issues that Congress may consider include whether to expand or extend trade preferences for Haiti after they expire in 2025 or whether the United States should consider pressing for reciprocal trade agreements in the Caribbean region.

Both Congress and the executive branch have aimed to strengthen ties with the Caribbean region. In March 2021, for example, the Biden Administration announced the Small and Less Populous Island Economies (SALPIE) Initiative, an economic framework aiming to strengthen U.S. collaboration with island countries and territories in various regions, including with Caribbean countries.³⁹ Strengthening U.S.-Caribbean relations may offset China's growing economic influence in the region. Another potential benefit some policymakers cite is that increasing trade in select products with Caribbean and other Western Hemisphere countries could enhance supply chain resiliency by providing regional sources of products that are key to supply chains.⁴⁰ Such products could include inputs in the semiconductor or clean energy supply chains.⁴¹ Congress could consider whether to promote using the CBI as a platform to strengthen trade relations with the region through encouraging utilization of preferential benefits. Congress may consider how CBI and existing U.S. FTAs with other Western Hemisphere countries could work together to increase investment and encourage the development of regional supply chains.