Courtesy Reuters

Sinking in the Caribbean Basin

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If someone asked about a "Caribbean Basin" 20 years ago, you might have referred him to a geographer or to a West Indian plumber. When President Ronald Reagan announced his Caribbean Basin Initiative on February 24, 1982, however, all the questions concerned the initiative. Apparently, everyone now knows where the Caribbean Basin is; indeed, there is a growing impression that we are sinking in it.

Deepening U.S. involvement in the conflict in El Salvador and the possibility that the conflict might spread are doubtless the principal reasons why Americans are beginning to get that sinking feeling about the Caribbean Basin, but hardly the only ones. Boatloads of Haitians and Cubans, Mexican pride and a porous border, a formidable narcotics traffic which eludes the U.S. Navy and Coast Guard, Nicaragua defiant, Cuba undaunted, Grenada oblivious-these are some other examples of why U.S. ability to influence, let alone control, developments in the region seems to be slipping.

Many of the problems facing the United States and other nations in the region precede the Reagan Administration and in part explain the initial appeal of the Administration's tough talk and aggressive posture. However, while the Reagan Administration's language is the most belligerent of any Administration since the United States traded in its big stick for dollar diplomacy, Washington still hasn't plugged the holes in the ship of state. It hasn't gained control of its southern border; it still hasn't cowed Castro or preserved pluralism for Nicaragua or saved El Salvador. Needless to say, this is not for want of trying.

In his speech to the Organization of American States (OAS), however, President Reagan unveiled a Caribbean Basin Initiative (CBI) aimed at promoting political stability and economic development in the region and at solving the underlying causes of illegal migration. The principal elements of the comprehensive CBI program are one-way free trade, investment incentives, increased economic and military aid, technical assistance to the private sector, and special help for Puerto Rico and the Virgin Islands. Separately, the Administration has been working with Congress on new legislation to address the problem of the uncontrolled and illegal flow of migrants and refugees to the United States. Will these proposals stop the sinking? Before analyzing them, let us first examine the premise underlying the Administration's CBI-that a Caribbean Basin, in fact, exists.

II

The very concept of a "Caribbean Basin" as a regional system was barely plausible two decades ago. Instead, there was Central America, a region of Spanish-speaking, mostly unstable, mostly banana republics; a polyglot Caribbean of European colonies and marginally viable island economies; and Mexico. Depending on the international crisis of the moment, the United States viewed itself as either an Atlantic or a Pacific nation, but even with two U.S. territories-Puerto Rico and the Virgin Islands-literally in the Caribbean, the United States never saw itself as a Caribbean nation, and until the 1970s neither did Venezuela.

The linguistic, cultural, historical, economic and political diversity was-and remains-more evident than any shared characteristics. Indeed, all that the nations in and around the Caribbean Sea seemed to have in common was a view of the United States as the "colossus of the north" and the U.S. view of them as a "backyard."

Of course, the views of many have not changed, but the region has. Twenty years ago, there were three independent nations in the Caribbean. Today, there are 15 (25 nations if we widen the circle to include the nations on the rim of the Caribbean and 35 including dependencies)-more, in short, than the rest of Latin America. Today, more than one-third of the members of the OAS are not Spanish-speaking.

Compared to 20 years ago, nations in the region today are much more jealous and assertive of their sovereignty, in part because many are insecure about their political identity and economic viability, particularly those smaller nations which have recently become independent, and also because citizens have come to expect more from their governments. Because of proximity to the United States, these nations are more sensitive than others to suggestions that they have no greater destiny than as our backyard.

Many concerned about Central America and the Caribbean are uncomfortable about the two regions being lumped together in a single Basin, but the differences within each region are at least as great as between them. In language and culture, the Caribbean contains French/Creole-speaking Haiti, and Spanish-, Dutch-, and English-speaking islands. Central American governments range across the political spectrum from a rightist military government in Guatemala to a leftist military government in Nicaragua; Caribbean governments range even more widely from Haiti to Cuba. As to stages of economic development, the Caribbean ranges from dirt-poor Haiti to oil-rich Trinidad; Central America, from Honduras to Costa Rica, which has more than three times its per capita income.

The real issue is not whether Central America and the Caribbean should be objects of separate policies (or, for that matter, that we should have separate policies for each nation), but, rather, in what ways does it make sense for us to view them as part of a Basin.

Although some leaders like former Costa Rican President Daniel Oduber have tried to bring the parliamentary democracies of the Caribbean closer to the authoritarian polities of Central America, hoping that the latter would benefit from the contact, the "Caribbean Basin," such as it is, has not sprung into existence because of such links, because these remain tenuous and embryonic. It is true that trade in goods, services, narcotics, politics, culture and, above all, people has increased within the region and especially with the United States. But the Basin exists for two other reasons: first, the similar character of the problems each nation in the region faces and the fact that solutions require both cooperation among nations and a recognition of the interrelationship of the problems; and second, the nature of the challenge which this changing region poses for the United States, which is itself changing as rapidly as the rest of the region and in a way which reflects the region.

Except the "donor" nations-the United States, Mexico, Venezuela, Colombia and oil-producing Trinidad-the nations of the Caribbean Basin are relatively small in size and population (ranging from 76,000 in Antigua to seven million in Guatemala). Most lack natural resources and are dependent on the production of a few basic commodities, although, as development has proceeded, the economies have become more diversified. The population of the region has doubled since 1950 and will double again by the end of the century. The labor force is expanding at annual rates of 2 to 3.5 percent-much faster than any of the economies can absorb-which results in chronic and dangerously high unemployment, a crisis barely below the surface. Scarce public resources are skewed toward dealing with the political and social consequences of the high unemployment and the high rate of urbanization rather than toward dealing with the causes. The cheapest short-term answer to these problems has been illegal migration.

Proximity to the world's largest and richest market offers the region both its greatest opportunity and its biggest problem. Advances in transportation and communications have increased the gravitational attraction of the United States. Advertising, which pushes products and commercial values and inflates expectations, also pulls people to the United States-not just the unemployed but also the best trained and the most upwardly mobile.

In 1973-74, when the first oil shock occurred, the prices of the region's export commodities-sugar, coffee and bauxite-were sufficiently high to cushion and mitigate the impact. In 1979 the commodity prices were down as sharply as oil was up, and the nations of the region were caught in a vise, unable to pay their bills. The economic downturn was exacerbated by natural disasters in the Caribbean and political earthquakes in Central America. Finally, the U.S. recession and high interest rates deepened the debt and halted growth; some countries fell backwards. In 1981 the Caribbean Basin countries needed $3.6 billion in net capital inflows just to stay afloat; a World Bank official estimated the gap at $4 billion in 1982.1 Because of the economic and political crisis of 1979-80, the latent crisis in the region became manifest.

The United States has traditionally viewed Central America and the Caribbean as a unit for strategic reasons, but there are additional reasons for such a perspective today. First, the United States bears a large share of the social burden if the region's problems are not solved. The state of Florida, for example, spends more money on hospital services for Haitians who arrived illegally than the United States spends on foreign aid to Haiti and more than Florida can afford without shrinking its services for Floridians. Second, the United States is itself becoming a Caribbean nation, in part because of the largest wave of migration from a single source since Southern and Eastern Europeans arrived here at the turn of the century.

Ten to twenty percent of the population of several Caribbean Basin nations now live in the United States. Our communities and problems are becoming connected: just as Liberty City in Miami rioted to protest the influx of Cubans, we might see parallel riots in Barbados and in Brooklyn, in Mexico City and in Los Angeles to protest the closure of the U.S. labor market.

The outlines of a Caribbean Basin as a region are beginning to emerge. The problems of most of the small and vulnerable nations are similar, interrelated, and require some cooperation and integration to resolve. No one would suggest that the region is fully integrated or that any single overarching U.S. policy is sufficient to address the many economic, political and immigration problems in a way that would do them justice or reflect the uniqueness of each nation. But the Administration's Caribbean Basin Initiative represents the first recognition that the region's problems require a comprehensive response and that the United States has an important and direct stake in the region's future.

III

The Carter Administration started with an interest in promoting economic development in the Caribbean but eventually returned to a concern for national security; the Reagan Administration, reflecting a more traditional approach, made the same journey in the opposite direction. Historically, primary U.S. interest in the region has not stemmed from any desire to extract resources or to implant a political philosophy, although examples of both are plentiful. The United States has been motivated not so much to control the region as to keep out others viewed as hostile. While some see this as imperialistic or hegemonic, in fact, no nation is passive or indifferent to the possible establishment nearby of a regime that is hostile or tied to a powerful adversary.

If one of the problems inherent in the Carter Administration's approach to the region and the world was that it tried to balance too many national interests and values simultaneously, the Reagan Administration has not been similarly burdened. Indeed, it has not wavered in its singleminded policy of anti-communism. "If we do not act promptly and decisively in defense of freedom," President Reagan proclaimed in defense of his Caribbean Basin Initiative, "new Cubas will arise from the ruins of today's conflicts. We will face more totalitarian regimes, more regimes tied militarily to the Soviet Union, more regimes exporting subversion, more regimes so incompetent yet so totalitarian ... . "

The Reagan Administration ironically discovered the Caribbean Basin in El Salvador-the only nation in the region that doesn't touch the Caribbean. By drawing lines against communist aggression and expanding military aid and advice, the Administration sought to demonstrate our nation's new resolve and, by doing so, to reassure our friends and frighten our enemies. Unfortunately, its militant and Manichaean rhetoric had just about the opposite of its intended effect.

Reassured that their old enemy was back in all its imperial splendor, Marxist-Leninist guerrillas have tried to use Reagan's own rhetoric to assert their nationalistic credentials: if anything, guerrilla strength in Central America is greater today than two years ago. Similarly, the governments of Cuba, Nicaragua and Grenada were neither bluffed nor frightened into submission; quite the opposite. These governments have used U. S. hostility as an excuse to squash internal dissent and mobilize the people, and obtain and justify more armaments than all their immediate neighbors combined. Moreover, according to the Administration, Nicaragua and Cuba are still sending arms and providing support to the guerrillas in El Salvador.

As for our friends in Latin America and Western Europe, some were frightened that the Administration might really believe its own rhetoric, and make, in the words of Mexican President José López Portillo, "a gigantic historical error" by unilateral military intervention; others were just bewildered that the Administration could talk seriously about "imported terrorism" as the "source" of the problems in the region. Venezuelan President Luis Herrera Campíns postponed his state visit to the United States for six months because of the new Administration's militaristic approach to the region's problems, and subsequently took the unprecedented step of protesting NATO naval maneuvers in the Caribbean before the Organization of American States.2

In response to criticism by our friends that the Administration's view of the East-West struggle in the Basin was simplistic and ignored the long-term socioeconomic roots of the crisis, the Administration began consultations in the spring of 1981 with Canada, Mexico, Venezuela and later with Colombia on ways to address the economic problems in the area. When the CBI was announced, however, it rested squarely on a national security rationale: "Make no mistake," President Reagan said, "the well-being and security of our neighbors in this region are in our own vital interest." The plan was developed to help the nations of the region cope with the economic crisis stemming from sharply deteriorating terms of trade, and a security crisis stemming from "imported terrorism . . . the expansion of Soviet-backed, Cuban-managed support for violent revolution in Central America."

As part of the program to enhance the security of the region, the Reagan Administration significantly increased military aid and training. Above the $50 million initially requested for Fiscal Year 1982, the Administration requested a supplemental of $60 million, and for FY 1983, $112 million. El Salvador would receive about 70 percent. Similarly, nations wracked by instability would receive balance-of-payments support to import critical materials. But to stabilize the security of Central America, a political-military strategy is far more important than the quantity of resources. In 1980, for example, the United States gave no lethal military equipment to El Salvador but used economic aid and the promise of military aid to influence the military to undertake agrarian and other reforms, and reduce repression. The government was stronger at the end of the year and the Left weaker than at the end of 1981 when over $50 million in military aid was delivered without extracting any meaningful promise for it.

Although the CBI may have been born of the struggle in Central America, the most significant trade and investment provisions will have the least impact on those countries with the most urgent need for political stability. Indeed, the Administration may have a difficult enough time just to keep the Export-Import Bank and the Overseas Private Investment Corporation-two U.S. agencies responsible for promoting U.S. trade and investment overseas-from deserting those countries altogether, since their legislative mandates limit their involvement in nations at risk.

IV

The CBI, however, will help develop the stable but economically strapped nations in the region-like Panama, Costa Rica, Jamaica-perhaps more than anything any previous Administration has proposed.

The "centerpiece" of the program is free trade for all Caribbean Basin products except textiles and apparel for a 12-year period. The one-way free trade concept represents a sharp break in U.S. foreign economic policy-comparable in principle, if not in impact, to the shift in 1934 in the Reciprocal Trade Agreements Act, which tied the United States to the principle of reciprocity, most-favored nation (MFN) treatment and declining tariffs, and to the movement in 1947 to multilateralism and the General Agreement on Tariffs and Trade (GATT). Since World War II, the United States has been the leader in reducing barriers to world trade, and while condoning exceptions by our allies whether for economic integration-as with the European Community (EC)-or for fostering development-as with the Lomé Agreement between the EC and its former colonies-the United States has always resisted any temptation to replicate a regional approach to trade policy. Even in the mid-1960s, when some urged the U.S. government to develop a special trade arrangement for Latin America as the EC had done for its African, Caribbean and Pacific colonies, this proposal was rejected in favor of a global, generalized system of tariff preferences.

The Reagan Administration overrode the reservations of the economic globalists with the strategic argument that it was an essential element in a comprehensive strategy for countering the communist threat to the region. The economic arguments then easily reversed themselves: the CBI didn't represent a retreat for U.S. interests in a global trade policy but rather was an effort to increase the capacity of developing countries to participate in the global trading system. Moreover, the plan would help the region and U.S. consumers much more than it could possibly hurt those few producers who might be adversely affected by the competition. The problem of squaring the Initiative with GATT can be resolved by requesting a waiver.

Since about 87 percent of current Basin exports enter the United States duty free, and about another five percent will be excluded as textiles, several economists have estimated that the total increase in trade for the first year may be as little as $100 million, or one percent of the region's current trade.3 However, the ferocity with which unions and industries representing leather and rubber footwear, rum, automobile parts, tuna, mushrooms and perishable farm products have lobbied Congress to exempt their products suggests that a static economic analysis of current exports may considerably underestimate its potential dynamic impact. The incentive for medium-sized investments in light manufactures and horticultural products, which could create the most jobs and have the most beneficial economic impact on the small economies in the area, could be considerable, more so because of the liberalization of the "rules of origin" provisions, making it more profitable for foreign businesses to complete the assembly of their products there.

Trade has been the "engine of growth" in many small developing countries. Between 1950 and 1980, Central American trade increased eighteen-fold, stimulating the economies to an annual rate of growth of about five percent. The CBI could become a potent force for further economic diversification and expansion; one has only to consider the effect if just two or three medium-sized firms are encouraged to invest in one of the small eastern Caribbean nations. In the long term, one-way free trade is clearly the most important part of the program, although negotiations with Congress and governments in the region could delay its impact for a couple of years.

By eliminating the duty but not the fee on sugar imports from the region, the Administration proposed to give sugar producers a slight preference over other foreign exporters, but not so much as to compete equally with U.S. sugar growers. On May 4, 1982, however, President Reagan decided to raise the domestic price of sugar by establishing a global quota system with no preference for the Basin. This will reduce the amount of sugar Caribbean countries can sell to the United States by about one-third and leave several of the sugar producers considerably worse off than they were before the CBI was announced. Similarly, for fruits, vegetables and meat, the CBI eliminates the duty, but domestic programs can restrict the quantity of exports-duty-free but not free trade.

Had the President articulated a more comprehensive vision of the United States as a part of the Caribbean, it would have been logical to argue for either eliminating U.S. domestic agricultural support programs-e.g., sugar, vegetables, cotton and beef-or broadening them to include the Caribbean. Just as the U.S. government intervenes in the market to protect U.S. growers, it would do the same for those from the Basin.

Similarly, President Reagan pledged to extend more favorable treatment to Caribbean Basin textile exporters even while seeking tighter limits from all exporters. As with sugar, it would have been preferable not to limit textile exports from the region, but this is not politically feasible at this time. However, given the mobility of the textile industry and its sensitivity to labor cost differentials, it is quite possible that this marginal advantage might induce important new investments in the area.

While the Administration insists that it wants to discard the paternalism of the past, it suggests that each country will have to satisfy certain economic and political conditions before obtaining its benefits. Such negotiations cannot help but delay the program and be grossly unequal and paternalistic; undoubtedly, we will seek to extract economic pledges, which would be better sought by international institutions like the International Monetary Fund (IMF), and political conditions, which could very well dissipate the goodwill generated by the program. Rather than authorizing the President to take into account these economic and political factors before designating a beneficiary, Congress should simply legislate a single, uniform trade policy toward the region, much as it did in the generalized tariff preferences in 1974.

The second part of the program is to encourage U.S. investment in the area by applying the ten-percent domestic tax credit to new investments in the Basin. This has two problems. First, by providing a credit for new investments in plant and equipment, it is inherently biased toward encouraging capital-intensive investment whereas the region desperately needs labor-intensive investment. Second, the credit is biased against joint ventures since parent companies can only claim a credit proportionate to their share of the new investment.

Combined with the bilateral investment treaties and increased insurance from the Overseas Private Investment Corporation, the Administration is trying to reduce the political risk and increase the economic incentive to U.S. business to invest in the region. The investment program, however, might create as many problems if it succeeds as if it fails. Almost all of the nations are quite small. Large or numerous foreign investments could translate into disproportionate economic and political power, which in turn could lead to strident nationalistic reactions several years down the road. It would be better for all if U.S. investors would seek joint ventures with local entrepreneurs; this might lead to some added costs and temporary irritations, but it would be the best way to guarantee both investments and good relations in the long term and also help the local private sector. It would be preferable for all Caribbean Basin governments to join in mandating rules for joint ventures, but, as this is unlikely, Congress should do it.

The third element in Reagan's program, increased aid, represented a significant change from the Reagan Administration's own position of a year earlier. Since the 1973 Foreign Assistance Act, which was intended to target U.S. aid to the poorest countries in the world (of which only Haiti is in the Basin), those in the U.S. government concerned about the Basin countries had to push uphill just to keep "middle-income countries" like Costa Rica, Panama and Jamaica from being phased out of the program. Nonetheless, the Carter Administration had been able to increase aid to the Caribbean to over $150 million in FY 1980-five times what it had been in FY 1975, and quadruple total aid to Central America to over $250 million in FY 1980.

Before the first consultative meeting with Venezuela, Mexico and Canada in Nassau in July 1981, U.S. Trade Representative William Brock, who coordinated economic policy toward the Basin, told reporters that the Administration's approach would stress private investment and not ask Congress for more aid money.4 One measure of the evolution of the Administration's approach was that, despite the deepest budget cuts in recent U.S. history, it requested a supplemental of $350 million above the $475 million already budgeted for FY 1982 to the region. The Administration had obviously heeded the advice of friends in the area, including Antiguan Prime Minister Bird, who said that he agreed with the idea "that developing countries must pull themselves up by their own boot straps . . . but first we must have the straps by which to pull up the boot."

The $350-million supplemental, representing only ten percent of the region's total external capital needs in 1981, is insignificant compared to the size of the economic problems; it is insignificant compared to the Marshall Plan ($17 billion of mostly grants over four years); and it is less than ten percent of what the United States is giving each year to Israel and Egypt. But it is significant in the context of the rest of the Reagan budget, and represents nearly a doubling of U.S. aid to the region in a single year. Besides $128 million for the crisis in El Salvador (bringing the total 1982 aid to $232 million for that country), creditable amounts are also requested for democracies in the area whose crises are less immediate but just as important-countries like Costa Rica ($70 million); Honduras ($35 million); Jamaica ($50 million); and the Dominican Republic ($40 million). Equally important is the multi-year commitment for $664 million in FY 1983, although most of this is balance-of-payments support.

The emphasis of the Administration's aid program is to assist the private sector. Most foreign aid programs are unintentionally biased toward the public sector since the private sector is weak or nonexistent in most developing countries and only the governments can meet the nation's development needs. In small countries, the public sector grows so much faster than the private sector that public financing becomes tenuous, and governments have to rely increasingly on external support even for routine services. This is an especially acute problem in the Caribbean, where the nations are more like poor city-states, and so the Reagan Administration's emphasis on assisting the private sector makes sense, provided that a proper balance is maintained. This, however, does not appear to be the case. The Reagan Administration is showing the same reluctance as its predecessor to start up bilateral aid programs in the eastern Caribbean where important public projects-like airports, roads, ports-are prerequisites to private investment. And given the needs, the supplemental request of ten million dollars for the private sector is a veritable pittance.

The best way to multiply U.S. aid to the region, however, is by contributing to the international development banks, which loaned $1.6 billion to the region in just the last two years. Unfortunately, the Administration has reduced U.S. contributions to these institutions by 25 percent.

If Congress feels at all reticent about funding the program at the aid levels requested by the Administration, it ought to consider for a moment the magnitude of transfers from the Caribbean Basin to the United States each year. First, Latin America and the Caribbean are now repaying the United States for loans made during the Alliance for Progress at a level that exceeds new loans to the region from the United States. Second, the high interest rates in the United States, the political instability in the region, the strong dollar-all attract large volumes of capital from the region to the United States, estimated to exceed $500 million from Central America alone last year, 50 percent above the supplemental request. Third, most of the billions of dollars from narcotics trafficking passes through Miami banks for investment in the United States. Fourth, increasing numbers of people from the region visit Miami or the Southwest on extravagant shopping sprees. Finally, the region provides the United States with technical assistance at no charge, and at two levels. Some of those who legally migrate to the United States are professionals and managers, who have been trained in their own countries. (This "brain drain" was estimated by the U.N. Conference on Trade and Development to have cost all the developing countries $46 billion since 1961.) Second, each year the region supplies the United States with nearly 500,000 low-skilled, inexpensive laborers, who do everything from serving in restaurants to child care.

The remainder of the program is technical assistance and training to the private sector, an expanded Peace Corps program, and additional benefits to Puerto Rico and the Virgin Islands.

The full importance of the CBI can only be understood by analyzing the implications of the CBI for Puerto Rico and the implications of Puerto Rico's development experience for the CBI.5 By eliminating tariffs and granting tax credits to the rest of the Caribbean, the CBI, in effect, extends much of the economic benefits of investing in Puerto Rico to the rest of the Caribbean. As such, it not only denies to Puerto Rico the competitive advantage it once enjoyed over the rest of the Caribbean, but also places Puerto Rico at a competitive disadvantage since it will still have to adhere to minimum wage laws, environmental statutes, and occupational safety regulations which increase the cost of labor relative to the rest of the Caribbean. Moreover, as Rafael Hernandez Colón, the leader of Puerto Rico's pro-Commonwealth Popular Democratic Party (PDP), points out, the United States is not so much opening its market to Caribbean goods as it is opening Puerto Rico's market, whose agriculture and industry are much more vulnerable to import competition.

The Administration negotiated with Puerto Rican Governor Carlos Romero Barceló, the leader of the statehood party, a number of special arrangements to mitigate the effect of the CBI on Puerto Rico: excise taxes on all imported rum would be transferred to Puerto Rico (and the Virgin Islands); the accelerated cost recovery system and the full domestic investment tax credit will be extended to the islands; and other trade provisions will be modified to give them a slight break over the rest of the Caribbean. Instead of making Puerto Rico a little more like a state in the Union, as the Governor's package does, the PDP would like to obtain some of the attributes of sovereignty which the rest of the Caribbean enjoys, e.g., negotiating bilateral trade agreements, while suspending some of the U.S. laws which put them at a disadvantage.

Puerto Rico's development experience, Operation Bootstrap, which is essentially the same as the CBI, produced neither a miracle nor a basket case; however, a detailed survey of what went wrong and how it could be avoided should be a prerequisite before beginning the CBI. There are three obvious problems which should be avoided. First, there is a tremendous need for a population program-even greater for the Caribbean, as the United States is very likely to begin to shut off the valve from that area just at the moment in the development process that large-scale emigration from Puerto Rico began. Second, important public investments in agriculture are essential. During "Bootstrap," Puerto Rico lost more jobs in agriculture than it gained in manufacturing. And third, new investors should be encouraged to look to the nation in which they are investing for raw materials and for markets rather than just to the United States; assembly operations alone not only foster dependence, they also miss valuable development opportunities to multiply investment.

The major Caribbean Basin issues of concern to the Administration-national security, economic development and immigration-are of course beyond the reach of the United States to solve by itself. Therefore, a major thrust of the program ought to be toward gaining regional cooperation; this is the most neglected element of the Administration's approach. Consultations with Mexico, Canada and Venezuela were used more as a multilateral gloss to disguise four separate "initiatives" than as a genuine attempt to develop a single regional program. In part, this is because the other governments are hesitant to identify with the political/military strategy of the Reagan Administration, and in part because the Administration apparently feels that its political leverage in the area is enhanced by a bilateral rather than a multilateral approach, but this is shortsighted.

Canada used the World Bank's Caribbean Group to announce a doubling of its aid to the region; the Reagan Administration has still failed to demonstrate its commitment to the Group, which was established under the World Bank's leadership in 1978 and now includes 31 nations and 15 institutions. It has coordinated and doubled aid to the region-from $467 million in FY 1978 to $1 billion in FY 1980-and has been multilateral at both ends-coordinating aid from donors and encouraging regional cooperation from recipients. In January 1982 the six Central American countries invited the Inter-American Development Bank to chair a consortium group similar to the Caribbean Group.

Also discouraging is the Administration's decision not to promote regional economic integration, an essential objective for the small economies in the Basin, as a part of the program. In attempting to force the Caribbean Development Bank last year to deny a loan to Grenada, the Administration showed an unfortunate readiness to risk weakening and dividing this key development institution. The members of the Bank, who share our lack of sympathy for the undemocratic government in Grenada, still saw a more important principle at stake, and rejected our efforts. The United States ought to literally join that Bank rather than fight it. When the Caribbean Community foreign ministers met in Belize on March 31, 1982, they welcomed the CBI, but with this incident in mind, they also expressed the hope that it wouldn't undermine regional integration.

Our political efforts in Central America also seem directed at dividing the region and excluding Nicaragua, rather than encouraging regional cooperation. If the six nations had additional resources to allocate for regional projects this would be an important incentive for Nicaragua to seek more cooperative relations with its neighbors. While Reagan insisted that we would exclude no one from the CBI, he also hinted that those who have "turned from their American neighbors and their heritage" would first have to return to these traditions before we would welcome them. This is curious language for the 1980s: What is this Caribbean Basin "heritage?" Ironically, in the interest of gaining negotiating room, the State Department might very well find itself in the unusual position of lobbying Congress not to exclude Nicaragua or Grenada.

Ambassador Brock did an exceptional job coordinating and developing this program, but there remain two key tests for it to pass. If the Administration is sincere in its commitment to the program rather than using it as a rationalization for its policy toward El Salvador, it would separate out that part of the program which relates to El Salvador, if it becomes too controversial. Second, the test of the program is not in its announcement but its passage through Congress, free of amendments which protectionists would like to attach to exclude products from the CBI.

The purpose of the CBI is to shore up the economies of the region to withstand the pressures of communist subversion, but the most profound elements in the program are not likely to begin having much of an impact until several years from now-perhaps after the immediate crisis has passed. Even then, it is extremely unlikely that U.S. or any business will invest where terrorism is prevalent. In politically stable areas, however, the CBI can have a very positive impact, particularly if the U.S. economy begins to recover. Investors will be attracted by the guarantee of duty-free access to the U.S. market. In nations where the economies are especially small, such investments can have a dramatic multiplier effect on the entire economy, creating jobs and local entrepreneurs.

V

The main problem with the Administration's Caribbean Basin Initiative is that it omits people. While the proposal concentrates on ways to lower barriers and facilitate the movement of goods, services, capital and technology, it fails to take account of the fact that the most dramatic movement within the region with the most far-reaching implications has been by people, and almost all of it occurs independent of government preferences or policies, and indeed much of it is outside the law. The flow of people has been in many directions-Grenadans to Trinidad, Colombians to Venezuela, Guatemalans to Mexico-but by far the largest movement has been from the entire region to the United States.

Before 1960, migration from the Caribbean Basin to the United States was relatively insignificant-about four percent of total immigration to the United States since 1820. During the last two decades, as a result of an exploding population in the region and a more liberal law in the United States permitting the most diverse flow of immigrants in U.S. history, the Caribbean Basin became the largest source of migration: nearly one-third of all legal U.S. immigrants; two-thirds of all political refugees (from 1961 to 1977); and nine-tenths of all undocumented workers-a total of about 8.5 million people.

Even a cursory analysis of the social and demographic, economic and political dynamics of the region suggests that the "push" factors will be stronger over the next two decades than they were over the last two, when they kept pushing even when the U.S. economy stopped pulling. Economic institutions in the area are not vital enough to employ the expanding labor force, which will almost double during this time; nor are political institutions flexible enough to channel the energies of a youthful and demanding population. All this will result in either large numbers of legal and illegal emigrants and refugees or more serious social and political tensions in these countries, or both.

"We have lost control of our borders," complains Attorney General William French Smith. U.S. immigration is "out of control," says Senator Alan Simpson, the Chairman of the Subcommittee on Immigration of the Senate Judiciary Committee. To start to remedy this, on March 17, 1982, after exhaustive hearings, numerous reports, and legislation introduced by two different administrations, Senator Simpson and his counterpart in the House, Representative Romano Mazzoli, introduced the Immigration Reform and Control Act to cope with the problem of illegal migration and asylum.6

Each year, about one million people are apprehended illegally trying to cross the southern border of the United States. It is estimated that another two and one-half million people elude the border patrol or enter the United States legally and overstay their visas; of these, most return after working for a few months, but approximately 500,000 stay. An estimated 90 percent come from the Caribbean Basin. Although Mexicans account for the largest single group, an increasing percentage come from other nations in the region. To cope with this problem, the Simpson-Mazzoli bill proposes to penalize employers who hire illegals; requires the President to develop and implement within three years a more secure workers' identification system; sets an immigration ceiling of 425,000 a year, excluding refugees; doubles admissions from Canada and Mexico to a combined total of 40,000; and grants permanent resident alien status to persons who entered the United States before January 1, 1978.

A second problem is the dramatic increase in the number of people who arrive in the United States and claim asylum. (In contrast, refugees are screened by U.S. officials outside of the country, and if judged to have a "well-founded fear of being persecuted" are granted refugee status to enter the United States.) The Immigration and Naturalization Service received 3,702 applications for asylum in 1978 and over 100,000 from 53 countries in 1980 (half were from the Cuban boatlift).7 The process for deciding these cases is lengthy and complex and the Department of Justice requested a simpler and more direct procedure, which Simpson-Mazzoli modified slightly to ensure that the rights of the applicant are respected.

Congress, however, has been reluctant to approve the emergency interdiction authority which the President requested in order to prevent another Mariel-type boatlift, where 125,000 Cubans came to the United States illegally by private boats. This means that unless the Administration is willing to use force against Cuba and against Americans in small craft picking up their relatives, we remain as vulnerable today to another Mariel as when Fidel Castro "suspended" the operation in September 1980. The best way to deal with this problem is to negotiate an orderly emigration program with Cuba which includes their accepting the return of the 1,800 criminals sent on the Mariel boatlift.

Since the turn of the century, the United States has been preoccupied periodically with immigration issues and with the Caribbean Basin, but almost never at the same time, nor in a way that related one to the other. The 1980s are different. The Reagan Administration has invested a lot of time and effort in developing a new immigration policy and a new economic program for the Caribbean Basin; what remains to be done is to relate the one to the other. If the CBI's principal flaw is that it fails to take into account the immigration issue, a comparable problem of the Simpson-Mazzoli bill and the Administration's immigration proposal is that they do not adequately recognize the extent to which the immigration and asylum issues have become a Caribbean Basin phenomenon and that this will be even truer in the future.

If one or the other, but not both, programs pass, we might well exchange one end of the problem for the other. Though it is a modest program, if we reduced immigration but didn't assist in the development of the Caribbean, the pressures due to increased unemployment and returning workers would generate strong social and political tensions. If we helped in the development of the Caribbean Basin and didn't take steps to curb illegal migration, the flow would doubtless increase, perhaps dramatically. The assumption that more aid and development alleviates the causes of migration is incorrect. Indeed, most development strategies encourage migration by placing priority on industrialization and neglecting agriculture; internal migration to urban areas increases, and this is often just a prelude to international migration. This is especially the case in the Caribbean Basin because of the proximity to the United States.

Even if both programs passed, the underlying problems that prompted both proposals in the first place could very well worsen. The Caribbean Basin Initiative is likely to accelerate urbanization and the decline of agriculture, and, if the Puerto Rican model is an example, the pressures for migration will increase markedly; and yet with the Simpson-Mazzoli law, illegal migration would be reduced. Therefore, we will see increased internal pressures with less opportunity to escape.

It is essential to reexamine both the immigration proposals and the Caribbean Basin Initiative and modify them so that they complement rather than undermine the other. First, the Simpson-Mazzoli bill should be modified to extend the quota preference given to Mexico and Canada to the entire Caribbean Basin, in recognition that we are not only a North American nation but also a Caribbean nation. If a temporary workers program is inserted in the bill, as the Administration first proposed, then the entire Basin ought to receive first preference. Most important, while illegal migration must be made truly illegal, this should be phased in gradually with full understanding of its impact on the Basin nations. To take one example, remittances from Mexicans working in the United States are estimated at about three billion dollars or approximately what Mexico earns from tourism; if the valve is shut abruptly, many Mexican villages would have their "safety nets" cut out from under them, and the United States would share with Mexico the social and political consequences.

As to the CBI, the problem becomes one of expanding opportunities in the countries from which most migrants come so that they can cope more effectively with the consequences of a new U.S. immigration law. The development model implicit in the Caribbean Basin Initiative would create more migration problems than it would solve, but the nucleus of the program is sound; it just needs to be modified to mitigate the predictable effects and to multiply its more positive aspects.

To avoid the adverse effects of the Puerto Rican development experience, the countries of the Basin ought to accelerate population planning programs, increase investments in agriculture, particularly in small and medium-sized units, and concentrate on developing backward and forward linkages around new investments. For example, tourist facilities in the Caribbean are importing about 80 percent of their food from the United States; governments ought to encourage investors to use a percentage of their profits to invest in local agriculture and marketing projects that could make the tourist industry more self-sufficient.

The CBI will increase the region's economic dependence on the United States in ways which could eventually lead to political problems. To reduce dependence, the United States ought to encourage joint ventures with local entrepreneurs, promote investment from Europe and Japan, and encourage Mexico and Venezuela to open their markets to the region's products.

Much more emphasis needs to be placed on encouraging labor-intensive investments and identifying and eliminating disincentives in the local and U.S. fiscal systems-like the ten-percent tax credit-which are biased toward capital-intensive investment. In addition, research institutes and manpower training programs in the area and in the United States ought to focus more of their work on developing and utilizing labor-intensive technologies. Instead of reducing or eliminating fellowship programs for students from the area, such as the Humphrey North-South Fellowship Program, the Administration ought to be focusing its educational exchange budget on improving the middle and upper management skills of technicians from the area. This is one of the major problems impeding development in Jamaica, for example.

What is most important, however, is to set in motion a genuinely regional negotiating process-not 34 separate negotiations-for discussing and eventually seeking some consensus on the key issues of the Caribbean Basin. This should build on the Basin's subregional institutions-clustered around the Central American Common Market and the Caribbean Community-which are currently languishing, but have been among the most dynamic and productive in the developing world.

Given the obvious need for so many small nations to establish a common market and also the political and cultural difficulty of doing this, it is important for other countries like the United States, Venezuela, Colombia, Mexico, Japan and those in Europe to use their aid, advice and influence to encourage regional integration. Every six months, the finance ministers of the region should meet to discuss an agenda prepared by the secretariats of the subregional institutions. The ministers should try to rejuvenate these institutions, mesh and rationalize national development plans to facilitate complementarity, coordinate services, encourage improvement in regional transportation and communications, promote regional projects, rationalize the migration of people so as to minimize the "brain drain" and permit family reunifications. Perhaps a compact, or a broad regional development plan, could be negotiated in which Washington agreed to increase aid and trade opportunities and reduce the "brain drain" while the Basin countries agreed to invest these resources according to a strategy aimed at both the population and the migration problems.8

The United States should also demonstrate its integral relationship with the region by broadening a number of domestic policies to all the countries in the region-for example, the tax deduction on foreign conventions that originally applied to Mexico and Canada and was then extended to Jamaica should be broadened to the entire Caribbean Basin. Similarly, the United States ought to consider including the region in our agricultural support programs. Finally, it is worth exploring holding a summit of the region's leaders, perhaps every two years, to expedite and complete the negotiations conducted by trade or finance ministers. Such a mechanism could also be used to exchange views on the strategic issues in the region and to plan ahead for dealing with the implications of a changing demographic profile.

VI

We will not face an apocalypse if we fail to solve the problems of unemployment, migration, development and political change and security in the region, but the inability to deal with recurrent crises and long-standing problems in the area will leave us weakened and unsteady. While the Administration might view itself as charging up the San Juan Hill of the Caribbean Basin, we are actually sinking slowly under the cumulative weight of these individual problems.

The CBI, though no panacea, offers a rare opportunity to grasp the problems of the region more effectively, provided that we also replace a penchant for bilateralism with a commitment to a broader regional approach; balance our interest in promoting a private sector with our understanding of the need for a vigorous public sector; and shift the focus of our investments toward labor-intensive industries, toward agriculture, toward an integrated industrial strategy rather than just assembly plants.

We should also shift away from an exclusive preoccupation with anti-communism, confrontation and threats which help our enemies and alienate our friends, and begin to pursue the full range of U.S. humanitarian and economic interests. It is essential to recognize that the struggle against the Left in Central America cannot succeed until power shifts away from the Right, which represents a status quo which is neither equitable nor defensible. A perceived threat to U.S. security in the region has always brought out the worst and the best in the United States-a Bay of Pigs and an Alliance for Progress, intervention in the Dominican Republic and the Panama Canal Treaties. The Reagan Administration's approach to the Caribbean Basin continues this bifurcated legacy. One hopes that, rather than use the CBI to serve a bankrupt political-military strategy in the region, the Administration will apply the imagination and subtlety that went into the development of the CBI to forge a more effective approach to the security challenge.

1 Statistics cited by World Bank, International Monetary Fund sources. See Richard Feinberg and Richard Newfarmer, Testimony before the Senate Foreign Relations Committee on the Caribbean Basin Initiative, March 31, 1982.

2 Jackson Diehl, "Venezuelan Criticism: Leader Attacks U.S. Policy," The Washington Post, March 24, 1982, p. 1.

3 Albert Fishlow, Testimony before the Senate Foreign Relations Committee on the Caribbean Basin Initiative, March 31, 1982; see also Richard Feinberg's testimony.

4 Juan DeOnis, "U.S. Caribbean Plan to Stress Private Investment," The New York Times, June 14, 1981, p. 23.

5 I am indebted to Maurice Ferre, Mayor of Miami, for first suggesting this point at a conference on the Caribbean sponsored by Seven Springs Center, March 1982.

7 Statement of Alan C. Nelson, Immigration and Naturalization Service, before the Subcommittee on Immigration of the House Judiciary Committee, October 28, 1981.

8 See Robert A. Pastor, "Migration in the Caribbean Basin: The Need for an Approach as Dynamic as the Phenomenon," in M. M. Kritz, ed., U.S. Immigration: Global Domestic Issues, Lexington: D. C. Heath, forthcoming, 1983. Research for this chapter was supported by a grant from the Rockefeller Foundation.

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