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The Caribbean Basin: Awash in Opportunity
Area Development / June 1998

By Larry Luxner

WASHINGTON -- The leaders of 34 Western Hemisphere nations -- ranging in size from the United States (population 268 million) down to tiny St. Kitts-Nevis (population 42,000) -- have finally kicked off negotiations aimed at creating a Free Trade Area of the Americas by the year 2005.

The FTAA will encompass 770 million people and a combined GDP of $10 trillion, with the United States, Canada and Mexico accounting for 84% of that total. Yet the six Spanish-speaking nations of Central America and the much smaller English-speaking Caribbean islands are "struggling to survive against ever-increasing odds in an increasingly hostile economic environment," says Ralph Maraj, foreign minister of Trinidad & Tobago.

A key concern of these countries is U.S. delivery on a promise to secure the region "parity" -- especially in textiles -- with with North American Free Trade Agreement (NAFTA). Although the Clinton administration has put $300 million into his 1999 budget to cover this, the so-called parity legislation is stalled in Congress.

An early April meeting between U.S. Secretary of State Madeleine Albright and leaders of 15 Caribbean Basin Initiative (CBI) beneficiary nations resulted in a new "quick-consult mechanism" enabling urgent trade issues to be considered within 30 days. To help compensate Caribbean banana producers for possible loss of European Union tariff privleges under a WTO ruling, Albright announced a $2 million aid package to help Caribbean islands diversify. The Caribbean countries, for their part, agreed to discuss "open-skies" civil aviation agreements with Washington.

Yet Edwin Carrington, secretary-general of the Caribbean Community (Caricom), says he doubts Congress would approve CBI-NAFTA parity this year.

"We all realize that the chances are very slim because this is a year of elections in the House, and the administration recognizes the political agenda," Carrington said.

Meanwhile, U.S exports to the Caribbean Basin in January 1998 were up in 22 of 23 countries, with the largest Caribbean market for U.S. goods being the Dominican Republic ($262 million in January 1998, up from $255 million in January 1997). And U.S. imports of textiles and apparel form the Caribbean Basin during January 1998 rose by 9.78%, according to the Commerce Department, to $449 million. Mexico, however, which isn't part of the CBI, has surpassed the region, with shipments to the United States of $452 million -- up 29.6%.

Here's a look at some key CBI manufacturing nations:

COSTA RICA

Area: 19,730 sq. mi. (51,100 sq. km.)

Population: 3.2 million

Head of government: President Miguel Angel Rodríguez

Manufacturing centers: Alajuela, Heredia, Cartago

Language: Spanish

GNP: $7.2 billion

GNP per-capita: $2,054

Costa Rican currently has eight free zones: three in Alajuela, three in Heredia, one in Cartago, and one in Puntarenas. In addition, two free-zone projects are under discussion: one in Cartago, the other in Puerto Limón. In 1996, the eight zones employed 24,500 people and exported $582.4 million worth of goods, most of it apparel for the U.S. market.

Despite the country's relatively high labor costs, Costa Rica has been able to attract several Fortune 500 companies. Intel Corp. is currently expanding a $500 million microchip complex outside San José that was inaugurated Mar. 18: Intel expects to be shipping $1 billion worth of product annually, once the factory reaches its full employment of 3,500 workers by 2002. Other big investors include Microsoft Corp, Acer Group, Motorola Inc., Sawtek Inc. and Lucent Technologies.

DOMINICAN REPUBLIC

Area: 18,704 sq. mi. (48,442 sq. km.)

Population: 8 million

Head of government: President Leonel Fernández

Manufacturing centers: Santo Domingo, Santiago de los Caballeros

Language: Spanish

GNP: $7.9 billion

GNP per-capita: $978

Home of green bananas and merengue music, the Dominican Republic is the Caribbean's second-most populous country after Cuba. Its 43-year-old president, Leonel Fernández, grew up in New York and has made no secret of his desire to boost U.S.-Dominican trade from its current level of around $7 billion a year.

At the moment, over 50 foreign multinationals operate in the Dominican Republic, including Phillip Morris, Falconbridge, Shell, Texaco, Enron, Citibank and Motorola. In addition, 450 companies are established in 36 industrial parks, employing over 170,000 people in apparel, footwear and electronics assembly. Another 10 parks should be operating by the end of 1998.

According to the National Board of Export Free Zones, in 1996 the country's free-zone exports reached $1.8 billion, generating $520 million in foreign exchange. During the first three months of 1998, free-zone exports totaled $734.4 million -- about 50% of total Dominican exports.

GUATEMALA

Area: 42,042 sq. mi. (108,890 sq. km.)

Population: 10.3 million

Head of government: President Alvaro Arzu

Manufacturing centers: Guatemala City

Language: Spanish

GNP: $10.0 billion

GNP per-capita: $916

Many observers say a peace treaty recently signed between the Guatemalan government and leftist rebels could spark a real economic boom, after 36 years of civil war.

Gexpront, Guatemala's association of non-traditional exporters, aims to steer Guatemala away from its traditional dependence on coffee, bananas and cattle, and towards high-value exports like garments, electronics, baby vegetables and raspberries.

Yet competition from neighboring Mexico is threatening one of the brightest sectors of Guatemala's economic future: the apparel assembly industry.

The country has 220 maquilas, 57% of which are foreign-owned and operated, including 20 U.S. companies. Nearly 16,000 men and more than 38,000 women work in maquilas in Guatemala City and in the departments of Sacate-pequez, Chimaltenango, Baja Verapaz, Quetzaltenango and Iazabal. These companies provide jobs for nearly 70,000 Guatemalans.

HONDURAS

Area: 43,278 sq. mi. (112,090 sq. km.)

Population: 5.4 million

Head of government: President Carlos Roberto Flores

Manufacturing centers: San Pedro Sula, Tegucigalpa

Language: Spanish

GNP: $3.77 billion

GNP per-capita: $648

After several years of bad economic news, the most recent numbers out of Honduras are quite encouraging. In 1997, real GDP grew 4.9%, up from 3.7% the year before. Inflation, meanwhile, dropped to 12.8%, down from 25.3% in 1996. The solid GDP performance was led primarily by growth in the manufacturing and financial services sectors, which grew 6.1% and 10.6% respectively.

There's no question Honduras has reaped the profits of the maquila movement. In 1996 the country exported $969.8 million worth of textiles and apparel to the U.S., up from $674.8 million the year before. That represents a growth of 43.7%, the highest of any Caribbean Basin country. In absolute terms, Honduran garment exports to the U.S. rank second among CBI nations: only the Dominican Republic, with $1.8 billion in shipments, exported more.

In 1977, the first free zone was established in Puerto Cortés, followed by five more zones (Omoa, Choloma, Tela, La Ceiba and Amapala). According to government statistics, maquilas bring revenues of over $250 million a year. About one-third of the factories in export processing zones (EPZs) are U.S.-owned, one-third Korean-owned and one-third owned by Hondurans and other nationals.

At present, eight public and privately owned EPZs are in operation, and five more are in the planning stages. Investors are attracted by minimum wages of only $3.54 a day, though most firms pay their employees considerably more than this mandated minimum.

JAMAICA

Area: 4,244 sq. mi. (10,991 sq. km.)

Population: 2.4 million

Head of government: Prime Minister Percival J. Patterson

Manufacturing centers: Kingston, Montego Bay

Language: English, Creole

GNP: $4.3 billion

GNP per-capita: $1,668

A former British colony, Jamaica became independent in 1962, and is famous for Blue Mountain coffee, white-sand beaches and reggae music. But the country is plagued by 15% unemployment and violent crime. The establishment of five free-trade zones, with garment factories operated by U.S., Asian and local investors, has created thousands of new jobs, but mainly low-paying ones for unskilled women.

Jamaica's manufacturing sector has seen difficult times lately. In April, U.S.-based Sara Lee Corp. closed its Hanes garment factory in Sandy Bay, leaving 570 people jobless. Sara Lee said the closure was part of a plan to cut back on its "surplus of manufacturing capacity" and to consolidate its operations. At its peak in the early 90s, Jamaica's garment sector pulled in gross earnings of nearly $600 million a year and employed 40,000 people.

NICARAGUA:

Area: 49,998 sq. mi. (129,494 sq. km.)

Population: 4.2 million

Head of government: President Arnoldo Alemán

Manufacturing centers: Managua

Language: Spanish

GNP: $2.05 billion

GNP per-capita: $481

Nicaragua, the poorest nation in Latin America, nevertheless enjoyed the highest growth in Central America last year, with 1997 GDP shooting up by 5%. That marked Nicaragua's best economic performance since 1981. Even more encouraging, 1998 projects call for growth of between 5% and 7%.

The country is focusing its manufacturing efforts on state-owned Las Mercedes Free Zone, located on a 57-hectare plot of land next to Managua's César Sandino International Airport. There, at least 8,000 employees working in 17 factories produce garments for export to the U.S. market. In 1995, the free zone's value-added exports came to $76.7 million, up 106% from 1994 and 450% from 1993.

The success of Las Mercedes has inspired private investors as well. Zona Franca Index, the country's first privately run free zone, opened for business in January 1996 between Las Mercedes and downtown Managua. Starting with 1,600 square meters and 150 employees, the zone could grow to 16,600 square meters of production space -- housing four firms employing 2,500 workers and producing $20 million worth of apparel.

PUERTO RICO

Area: 3,435 sq. mi. (8,959 sq. km.)

Population: 3.8 million

Head of government: Gov. Pedro Rosselló

Manufacturing centers: San Juan, Arecibo, Mayagüez, Ponce

Language: Spanish, English

GDP: $28.5 billion

GDP per-capita: $7,500

Captured by U.S. troops during the Spanish-American War in 1898, Puerto Rico is today one of the Caribbean's most prosperous islands. It is also the region's leader in manufacturing, with over 2,000 factories churning out everything from canned tuna to birth-control pills. This is the result of Section 936 of the U.S. Internal Revenue Code, which for years has exempted U.S. companies from having to pay federal tax on income earned by their Puerto Rican subsidiaries. Manufacturing now accounts for 15.6% of all jobs in Puerto Rico, and over 40% of the island's GDP.

But with 936's Congressionally mandated phaseout by 2006, and big debates over whether the island should become the 51st state, Puerto Rico's long-term manufacturing future is now uncertain.

The impact of 936's demise is already beginning to be felt. During the first six months of fiscal 1997, manufacturing saw a 1.1% drop in employment, a 7.1% decline in payroll, and a 6.3% drop in work hours. Meanwhile, Moody's Investors Service warns that the end of 936 "could have long-term, negative effects on the island's economy."

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