The Trade Effects of MERCOSUR and The Andean Community on U.S. Cotton Exports to CBI countries

The remainder of this paper is structured as follows: Section II describes U.S.-CBI trade
partnership; Section III provides the generalized framework of the import demand model;
Section IV discusses data and estimation procedures; Section V provides the detailed steps in
calculating trade creation and trade diversion; Section VI discusses the results; and Section VII
provides conclusion of the study.

II: U.S. - CBI Partnership

The CBI plan was first announced by President Regan on February 24, 1982 and became
effective on January 1, 1984. The central premise behind the plan was that, by encouraging the
CBI countries to become more open and liberal, trade would expand - and eventually translate
into economic development and growth (Deere1990). Today it is a general term used to refer to
the Caribbean Basin Economic Recovery Act of 1983 (CBERA), the Caribbean Basin Economic
Recovery Expansion Act of 1990 (CBERA Expansion Act), and the Caribbean Basin Trade
Partnership of 2000 (CBTPA) (Ozden and Sharma 2006).

As of October, 2000, twenty four countries have been designated CBI beneficiaries :
Antigua and Barbuda, Aruba, the Bahamas, Barbados, Belize, British Virgin Islands, Costa Rica,
Dominica Islands, The Dominican Republic, El Salvador, Grenada, Guatemala, Guyana, Haiti,
Honduras, Jamaica, Montserrat, Netherlands Antilles, Nicaragua, Panama, St. Kitts-Nevis, St.
Lucia, St. Vincent and the Grenadines, and Trinidad and Tobago. In this study, we will focus on
the top eight CBI export markets for U.S. cotton, from 1989 - 2007: Bahamas, Barbados, Costa
Rica, Guyana, Haiti, Jamaica, Panama, and Trinidad and Tobago.

The partnership between the U.S. and the CBI provides duty and quota free treatment for
1) textile and apparel products assembled from U.S. fabric in CBI beneficiary countries from
U.S. fabric and 2) yarn and apparel assembled from CBI regional fabric, subject to a quantitative

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