Foreign Assistance

In response to increased competition, many manufacturers, particularly those in the apparel industry, have cut costs by relocating their assembly operations to offshore sites, including the Caribbean Basin. Under production-sharing arrangements, Basin workers assemble parts made in the United States and finished products are returned to the U.S. market. The United States has provided significant amounts of bilateral foreign assistance to the Caribbean Basin--nearly $17 billion between 1980 and 1992. This report reviews (1) the impact that U.S. policies and programs have had on the growth of Basin assembly industries and on the decisions of U.S. companies to invest in these industries; (2) the relationship between Section 599, which prohibited federal agencies from offering financial incentives for U.S. firms to relocate jobs overseas, and other foreign assistance objectives; and (3) implications for the future of U.S. foreign assistance and trade policies in the Basin. This report focuses on the following four countries: Costa Rica, the Dominican Republic, El Salvador, and Honduras.

GAO found that: (1) U.S. foreign assistance policies and programs support the growth of assembly operations in the Caribbean Basin; (2) there are a number of factors that affect U.S. foreign investment decisions; (3) U.S. company officials cite access to cheap labor as the most important reason for establishing assembly operations in the Caribbean Basin; (4) assembly industries create jobs but provide an uncertain basis for future development in the Caribbean Basin; (5) assembly plants in the Caribbean Basin have a mixed impact on workers by providing employment with only a subsistence-level of income; (6) most of the 53 plants visited appeared to provide a reasonably safe and healthy working environment; (7) foreign assistance legislation does not provide the Agency for International Development (AID) with a clear mandate to take a new direction in private-sector development and trade and investment programming; (8) AID future orientation to private-sector development is uncertain; (9) the U.S. government lacks an overall export promotion strategy; and (10) AID is in the process of developing a new foreign assistance strategy and reorganizing its agency.