During the last five years, American policy makers, voters and even some business leaders have called for the reshoring of manufacturing. This trend has been accelerated by the coronavirus pandemic-induced need to guarantee the production and transportation of essential medical equipment. Even President Joe Biden has put forward a plan intending to rebuild US domestic manufacturing capacity.
But what if the calls to bring back American manufacturing from Asia, became an opportunity to expand US cooperation with its neighbors?
In a recent report released by the Latin American Program at the Wilson Center, Professor Richard Feinberg makes the case for using US domestic economic policies as a way to improve cooperation with the Greater Caribbean Community (GCC), defined as countries of the Greater Caribbean Basin (GCB), to include the Caribbean islands, Central America, as well as Mexico, Colombia, and Venezuela.
“There is an alignment of elements here: anti-globalization tendencies, US-China competition, the Central American migration crisis and the renovated relevance of supply chain safety. These factors make nearshoring an attractive policy option to move forward in a big way,” Professor Feinberg told Nearshore Americas recently.
The report, titled Widening the Aperture: Nearshoring in Our ‘Near Abroad, has been praised by policy experts for its bold ideas, such as using funds allocated for US infrastructure plans to locate technology hubs in the GCC countries.
“Imagine if the United States were to join its GCC neighbors in locating technology hubs in the GCC region. These hubs would attract badly needed foreign and domestic investments into both higher tech ventures as well as more traditional assembly ‘maquilas’. The hubs could build upon existing free trade zones or build profitable greenfield endeavors,” wrote Feinberg in the report.
“Imagine if the United States were to join its GCC neighbors in locating technology hubs in the GCC region” — Professor Richard Feinberg
For a long time, industry leaders, and more recently multilateral organizations have predicated the benefits of the Nearshore for US businesses and recipient countries alike. According to Feinberg, US policy as an enabler of nearshoring has the potential to curb migration patterns in Central America and assist with poverty alleviation in the region.
However, it is important to understand some of the challenges for its effective implementation. “This system of GCC technology hubs would not, of course, be a silver bullet to solve all the region’s development problems. But the hubs would be a creative response to 21st century challenges facing both the United States and the other nations of the region,” added Feinberg.
The report recognizes the problems confronted by education systems in Central America & Caribbean as major obstacles to the development of technology hubs in the region. “People with some level of education will benefit immediately but we have to acknowledge that a large number of the workforce doesn’t have the necessary skills to fully participate, and that tertiary education is still weak in the region,” said Feinberg.
This problem was already identified by the private sector and foreign companies outsourcing to the region. There is a tendency toward upskilling and reskilling of the workforce to correct the inefficiencies of the educational system and adapt to new technologies.
“People with some level of education will benefit immediately but we have to acknowledge that a large number of the workforce doesn’t have the necessary skills to fully participate” — Professor Richard Feinberg
In spite of that, funding and attention to education is still low and the Covid-19 pandemic has inflicted further damage to the region’s school systems. According to the World Bank, learning poverty, defined as the percentage of 10-year-olds unable to read and understand simple text, may have grown from 51% to 62.5% since the pandemic started. At the regional level, less than 43% of primary schools and less than 62% of secondary schools have access to the internet for educational purposes.
“When we look at the current educational landscape in Latin America, it is easy to see how what the Biden administration is planning to do with education, including investing billions of dollars in professional training programs and tuition fees, could be highly beneficial if applied with a regional approach. But there needs to be a commitment by local players to improve on this matter,” added Feinberg.
The report proposes an original network of six different technology hubs with potential locations is El Salvador, Honduras or Guatemala; the border between Haiti and the Dominican Republic, an English-speaking Caribbean Island such as Guyana or Jamaica, Barranquilla, a Colombian seaport, and any US Gulf state suffering from high unemployment and poverty.
According to Feinberg, employment goals could be 100,000 jobs at each technology hub by year five, 300,000 by year ten; cumulatively, the six hubs would generate 600,000 new jobs by year five, 1.8 million by year 10. Succeeding in this endeavor heavily relies on securing “bilateral agreements or a region-wide compact with the United States,” the author added.
However, trade regimes negotiated in recent decades have successfully spurred more investment and commerce throughout the region, even as much more could be done. In implementing these trade accords, Central American countries have moved from basic measures like harmonizing tariffs and reducing delays at cross-border customs facilities to the more complex matters of harmonizing national regulations and tax systems, and in recent years affecting migration rules and flows.
Feinberg does not propose re-opening existing regional trade accords. However, he can envision measures to make them more consistent in ways that promote commerce among the countries of the region, as well as between the region and the US. Specifically, accords could be reached on common region-wide rules of origin (degrees of value added required to benefit from trade preferences, and to allow for cumulation (summing value added along the supply chain within participating countries). Wider broadband access and better transportation linkages would also stimulate commerce among the countries of the GCB.
Corruption, Political Instability and Transnational Crime
Concerns over corruption related to illicit drug trafficking in Central America & Caribbean have increased in recent years. For the Biden administration, it has become an important issue, particularly in places where corruption is widespread or affects the highest levels of politics.
It is fair to assume that the US would condition any type of agreement upon improvements in the rule of law, to ensure that taxpayer monies spent on the hubs, their related infrastructure and job training were well spent and not diverted by corrupt practices.
“In many countries of the region, weak, corrupt public-sector institutions are without doubt squandering fiscal resources and discouraging private investors” — Professor Richard Feinerg
“In many countries of the region, weak, corrupt public-sector institutions are without doubt squandering fiscal resources and discouraging private investors; the Northern Triangle and Haiti rank poorly on such indicators as transparency, corruption, and business competitiveness, even as Costa Rica and Barbados set higher performance standards,” said Feinberg.
Feinberg suggests that countries currently facing US economic sanctions – Venezuela, Cuba, and Nicaragua – might eventually be included in the initiatives, but only when their diplomatic relations with the US have markedly improved.
Feinberg proposed, Biden could use the Ninth Summit of the Americas, which will be hosted by the US, to introduce the technology hubs initiative as way to commit political and business leaders in both the US and the rest of the Americas.