It is a pleasure for me to be here at MSU, It is my first visit to Lansing and this University and I want to thank the Caribbean Students Association for the invitation, for working so hard to ensure smooth arrangements for this visit and for making me feel so welcome here. I want to express appreciation as well to the Centre for Latin American and Caribbean Studies – its Director, Assistant Director and other staff for its part in supporting this visit and for hosting this seminar this afternoon. I am looking forward to the discussion we will have this afternoon.
When some weeks ago, we started talking with CSA, and through the CSA, the Centre for Latin American and Caribbean Studies, about the topic of this afternoon’s discussion, the issue of the Caribbean’s – CARICOM in particular – participation in the negotiations of the Free Trade Area of the Americas was suggested.
In considering and accepting this suggestion, however, I felt it would be important to broaden the discussion to include not only the FTAA negotiations, but also the other trade and economic cooperation negotiations in which CARICOM is simultaneously engaged. For, in addition to the FTAA process, CARICOM is also involved in negotiations with Europe on the nature of the trade and economic cooperation relationship, which will replace the Lomé IV accord when it expires.
CARICOM countries are also, at this time coming to terms with the implications of membership in the World Trade Organisation. These are, as will other trade and cooperation arrangements and issues, engaging the attention of CARICOM at this time. These include current negotiations of a CARICOM-Dominican Republic Free Trade Agreement, emerging discussions on the nature and scope of a CARICOM-Central America relationship, the suggestions of CARICOM-Mercosur discussions and existing arrangements of different kinds between CARICOM and Venezuela, CARICOM and Mexico, CARICOM and Colombia.
In the context of this afternoon’s discussion, however, I will be focusing on the major multi-lateral negotiations which are currently taking place – The FTAA, the past Lomé IV and the WTO processes. These three processes together, will transform and redefine CARICOM’s trade relations, not only in this hemisphere, but internationally, with profound implications for economic, social and political development in our countries.
The fact that these discussions are taking place, all at the same time, and are engaging the participation at the CARICOM level, of the same set of technical/professionals and negotiators, implies that at a basic operational level, what is happening in the FTAA process will influence what is happening in the post-Lomé IV process and vice versa. More fundamentally, however, the existence of the WTO and the process of rules interpretation within this key institution in the international trading system bring a very specific perspective to every other trade negotiation. That is, evolving trade agreements between and among members of the WTO, must be WTO compatible. The principle of WTO compatibility, therefore, ties the various negotiation processes together inextricably and the WTO rules have become the least common denominator of the trade arrangements which are being negotiated across the globe.
This is the context in which I am placing this afternoon’s discussion. This is the context which explains the title of this afternoon’s presentation: The Caribbean Community – Preparing for and Adjusting to the New Rules of the International Trading System.
I would like to begin by giving some background on the evolution of CARICOM itself.
From Free Trade Area to CARICOM
As some of you may know, CARICOM has its origins in the Caribbean Free Trade Association, and, before that, the West Indies Federation.
The Caribbean Free Trade Association (CARIFTA) was established on 1 May 1968 subsequent to the demise of the Federation in 1962. The impetus for Regionalism, in terms of economic integration and functional cooperation, lay in the recognition that as the Region moved from its condition of political dependence, its ability to achieve autonomous broadly-based development was directly related to its capacity to make full use of its own resources, whether they were raw materials, agricultural potential, technological innovation and adaptation, or national savings potential. CARIFTA emerged as a vehicle for the transition from dependence to broad-based development.
CARIFTA was largely an exception as a Free Trade Area, as it immediately allowed for some 90% of intra-regional trade to be freed of import duties and quantitative restrictions. Whereas most integration groups had a gradual phasing-in of free trade. Of course under CARIFTA, the removal of import duties was subject to the “rules of origin” which included the requirement that a certain percentage of value be added locally to the product.
CARIFTA brought considerable growth in intra-regional trade. There was a disproportionate increase in exports by the MDCs in relation to that of the LDCs, but this was not unexpected during the formative years of the Association. The five-year CARIFTA period also saw the continued development of regional institutions, which engendered functional cooperation. Apart from the University of the West Indies, the Meteorological Service and the West Indies Shipping Council which existed prior to CARIFTA, the Council of Legal Education, the Caribbean Development Bank and the Caribbean Examination Council, among others, were established.
Despite the significant ground covered by way of economic and functional cooperation during these early years, the time quickly came when the movement stopped to take a look at itself. The stage had been set to advance the integration process, and it was critical that specific challenges be met, in such areas as the Common External Tariff, the Harmonisation of Fiscal Incentives and a policy on integration of industries. Commitments in all these areas were made in the CARIFTA Agreement. However, even though there was agreement on what was ultimately desirable, there were differing opinions on various political issues and the institutional framework for the integration process.
In 1972, there was a wind of change through the Region and the integration movement took on new life. The proposal to convert CARIFTA to the Caribbean Common Market and to strengthen the areas of functional cooperation, implied a completely new institutional framework and thus the idea of a Caribbean Community was born. The Treaty of Chaguaramas converting CARIFTA to the Caribbean Community and Common Market came into effect from 1 May 1973.
The CARICOM Agreement took functional cooperation into new areas: health, and other human/social development areas; agriculture, tourism and other productive sector areas and telecommunications were areas in which functional cooperation was expressly provided for. The move to CARICOM Community and the Common Market also raised the stakes in the integration process to include integration of the economies and the coordination of foreign policies of the independent member states of the Community.
While the 1970’s and 1980’s saw significant strengthening of the integration movement, progress was neither steady nor all encompassing. The 1980’s in particular were a difficult decade, during which several countries of the Region experienced tremendous economic shocks and social dislocations which focused national attention on national problems. By the middle of the decade, regional integration, sometimes by default, was moved to the back burner.
This did not last very long. By the end of the 1980’s the Region was once again taking stock of the integration process and charting a way forward.
CARICOM SINGLE MARKET and ECONOMY
In 1989, CARICOM Heads of Government took a decision to move the Community towards a Single Market and Economy (CSM&E). The CSM&E was conceived as an instrument to facilitate economic development of the Member States in an increasingly open and competitive global environment. The essential characteristics of the CSM&E are the free (unrestricted) movement of factors of production – goods, services, capital and labour along with the supporting measures as appropriate. The CSM&E is intended to provide the framework for efficient and competitive production of goods and services for the regional and international market.
At the same time, Heads of Government also established an independent West Indian Commission to examine the regional integration process evaluate advances made and chart a way forward. The Report of the West Indian Commission – ” Time for Action ” was completed in 1992 after region-wide consultations at all levels of the Community. It is a comprehensive study of the problems and challenges facing the Caribbean region and presents abroad set of recommendations across many fields. In the words of Sir Shridath, Chair of the West Indian Commission, it has been widely used as “something of a regional manifesto for the nineties and beyond”.
One major recommendation of “Time for Action” was the restructuring and streamlining of the institutional framework of the community. The new organisational structure and the new thrust towards the Single Market and Economy has necessitated a revision of the Treaty of Chaguaramas. This revision is scheduled to be completed by the end of this year.
A second major recommendation of ” Time for Action” was the broadening of the integration process to include the wider Caribbean. This is in the context of the expansion of CARICOM to include Suriname and Haiti and the establishment of the Association of Caribbean States.
I have spent some time on the background to CARICOM , because I believe that background is important to understanding CARICOM’s strategy for inserting itself into the negotiations of the FTAA, Lomé IV and the WTO process.
The FTAA had as its precursors the CBI and NAFTA.
CARIBBEAN BASIN INITIATIVE
The CBI, launched in 1983 through the US Government enactment of the Caribbean Basin Economic Recovery Act, was described as a “Bill to promote economic revitalization and facilitate expansion of economic opportunities in the Caribbean Basin region”. Duty free treatment provided under this act applied to an article which was imported directly from a beneficiary country into the customs territory of the United States and subject to specific rules of origin and excluding certain categories of goods such as textile and apparel , footwear, handbags, luggage, flat goods, work gloves, leather wearing apparel or tuna, petroleum, watches or watch parts. The launching of the CBI, marked a definitive shift in the paradigm guiding the US development policy in the Caribbean, signalling a change in US foreign policy stance from direct aid towards “trade not aid”.
NORTH AMERICA FREE TRADE AREA
NAFTA which was launched in January 1993, established the world’s largest market, and was seen as a building block in the establishment of a hemispheric free trade area.
NAFTA gave to Mexico access to the US market on terms more favourable than those available for CBI exporters. Import duties were immediately removed on 80% of Mexican apparel exports to the US. The remaining 20% benefited from an accelerated implementation of free trade with annual duty cuts and liberalisation set to be completed by year 2000. NAFTA also phased out duties on products for which CBI countries already enjoy duty free treatment.
As a result Mexico gained parity with Caribbean countries for CBI –covered products, but for products excluded from the CBI, Mexico gained access to the US market exceeding that granted to the Caribbean. This combined with Mexico’s access to cheap energy, lower transport costs, greater economies of scale and low wage rates, gave Mexican exporters a distinct advantage. Additionally NAFTA granted Mexico a valuable exception to tough “rule of origin” requirements to allow for preferential entry into the US market of textile and apparel products . CBI textile and apparel exporters and their customers enjoy no such flexibility.
As a consequence of these concessions, NAFTA , brought a diversion of trade from CBI countries to Mexico.
FREE TRADE AREA OF THE AMERICAS
At the Summit of the Americas, held in Miami in December 1994, the leaders of 34 Western Hemispheric countries agreed on the formation of a Free Trade Area of the Americas by 2005, with concrete results to be made in completing negotiations towards this goal by the end of the century.
The Miami summit laid out a two track work plan: the first (consistent with “open regionalism”) promotes building upon existing regional and subregional free trade agreements. At present there are 26 such agreements in the western hemisphere of which NAFTA is a major grouping. The second track directed the countries to work towards free trade by progressively dismantling tariff and non-tariff barriers. Overseeing the two-track approach, is a canopy principle that calls for the full and rapid implementation of global trading arrangements under the WTO. The FTAA is intended to progressively eliminate barriers to trade and investment.
The FTAA has at its helm the leaders of the 34 countries who agreed to its formation at the Summit of the Americas, The Vice -Ministers (Ministers of Trade) form the next level of consultations and then there are the twelve Working Groups who actually participate in the various negotiations.
Analytical support is provided to these groups by a tripartite committee comprising the IDB, OAS and ECLAC.
Working Groups
The first meeting of Trade Ministers held in Denver in June 1995 adopted a work programme and set up seven Working Groups with each being coordinated by a particular country. At the Second Ministerial Meeting held in Cartegena in 1996, four working groups were added (8-11 below). A Twelfth Working Group on Dispute Settlement was set up at the Third Ministerial Meeting which took place in Belo Horizonte, Brazil on 13-15 May 1998. The Working Groups and their coordinating countries are as follows:
- Market Access (El Salvador)
- Customs Procedures and Rules of Origin (Bolivia)
- Investment (Costa Rica)
- Standards and Technical Barriers to Trade (Canada)
- Sanitary and Phytosanitary Measures (Mexico)
- Subsidies, Anti-dumping and Countervailing Duties (Argentina)
- Smaller Economies (Jamaica)
- Government Procurement (United States)
- Intellectual Property Rights (Honduras)
- Services (Chile)
- Competition Policy (Peru)
- Dispute Settlement (Uruguay)
The overriding difficulty faced by CARICOM countries in the FTAA process is the scope of the negotiations which are to be concluded in a relatively short time. The complexity of the negotiating structure and Human Resource constraints limit the participation of all Member States in all of the Working Groups. As a grouping Member States of CARICOM have undertaken a regional approach to the FTAA process. Therefore, even though participation in the various Working Groups is on a country basis, participation in the groups has been spread among Member States to ensure a presence, especially in the more crucial groups.
Working Group on Smaller Economies
Through pressure mainly from CARICOM countries, a Working Group on Smaller Economies was established, which is chaired by Jamaica. There is as yet no commitment to accept the recommendations although other Working Groups have been asked to take into account in their deliberations, the findings and recommendations of the Working Group on Smaller Economies. The small states issue is a cross-cutting one and does not stand alone in the overall context. The problem faced by the smaller economies, primarily CARICOM countries, is the underlying assumption of the larger countries, especially the United States, that the smaller economies want to maintain protective barriers. In fact, what smaller economies are seeking is an acceptance of the principle that dismantling of barriers will have a relatively heavier impact on the smaller economies, and that this fact must be taken into account in establishing a schedule for the dismantling of barriers. It may even be said that the complexity issue and the small states issue are two sides of the same coin.
Responding to opportunities in the FTAA would depend very much on Caribbean preparations, which are less advanced than some Latin American countries. Preparedness is a critical issue for the Caribbean. It is needed over a wide front. The FTAA is intended to be like NAFTA, a WTO plus arrangement, and it is likely to cover more fully than the WTO, areas like investment, services, including financial services, and intellectual property rights. All these requirements would put great pressure on the administration in small states.
LOME IV
The (ACP) African Caribbean and Pacific states and the EEC ( European Economic Community ) signed their first Agreement Lome I in 1975, twenty-four years and three Agreements later , the Lome convention is coming to an end.
Whereas the Lomé Convention was concerned primarily with technical cooperation and aid flows from Europe to the ACP, the EU’s desire to use a future Convention in a much more determined manner to influence political, social and economic development in ACP states. This reflects the view that stable and democratic political environments are a precondition for higher living standards and for accessing the evolving globalised trading system. In short, the European premises for a new ACP-EU agreement are wholly different from those that underpinned Lomé 1973\5 to 2000.
The new ACP-EU ‘partnership’ contemplated by the European Commission directives reduces the traditionally accepted role of trade in development. Less than one third of the directives are concerned with trade and development in Lomé terms. The ‘partnership’ is more of a political regime under which ACP countries (but not the EU or its member states) will bind themselves contractually to the observance of certain standards of social and political conduct, including structures of governance, monitored and evaluated by the EU – or EU designated agencies. And, although it is not presented in this way, subject to adhering to these requirements, ACP countries will have EU assistance (largely in the area of policy development) and will be able to negotiate – on a regional basis – trade and economic cooperation agreements (primarily geared to assisting private sector development and regional integration) and ultimately to conclude (again) on a regional basis, Free Trade Agreements with the EU on terms of `reciprocity’ acceptable to the WTO.
CARICOM countries take some exception with this approach of the EU, and are approaching the negotiating table with its ACP partners with strong support for keeping the negotiations as one process rather than “regionalising” it into three processes. There is also strong support for finding a more appropriate approach to dealing with issues of governance.
Small Island Developing Economies
A very significant feature of the EU directives is the acknowledgement of the category of small island developing states. The WTO Agreement contains no similar acknowledgement of any category of states within the group of developing Member Countries other than the LLDC group – though there is limited recognition of other low income countries, including Guyana, with GNP per capital below $1,000 per annum in the Agreement on Subsidies and Countervailing Measures. And, of course, there remain difficulties in the FTAA process with gaining support for dealing specifically with needs of the smaller economies.
CARICOM Participation in the WTO
CARICOM countries have been among the stronger supporters of the establishment of the WTO as the arbiter of the agreed rules of the international trading system in the hope and belief that such an institution would be important in inserting fairness in the system.
The CARICOM countries will need to keep abreast to future developments in the WTO and help to shape them, in order to ensure that those developments support the economic and social objectives of their region. Far-reaching commitments have been undertaken by all WTO members, which will effect the prospects of individual CARICOM Member States (as well as on cooperation within CARICOM). The obligation to provide notifications, and the certainty that further negotiations affecting CARICOM interests will take place almost continuously in Geneva in the coming years, suggest an ongoing engagement of CARICOM countries with the WTO. The WTO Secretariat itself has suggested that “Participation in the work of the WTO in Geneva will become a continuing exercise for all members, including the developing countries. Follow-up in capitals will require a considerable strengthening of some Geneva-based delegations of developing countries, and continuous coordination between delegations and capitals, and among all concerned authorities within each developing country member”.
At present, only two CARIOCM countries, Jamaica and Trinidad and Tobago, have permanent delegations to the WTO. For most, if not all, of the other CARICOM countries, establishment of a mission in Geneva appears impracticable, both because of the considerable expense involved and because, for any individual country, national officials with the necessary qualifications would probably be better utilised in capitals. The constraints of smallness again arises and the possibility of having some form of joint regional representation in Geneva as the obvious solution has been put on the table for discussion.
CARICOM Member States support for the establishment and proper functioning of the WTO, lay in the belief that, in an unequal world, an organisation established on the basis of agreed rules, with a built-in process for disputes settlement, should help to level the playing field. Our concern in the current trade dispute between the US and the EU over the banana regime is therefore on several levels:
First, although Caribbean bananas account for less than 3% of the world banana market , it accounts for more than 60% of the export earnings of the Windward Islands . The immediate removal of the banana regime would destroy the economies of several CARICOM member states.
Second, the US seems unwilling to have the WTO process work itself out and, in fact, threatened/imposed severe trade sanctions on the EU in anticipation of a WTO ruling in its favour. To the extent that this strategy is successful, it will weaken the credibility of the WTO
CARICOM’s Response – Focused Attention Through The Establishment of The Regional Negotiating Machinery
CARICOM Member States clearly are involved in a series of very important negotiations which will determine the Region’s place in the international and hemispheric trading system. The capacity of Member States to serve and protect their own interests in these processes is clearly constrained by the scale of resources – human and financial required to adequately participate as individual states. This situation has led the community to adopt a strategic approach to enabling the community to prepare for and undertake the negotiations. Through this approach, the Regional Negotiating Machinery was established in 1997 as the negotiating arm of the Community in four broad areas: Lomé/Europe, Western Hemisphere Trade and Economies including CBI/NAFTA , FTAA, Summit of the Americas non-economic issues and global issues including WTO.
This machinery has allowed the Community to bring together a core of seasoned negotiators and technical support to focus on these negotiations and to fashion the strategies for developing and putting forward CARICOM positions . The RNM is based in Barbados with offices in Jamaica, Guyana and London and with an agreed process for consulting with Member States in forging consensus on issues as the negotiations proceed. So far the process has been working.
CONCLUSION – CARICOM Playing by the rules.
I have tried in this presentation to give an understanding of the CARICOM integration process and , on this basis, to outline the issues faced by the Region, as Member States, both as individual countries, and as part of the regional grouping, seek to protect their interest in the evolving external trade negotiations.
One underlying thread tying together all processes, is the least common denominator of WTO compatibility of the evolving agreements.
A second underlying issue is that of small size. Small size is not only a determining factor in assessing the capacity of economies to absorb the effects of adjustment to the removal of barriers to trade; small size is also key to determining the capacity of small states to even effectively participate in the negotiating process.
CARICOM has assessed these difficulties and has fashioned strategies to address them. The response, however, has not been positive with respect to getting agreement on the need to deal with the special needs of small states. The strategy of establishing the RNM has been more successful in addressing the difficulties posed by the capacity problem.
CARICOM has determined that the evolving rules of the international trade system will be a critical factor in determining its capacity to participate in the international trade system to its own advantage and has, therefore, determined that it will participate in a structured way in the negotiation process which will lay down the rules.
LIST OF REFERENCES
COMMONWEALTH CARIBBEAN REGIONAL SECRETARIAT, From CARIFTA to Caribbean Community
PAYNE, Anthony, Politics of the Caribbean Community, 1961-1979: Regional Integration Amongst New States
Grande Anse Declaration, July 1989
RNM College of Negotiators – Reports of Working and Consultative Groups and Committees, Aug-Oct ’98
FTAA Negotiations – CARICOM Strategy and Positioning (Background Material)
Note from Chief Negotiator on Post-Lomé IV Negotiations – (a) New Developments; and (b) The Preparatory Process, February 1998
Understanding the Trade Provisions of the European Commission’s Negotiating Directive for a Successor Agreement to Lomé IV, March 1998
Outline of the Draft Regional Negotiating Strategy on Issues related to the Free Trade Area of the Americas, January 1998
