A. From Common Market to Single Market and Economy
A ‘single market’ is a space within which goods and services, people, capital and technology freely circulate. When created among States, it involves, so far as market transactions are concerned, the complete removal of physical, technical and fiscal frontiers. Thus, for example, moving goods or services, capital or people from Trinidad and Tobago to Barbados would be no different from moving them across parish borders in Barbados itself.
A single market is thus somewhat different from a ‘common market’ which is an arrangement among States to remove market barriers, while the frontiers themselves remain. In the Revised Treaty of Chaguaramas, unlike the Single European Act (1986), there is no concept of an area without frontiers. In fact, to the contrary, the Treaty implicitly rests on the maintenance of frontiers, within which it is the aim to liberalize conditions of access to markets. Thus, although the Treaty refers to a ‘single market’ this is in effect no different from the pre-existing common market.
The Revised Treaty of Chaguaramas goes further to establish a ‘single economy.’ This requires unified economic and monetary policies, including related legislation, executive instruments and institutions. One of the most important instruments of a single economy is a single currency – just as there is a single Barbados currency for all parishes of the country.
The Revised Treaty actually provides, in principle, for most aspects of a single economy, incorporating the original protocols on establishment, services and capital; industrial policy; trade policy; agricultural policy; transport policy; disadvantaged countries, regions and sectors; competition policy and consumer protection; dumping and subsidies; dispute settlement. In addition, macroeconomic policy convergence, fiscal policy harmonization, monetary convergence, fiscal policy harmonization, monetary union/single currency, as well as the Caribbean Court of Justice, complete the mandate for implementing the Caribbean Single Market and Economy (CSME).
The free trade regime and the common external tariff (CET) were core features of the earlier Common Market, and of course are essential components of a CSME. There are a few notable single economy omissions, such as the absence of provisions in the Treaty for Community Transnational Enterprise Law, Labor Law and Property Law.
B. Progress of the Caribbean Single Market and Economy
The Institutional and Legal Framework
The Caribbean Court of Justice (CCJ)
The establishment of the CCJ is considered vital to ensuring an environment of economic stability and legal certainty in the Community and the CSME. In its original jurisdiction it will interpret and apply the Revised Treaty of Chaguaramas. The target date for the CCJ to begin functioning is mid-2003. Of the prospective eleven participating States, four have so far ratified the agreement (three being the minimum required number needed for entry into force). However, no member State has to date enacted the Agreement into domestic law. The Board of the Caribbean Development Bank (CDB), at the request of Heads of State, has authorized the borrowing of US$96 million on behalf of the eleven States, intended to be disbursed to a Trust Fund that will finance the budget of the Court out of its earned income. However, the CDB will not commence mobilization of the funds until the Agreement establishing the CCJ has been signed and ratified by all of the prospective participating States.
Competition Policy
Implementation of the Treaty provisions has not been undertaken in any Member State. Model laws are being examined.
Intellectual Property Rights
Several member States do not have laws on Intellectual Property Rights (IPR) and have not taken action on WTO TRIPS compliance. No action has been taken to date on the establishment of a regional administration for IPR, about which there are also national reservations. Virtually nothing has been done in respect of the Treaty provisions regarding establishing mechanisms for the protection of indigenous culture, expressions of folklore and traditional knowledge.
Company Law
Virtually nothing has been achieved to date in respect of the harmonization of company law, and in any case some member States have serious conceptual differences about the approach to it.
Financial Services—Banking, Insurance and Securities
Action on harmonization in these fields seems to be for the distant future as studies are only now being undertaken on the similarities and dissimilarities in existing national legislation.
Customs Law
The model law that has been prepared has been adopted by only one Member State. It has been abandoned de facto by the Organization of Eastern Caribbean States (OECS), which has devised its own law. In any case, several member States have serious difficulties with the model law.
Government Procurement
The CSME has no provisions on government procurement, which is a feature of the WTO, the FTAA and ACP-EU New Trading Arrangements. No action has been taken so far on drafting and negotiating a Community Government Procurement Protocol.
Standards and Technical Requirements
The Caribbean Organization for Standards and Quality (CROSQ) has been established but there are concerns about the adequacy and reliability of funding for the institution.
Dispute Settlement
Apart from the role of the CCJ in respect of dispute settlement, other dispute settlement modes are provided for in the Treaty, including a Conciliation Commission and Arbitration Tribunal. Most member States have not submitted nominees for the List of Arbitrators and Conciliators.
Single Market
Free Movement of Goods
According to the Caribbean Community Secretariat (CCS) some 95 percent of intra-regional trade is free of barriers. Nevertheless, after 30 years of the Community’s existence, intra-regional exports amount (in 2000) to only 18 percent of total regional exports, having increased from 11.5 percent in 1990.
Moreover, in domestic value-added terms the absolute value of intra-regional trade would be substantially less than its nominal value (perhaps one-half). While the increase that took place over the last decade is almost wholly attributable to Trinidad and Tobago, some 75 percent of this country’s intra-regional exports consists of mineral fuels, lubricants, chemicals and related materials that would have taken place without the free trade regime.
There has been a small increase in the intra-regional exports of Barbados but this has been offset by the complete stagnation in those of the Eastern Caribbean States and a substantial decline in Jamaica’s.
Intra-regional trade probably could be increased to some extent since there still remains in several Member States unauthorized barriers and licenses, as well as discriminatory internal taxes and other fiscal charges. However, even with the removal of these remaining restraints, intra-regional trade is unlikely to rise to a significantly higher level without the kind of transformation of the productive structure that would make this possible.
Free Movement of Services
No Member State has yet enacted legislation to put into effect the Treaty provisions on the removal of restrictions to trade in services (including self-employed service providers, entrepreneurs, technical, managerial and supervisory staff, spouses and immediate dependent family members).
Free Movement of Persons
All States will two exceptions (and The Bahamas that does not participate in the Common Market) have implemented legislation enabling the movement without work permits of certified tertiary graduates (skills). Movement is nevertheless subject to constraints, the severity of which varies from State to State, such as national certification requirements, immigration procedures, administrative delays, the rights and status of family members, and other contingent rights. Most States have not yet put into effect legislative and administrative arrangements for the movement of media workers, artistes, musicians, and sportspersons.
Although the skills legislation has been adopted in most Member States for more than five years, relatively few skilled persons have actually moved to other Community States (statistics are not available). Ironically, there seems to have been more movement among unskilled persons though they are not included in the “free movement” legislation.
Free Movement of Capital
To date, no Member State has enacted legislation or implementation programs to put into effect the Treaty provisions on the removal of restrictions to the free movement of capital. Complicating issues that need to be determined concern the different modes under which capital moves in and out of Member States that are governed by specific national laws (e.g. direct foreign investment, portfolio investment, banking, insurance, securities, real estate, industrial establishment, profit and capital repatriation, etc) and also vary from State to State.
Common External Protection
While most States have adopted de jure the fourth phase of the CET, a common external protective regime is still far from having been achieved. This is due to the incomplete or defective application of the CET, and the increasing use of derogations from it; the presence of non-tariff barriers, including standards, health and environmental protective measures, subsidies, and inter-country differences in value-added and in the application of rules of origin.
Single Economy
Sectoral Policies
The Treaty provides for sectoral policies in respect of agriculture, industry, services and transport. These policies are mostly expressions of intentions to promote, cooperate, collaborate, and coordinate actions in respect of a variety of common problems. They fall very far short of what would be expected of sectoral policy in a single economic space. Even at the level of intergovernmental cooperative actions (with the exception of limited aspects of the tourism sector) little or nothing has actually been achieved.
Macroeconomic Coordination
The Treaty provisions are also expressions of intentions to promote, collaborate, coordinate policies conducive to sound national macroeconomic policies, and again are not what would be expected of a commitment to create a single economic space. In fact, even at the level of intergovernmental collaboration on macroeconomic policies very little has been done or even attempted.
The Council for Finance and Planning (COFAP) itself nevertheless recognized (in 2001) that ‘lack of macroeconomic coordination could result in severe disintegrative effects… and that countries must be prepared to cede some degree of sovereignty in economic policy formulation to the regional level.’
Fiscal Policy Harmonization
Technical work on the issue has scarcely begun. COFAP agreed that a tax harmonization framework and tax harmonization guidelines should be developed for its consideration, and a Working Group on Fiscal Policy has been established. Likewise, a Community Investment Policy, including a harmonized system of investment incentives, is a long way off as technical preparations are still in progress.
A Protocol on a Harmonized Corporation Tax Structure has been prepared and is currently going through the process of intergovernmental examination. The CARICOM Double Taxation Agreement has been signed and ratified by most Member States and is effective among eight of them that have put the enabling legal framework in place.
Monetary Union/Single Currency
The approach to this issue has been to monitor set macroeconomic parameters against pre-determined targets, so as to gauge the extent of macroeconomic convergence, the accepted pre-condition for moving to a single currency. Not only has attainment of the targets generally been below expectation in respect of all parameters, but also no mechanisms are provided to correct underperformance.
In considering the issue of monetary union, COFAP recently accepted the recommendation of the Committee of Central Bank Governors that a monetary union involving all CARICOM Member States is not achievable at this point in time, but should remain a long-term goal. For all practical purposes a single currency for the single market has been abandoned.
C. Political Implications of the Single Market and Economy
As illustrated above, although the range and depth of decisions made in respect of creating a CSME, going back to 1989, is impressive, very little has actually been put into operation. This cannot be due wholly to inadequate institutional capacity. There is no apparent correlation among the Member States between their institutional capacity and their record of implementation. Nor does there seem to be a correlation between the complexity of the task and institutional capacity.
Institutional strengthening cannot be a substitute for political conviction, for the Revised Treaty of Chaguaramas merely recognizes a number of narrowly defined technical objectives, such as ‘improved standards of living and work,’ ‘enhanced levels of international competitiveness,’ ‘enhanced functional cooperation.’ There is nothing in the Treaty objectives that commits States to the essential values of Caribbean Community. Yet the creation of a unified economic space is now the declared purpose of the Community. For example, a single economy with a multiplicity of currencies is a contradiction in terms. Thus, while declaring their commitment to high levels of regional economic unity, governments continue to operate in a mode of full national sovereignty.
The CSME has been defined in the same way as the concepts applied to the earlier Common Market, that is, the gradual, State-by-State removal of barriers. By contrast, the European Union when inaugurating its single market in the mid-1980s introduced the concept of the internal market that created an area without internal frontiers in which the free movement of goods, persons, services and capital is ensured. Physical (checks on persons and goods at internal customs ports), technical (national rules in a variety of fields), and tax-related (different indirect taxes) frontiers were thereby abolished.
The change to a single market was accomplished by changes in the Community legislative system (the introduction of European Directives, approved by qualified majority voting for most subjects, that are obliged to be transposed into national law in the Member States) designed to encourage adoption of the measures needed for completion of the single market. The Caribbean Community is yet to make the political transition that is necessitated by the commitments undertaken to create a single market and economy. The adjustments needed are best illustrated in respect of the CSME implications for national sovereignty and the financing of the Community institutions.
National Sovereignty
The Caribbean Community intends to create a Single Market and Economy with each Member State retaining maximum national sovereignty. It intends to do so apparently through a mode of discretionary intergovernmental cooperation. These objectives clearly are contradictory. The effects of this approach are manifest in the failure to achieve any significant progress in respect of the program of legislative harmonization, the removal of barriers to the movement of people, services and capital, and the merely titular commitments made to macroeconomic coordination, fiscal harmonization and monetary integration.
This was also the experience of the European Community. By the mid-1980s, there had been no substantial reduction in non-tariff measures; except for certain professions, the free movement of services had been instituted only as non-discrimination on the grounds of nationality; free trade in goods was still restricted by anti-competitive practices imposed by public authorities.
According to the European Parliament ‘stagnation in the achievement of the common market was largely attributed to the choice of detailed legislative harmonization as the method of removing the obstacles of national technical regulations, when harmonization was in fact very difficult to achieve…’ The Single European Act that created the European single market was the answer to this impasse. It incorporated the concept of the internal market referred to above and radically altered the legislative decision-making machinery.
CARICOM however, unlike the EU, in moving to a single market kept the old common market concepts (of frontiers and State-by-State liberalization of market access), and legislative procedures (of intergovernmental harmonization and national ratification) in place. This dichotomy lies at the root of the impasse in CARICOM.
Beyond the legislative and market access areas, it is becoming increasingly apparent in CARICOM that such issues as sectoral policy, macroeconomic coordination, fiscal harmonization and monetary integration simply cannot proceed in an environment of unabridged national sovereignty. The CCJ is itself an illustration of sovereignty being breached by default. In its original jurisdiction the Court becomes necessary since in its absence the municipal courts of the Member States would be competent to interpret and apply the Revised Treaty, with the possible consequence that their decisions may not be consistent.
However, ensuring consistency of legal decisions in this way results in an important aspect of supranationality being inserted into an otherwise intergovernmental mode of cooperation. Indeed, even outside the CSME framework, signs of encroachment on the principle of national sovereignty are observable, for example, in respect of such sectoral policy areas as offshore financial services and regional security (illicit drugs, arms trafficking, money laundering).
Financing the Caribbean Community and Single Market and Economy
The CSME calls for the establishment of a number of new Community institutions. They include the Caribbean Court of Justice, a standards organization, a competition commission, a conciliation commission, a regional securities body, a regional intellectual property rights office, and a regional development fund. Most of these new Community institutions are premised on the existence of national counterparts that actually do not currently exist in most Member States. Already the Community supports over a dozen regional organizations, including the Community Secretariat, the Regional Negotiating Machinery, and the University of the West Indies.
In the absence of an independent source of income for the Community institutions, all these new institutions will require national appropriations (apart from the CCJ for which, as indicated above, trust fund arrangements are being made through the Caribbean Development Bank). How this will be achieved, including the resources needed for the national counterparts, remains to be seen. Experience does not inspire confidence that governments will be prepared to fund all these new institutions adequately and reliably—especially in an environment that is already politically strained and financially distressed over commitments to the existing regional institutions.
The financing issue was also one that confronted the European Community and was resolved by a decision in 1970 on ‘own resources’ for the Community. In fact, this was originally provided for under the Treaty of Rome, which stipulated that the EEC was to be financed by national contributions for a transitional period before changing to a system of own resources. Own resources have been found in a mixture of ‘natural’ own resources, which are revenues collected by virtue of Community policies such as customs duties, agricultural levies, VAT own resources, and GNP based balancing resources. Currently the own resource system is based on a ceiling of 1.27 percent of the Union’s GNP. The European Court is financed out of the Union’s own resources.
By way of comparison, 1.0 percent of the GNP of the CARICOM States (excluding Haiti) would amount to about US$300 million a year. Currently governments contribute US$10 million to the CCS annual budget (donors contribute an additional US$4 million). The financing issue, and particularly the institution of an own resources system, thus becomes a real test of political conviction on the future of regional integration.
D. Conclusion
Caribbean governments since 1989 have undertaken deep and far-reaching commitments to establish a Single Market and Economy, representing a major advance over the Common Market. However, very little has actually been achieved in terms of implementing these commitments. The root cause of the situation can be found in the fact the most of the CSME commitments are premised on the existence of higher degrees of political integration than currently exist. While a mode of intergovernmental cooperation, by way of discretional State-by-State progressive market liberalization, legislative harmonization and ratification, may have been more or less workable for Common Market arrangements, they are unlikely to be effective for the purposes of creating a single market and economy. The experience of the only grouping of States that has attempted such a transition indicates that it is necessary to move beyond intergovernmental cooperation to selective forms of supranational action. Two initial priority areas for the application of this conclusion in the Caribbean Community would be the program of legislative harmonization and arrangements for financing the Community institutions.
