| United Nations |
E/CN.17/1996/IDC/Misc.1 |
Economic and Social Council
Distr. GENERAL
14 February 1996
ORIGINAL: ENGLISH
COMMISSION ON SUSTAINABLE DEVELOPMENT
High-level Panel Meeting on
Island Developing Countries
22-23 April 1996
TRADE ISSUES AND DEVELOPMENT PROSPECTS OF
ISLAND DEVELOPING COUNTRIES OF THE CARIBBEAN
Report prepared by Mr. Dennis A. Pantin
UNCTAD Consultant, Senior Lecturer and Head,
Economics Department, University of West Indies*/
----------------
* The view expressed in this study are those of the author and do not
necessarily reflect the views of the UNCTAD secretariat or of any official
administration. The designations employed and the presentation of the
material do not imply the expression of any opinion whatsoever on the part of
the Secretariat of the United Nations concerning the legal status of any
country, territory, city or area or of its authorities, or concerning the
delimitation of its frontiers or boundaries.
CONTENTS
INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1-2
Chapter I TRADE PERFORMANCE OF CARIBBEAN ISLAND ECONOMIES. . . . . . 3-8
Chapter II PRINCIPAL TRADE ISSUES AND PROSPECTS OF CARIBBEAN
ISLAND ECONOMIES IN THE CONTEXT OF TRADE LIBERALIZATION . 9-43
A. Recent institutional developments in the world trading
system . . . . . . . . . . . . . . . . . . . . . . . 11-12
B. Globalization. . . . . . . . . . . . . . . . . . . . 13-14
C. The implications of the new multilateral trade
framework on the Caribbean Island economies . . . . . 15-43
a. Market access . . . . . . . . . . . . . . . . . . 16-18
b. Caribbean specific impact . . . . . . . . . . . . 19-28
c. The impact of regional trading arrangements on
the Caribbean . . . . . . . . . . . . . . . . . . 29-43
i. NAFTA . . . . . . . . . . . . . . . . . . . . 29-37
ii. The European Economic Integration . . . . . . 38
d. General observations . . . . . . . . . . . . . . 39-43
Chapter III THE SCOPE FOR SUSTAINABLE TRADE DIVERSIFICATION IN
CARIBBEAN ISLAND ECONOMIES IN THE CONTEXT OF TRADE
LIBERALIZATION AND GLOBALIZATION . . . . . . . . . . . . .44-60
A. Some patterns of trade liberalization in the
Caribbean . . . . . . . . . . . . . . . . . . . . . . 44-46
B. Sectoral developments . . . . . . . . . . . . . . . . 47-60
Chapter IV REGIONAL TRADE COOPERATION FOR TRADE DEVELOPMENT . . . . .61-73
A. CARICOM . . . . . . . . . . . . . . . . . . . . . . . 61-69
B. Free trade agreement of the Americas (FTAA) . . . . . 70
C. Association of Caribbean States (ACS) . . . . . . . . .71
D. The special case of Cuba . . . . . . . . . . . . . . . 73
Chapter V CONCLUSION AND RECOMMENDATIONS . . . . . . . . . . . . . .74-84
A. Salient features of islandness . . . . . . . . . . . 75-80
B. Policy agenda . . . . . . . . . . . . . . . . . . . . 81-84
INTRODUCTION
1. The economic prospects of Caribbean island economies are dependent on
their ability to anticipate opportunities and threats resultant from exogenous
trends in the world trading system. The economic history of the Caribbean
region bears eloquent testimony to the costs and benefits which have resulted
from earlier epochal changes in the world trading regime. A number of
economic 'hurricanes' are currently looming on the horizon. In fact, several
Caribbean economies already have begun to experience the early warning signals
of increasing `atmospheric' turbulence.
2. Chapter 1 provides a review of the trade performance of Caribbean
economies and the importance of trade to overall economic performance in these
small, open economies. Chapter 2 turns to the identification of the principal
trade issues and the prospects for Caribbean island economies in the context
of trade liberalisation. Chapter 3 addresses the question of the scope for
sustainable trade diversification while Chapter 4 looks at the issue of
Regional Cooperation in the quest for exploiting trade opportunities for
sustainable economic development. Chapter 5 provides a conclusion and
advances recommendations.
Chapter I
TRADE PERFORMANCE OF CARIBBEAN ISLAND ECONOMIES 1/
3. Caribbean exporters can be grouped into four categories in terms of main
exports: agricultural, mineral, tourism and mixed. The countries with a
significant export dependence on agriculture include Dominica, Grenada, Cuba
and Haiti. The countries largely dependent on minerals are Trinidad and
Tobago, Jamaica and the Netherlands Antilles, up to 1985. There has been a
relative decline in the significance of the export contribution of the mineral
and agricultural sectors. In the case of the Netherlands Antilles, for
example, there has been a precipitous fall in the contribution of the export
oil refining sector to total export earnings from 48.5% in 1980 to 1.2% in
1990 2/. In Trinidad and Tobago, the share of the oil sector to total
export earnings fell from 73% in 1980 to some 50% in 1993. In Jamaica, the
bauxite sector recorded a halving of its share in total export earnings from
52% in 1980 to 22 % in 1993.
TABLE 1
Major Export Products of CDCC Countries by Product Group
---------------------------------------------------------------------------
GROUP PRODUCT MAIN CDCC EXPORTERS
---------------------------------------------------------------------------
Agricultural Products -Essential Oils/Fats -Cuba
(non-tropical) -Fish/Shrimp -Belize, Suriname,
Guyana
---------------------------------------------------------------------------
Tropical Agricultural -Beverages -Trinidad & Tobago
Products -Spices (Nutmeg, Mace) -Grenada
-Rice, Tobacco -Suriname, Guyana,
Dominican Republic,
Trinidad and Tobago
-Sugar -Belize, Cuba, Guyana,
Dominican Republic,
Jamaica,
St. Kitts/Nevis,
Barbados
-Bananas -Antigua & Barbuda,
Dominica, Grenada,
St. Vincent, Jamaica,
Suriname
-Fruit & Vegetables -Cuba
------------------------------------------------------------------------------
Natural Resource -Mineral Fuels -Trinidad & Tobago
Based Products -Alumina/Bauxite/Aluminum -Jamaica, Suriname,
Guyana
-Gold/Silver/Mineral Ores -Guyana, Cuba,
Dominican Republic
------------------------------------------------------------------------------
Manufactures -Clothing/Garments -Belize, Barbados
-Handicraft -Haiti
-Chemicals -Trinidad & Tobago
------------------------------------------------------------------------------
Source: Nicholls, Shelton An Overview of the Implications of the Uruguay
Round for CDCC Member Countries (November 1995)
4. The Caribbean countries which are significantly dependent on tourism are
the Bahamas, Barbados and more recently Jamaica and the Dominican Republic.
The tourism sector has increased its contribution to total export earnings in
virtually all Caribbean economies since 1980. The Bahamas is an exception
with a change is from 81% in 1984 to 72% in 1990. Jamaica and the Dominican
Republic can be classified in the mixed categories with tourism, minerals,
agriculture and manufacturing all contributing to export earnings. The data
for Haiti are not fully reflective of the underlying trade patterns after 1985
given the political turmoil which has prevailed for much of the last decade.
Data for Cuba were not readily available in the post-1987 period. However, it
is well known that sugar exports have declined in this period with growth in
export earnings from tourism and pharmaceutical.
5. A more detailed, country by country analysis of export performance shows
that the export earnings of Trinidad and Tobago are dominated by crude oil and
oil products. 3/ In the case of Barbados, the major exports are tourism
services, sugar and manufacturing exports (electronic components and
garments). In the case of Jamaica, the major export earners are tourism,
minerals (bauxite and alumina), agriculture (predominantly sugar and bananas)
and some assembly-type manufacturing (especially garments). For the Bahamas,
tourism is overwhelmingly important. The Dominican Republic has an export
profile which resembles that of Jamaica including tourism, sugar, coffee,
cocoa and some export manufacturing (especially garments). Haitian exports
also tend to be shared between tourism, coffee, cocoa, and assembly-type
manufacturing.
6. In the case of Cuba, sugar was the dominant export sector up to 1987.
However, since then, as noted earlier tourism and pharmaceutical have
increased their share - in part as a result of declining sugar production and
exports. Up to 1985, the exports from the Netherlands Antilles were dominated
by the offshore oil refineries located in Curacao and Aruba (which was then
part of this territory). Since then tourism has become much more important,
particularly in Aruba, together with offshore financial services.
7. Antigua and Barbuda depends on tourism and some manufacturing exports.
For Dominica it is agriculture, predominantly Bananas which contributed close
to half (47%) of total merchandise exports in 1994. Grenada reflects a
similar profile to that of Dominica in terms of the dominance of agricultural
exports, with a mix of bananas, nutmeg and mace and cocoa, each of which
contributed some 14% of merchandise exports in 1992. For St. Kitts-Nevis, the
major export earners are sugar (37% of 1992 merchandise exports), and tourism.
Export earnings in St. Lucia are dependent predominantly on bananas and
tourism. In the case of St. Vincent and the Grenadines it is agriculture,
again with bananas being the most important crop.
8. The economic dependence of Caribbean economies on trade is reinforced by
the fact that 1-3 exports of goods or services dominate export earnings. In
other words, there is a significant concentration of exports. For example
bauxite and alumina were responsible for 78% of Jamaica's merchandise exports
in 1994 with a comparable proportion of 76% in the case of petroleum and
petrochemicals in Trinidad and Tobago. This dependence is also underscored of
the high trade/GDP ratios.
TABLE 2
Principal Exports and Imports of Selected CDCC Countries
-----------------------------------------------------------------------------
Country Principal % of Total US$ val
Exports Export $ millions
------------------------------------------------------------------------------
Antigua & Barbuda (1991) Bananas
Belize (1993) Sugar 29.00 41.50
Garments 14.20 20.30
Citrus
Concentrates 9.80 14.00
Fish Products 9.20 13.20
Bananas 8.40 12.10
Cuba (1994) Sugar 49.10 600.00
Minerals 13.50 165.00
Marine Products 6.50 80.00
Fruit &
Vegetables 2.50 30.00
Pharmaceutical 8.20 100.00
Dominica (1994) Bananas 46.80 55.37
Soap 28.50 33.66
Grenada (1992) Nutmeg & Mace 14.50 2.90
Bananas 14.50 2.90
Cocoa 13.00 2.60
Guyana (1993) Sugar 27.00 111.30
Gold 24.20 99.80
Bauxite 22.10 91.10
Rice 8.00 33.00
Shrimp 2.80 11.40
Haiti (1993) Coffee 0.80 0.66
Cocoa 0.07 0.06
Essential Oils 0.50 0.40
Manufactured
Product 4.40 3.56
Handicraft
Manufactures 0.20 0.16
Dominican Republic Ferro-nickel 28.60 181.10
(1994) Raw Sugar 18.50 117.10
Gold & Silver 3.00 18.90
Coffee 9.90 62.70
Cocoa 8.80 55.50
Tobacco 2.80 17.60
Jamaica (1992) Alumina 44.70 471.10
Bauxite 8.40 88.80
Sugar 7.80 82.50
Bananas 3.80 39.60
St. Kitts/ Nevis (1992) Sugar & Molasses 37.40 12.20
St. Lucia (1992) Bananas 55.80 68.50
St. Vincent (1992) Bananas 48.40 37.50
Suriname (1991) Alumina 75.60 261.70
Aluminum 11.60 40.10
Shrimp 8.80 30.40
Rice & Products 5.80 19.90
Bananas 2.60 9.10
Barbados (1992) Sugar, Molasses & Rum 26.20 41.40
Chemicals 13.30 21.00
Electrical Components 13.10 20.70
Clothing 3.70 5.90
Trinidad & Tobago Mineral Fuels 49.80 933.10
Chemicals 27.50 515.40
Manufactured Goods 12.60 235.8
Food (including sugar) 5.10 95.40
Beverage & Tobacco 2.10 30.90
-----------------------------------------------------------------------------
Country Principal % of Total US$ val
Imports Import $ millions
------------------------------------------------------------------------------
Antigua & Barbuda (1991) Manufactures 26.50 69.60
Capital Goods 14.10 36.90
Food 68.50 179.70
Chemicals & fuels 14.30 37.40
Belize (1993) Machinery 27.70 67.80
Food 20.00 49.00
Fuels 13.30 32.50
Chemical 10.30 25.10
Other Manufactured 35.60 87.00
Cuba (1994) Food Beverages & Tobacco 17.00 720.00
Raw Materials 3.30 140.00
Fuels & Lubricants 29.30 1240.00
Chemicals 6.40 270.00
Machinery & Transport 19.40 820.00
Dominica (1994) Manufactures 24.20 28.50
Capital Goods 25.80 30.40
Food 23.80 28.10
Chemicals & Fuel 9.10 10.70
Grenada (1992) Manufactures 19.40 21.20
Capital Goods 15.20 16.60
Food 35.50 38.90
Chemicals & Fuel 10.50 11.50
Guyana (1993) Capital Goods 34.90 169.30
Other Intermediate Goods 26.60 128.90
Consumer Goods 21.30 103.10
Fuels & Lubricants 16.70 80.80
Haiti (1993) Food, Beverages & Tobacco 17.50 46.70
Hydrocarbons 11.90 31.90
Oils & Fats 3.40 9.00
Chemicals 4.00 10.60
Manufactures 5.70 15.10
Machinery & Transport
Equipment 2.40 6.40
Dominican Republic (1994)
Jamaica (1992) Food 6.00 106.60
Other Consumer Goods 10.30 160.50
Fuels 20.90 324.90
Other Raw Materials 52.70 818.20
Construction Materials 5.70 88.80
Transport Equipment 10.40 161.50
Other Capital Goods 9.00 139.00
St. Kitts/ Nevis (1992) Manufactures 20.70 20.20
Capital Goods 19.20 18.70
Food 29.00 28.30
Chemicals & Fuels 10.40 10.10
St. Lucia (1992) Manufactures 27.40 74.40
Capital Goods 13.90 37.60
Food 35.20 95.50
Chemicals & Fuels 1.30 3.60
St. Vincent (1992) Manufactures 24.70 33.10
Capital Goods 21.20 28.30
Food 21.90 29.30
Chemical & Fuels 12.30 16.50
Suriname (1991)
Barbados (1992) Machinery 17.90 83.00
Food & Beverages 21.10 98.20
Other Consumer Goods 10.90 50.80
Construction Material 6.20 28.80
Chemicals 6.80 31.50
Fuels 6.40 29.80
Trinidad & Tobago Food 15.10 171.20
Manufactured Goods 21.20 240.50
Machinery & Transport
Equipment 29.80 338.20
Chemicals 13.70 155.80
Source: Nicholls, Shelton An Overview of the Implications of the Uruguay
Round for CDCC Member Countries (November, 1995)
Chapter II
PRINCIPAL TRADE ISSUES AND PROSPECTS OF CARIBBEAN ISLAND COUNTRIES
IN THE CONTEXT OF TRADE LIBERALIZATION
9. Most of the larger Caribbean islands 4/ began a process of trade
liberalisation in the mid to late 1980s, as part of packages of policy
conditionalities linked to "structural adjustment" agreements with
multilateral agencies. The objective of this liberalization process is to
shift these economies away from inward-looking strategies towards export-
oriented productive investment. The expectation is that this structural
change will increase the competitiveness of Caribbean economies, thereby
contributing to export diversification, and employment creation. However,
there are transitional costs.
10. This process of liberalisation has been impacting on those import-
competing sectors which were established under systems of import substituting
industrialisation. A study of the likely impact of unilateral trade
liberalisation on the Trinidad and Tobago economy has estimated that some
14,000 direct jobs of the manufacturing sector will be lost by end of 1996
5/. This would represent 35 per cent of the 40,000 jobs in the manufacturing
sector in 1992. Witter came to a similar conclusion on the impact of trade
liberalisation on the Jamaican economy 6/. Given several cautions on the
accuracy of data, Witter concludes that some 14,500 jobs or 23% of employment
in large manufacturing establishments or 11 % of total manufacturing
employment would be lost in the short run (6-12 months) from the time of the
study in October 1992. The Jamaican manufacturing sector is also reported to
have lost some 30,000 jobs between 1990-1992. Now, Caribbean countries are
faced with the impact of global liberalisation, as a result of the outcome of
the Uruguay Round of multilateral trade negotiations, particularly with regard
markets which have provided preferential access to some of the region's major
merchandise exports.
A. Recent institutional developments in the world trading system
11. The completion of the Uruguay Round of multilateral trade negotiations
(UR) and the creation of the World Trade Organisation represent a fundamental
change in the world trading system. The UR marks a substantial advance on
earlier world trade negotiating rounds. In addition to incorporating
agriculture and textiles/apparel, the WTO Agreement encompasses services and
trade-related issues related to both investment, and intellectual property,
and non-tariff barriers.
12. The main OECD countries have anticipated the conclusion of the Uruguay
Round with the formation of Regional Blocs. In the case of Western Europe,
there was the rapid conversion of the European Economic Community into a
border-less economic region, after several decades of incremental regionalism.
In the North American case, the US-Canada Free Trade Agreement(FTA) has been
augmented by the inclusion of Mexico into the North American Free Trade
Agreement. There is now agreement, in principle, to create a Free Trade
Agreement of the Americas(FTAA) by the year 2005. A regional bloc also is
being formed among Pacific Rim countries. There are other efforts to form
regional economic groupings elsewhere in the world, including the Americas.
7/
B. Globalization
13. Globalization may be defined as the institutionalisation of the open
world market economy, under the impulse of technological change. Scientific
and technological knowledge will increasingly become the major determinant of
competitiveness in the globalized world economy. The most concrete example is
in the area of Information Technologies (IT) leading to automation of many,
previously labour - intensive activities. The IT Revolution also is leading,
via cable and satellite television, to high-powered marketing, not merely of
products but also of metropolitan cultural norms across the Caribbean.
14. At a more general level, globalization involves the integration of
production (including services) across the artificial barriers of the nation-
state. Globalization is a geographically-wider manifestation of the pressures
which more competitive firms place on others within their home market. Firms
in any country will find it increasingly difficult to ignore competitive
pressures across dispersed geographic spaces as globalization trends create
powerful domestic and foreign business and consumer interests hostile to the
use of protectionism. Globalization, therefore, will affect the competitive
basis of Caribbean exports (particularly those created around cheap, unskilled
labour) while increasing competition to import substituting industries.
C. The implications of the new multilateral trade framework on the
Caribbean
island economies
15. As the World Bank notes, "There is no consensus on how to measure
liberalization properly." 8/ A similar conclusion was reached in a study,
commissioned by the CARICOM Secretariat, on the likely impact of the UR on
CARICOM countries: "The benefits of the UR are hard to quantify for the
CARICOM member states. The economic models used to estimate the projected
changes depend on many assumptions. While they have some validity at the
level of world trade as a whole, their utility is limited to a few countries,
such as the major economic powers, and to the principal commodities of traded
goods. The benefits and costs for the CARICOM member states must be analyzed
and interpolated indirectly, using predictions for those major trading
partners and their principal trade commodities, goods and services." 9/
a. Market access
16. The World Bank has expressed the view that the UR will lead to a boom in
world trade between 1985 and 2005 thereby benefitting all participants. 10/
Greenaway and Milner have attempted to project the impact of the UR on
Commonwealth Developing Countries(CDCs), thereby including English-speaking
Caribbean countries 11/. These authors have recorded the percentage tariff
reduction in products of current high export interest to Commonwealth
Developing Countries (CDCs), including the Caribbean. They have looked at the
impact on market access of the UR tariff reductions on more specific product
groups of interest to CDCs and their conclusions are now summarised below.
17. The Most Favoured Nation(MFN) tariff averages will decline by 40%, 50%
and 20%, respectively on tropical products, tropical non-agricultural
products, and on natural resource based products. The downside of this for
CDCs, and in particular Caribbean countries, is that since these are global
tariff reductions, preferential margins under Lome' and the Generalised
Systems of Preferences(GSP) will naturally decline. Greenaway and Milner cite
GATT calculations that preference margins will decline by 82% in the case of
Canada; 61% for Japan, 50% for the USA and 32 % for the EEC with the
concentration of such declines in the agricultural sector.
18. The UR was successful in bringing textiles and garments under its rubric
for the first time since the industrialised countries initiated the Multi-
Fibre Agreements some 30 years ago to protect their domestic industries from
imports. However, the process of liberalising textiles and garments will take
place over 10 years 12/.
b. Caribbean-Specific Impact 13/
19. In his study, Davenport looks at the impact of the UR on the English-
speaking Caribbean. 14/ He notes that, "The total estimated loss to
Commonwealth Caribbean exports is $ 150 million, of which Jamaica account for
$ 63 million and the Bahamas and Trinidad and Tobago respectively $ 32 and $
24 million. The total loss in volume terms from trade diversion net of gains
from trade creation amounts to $ 57 million which is equivalent to 2.9 % of
1992 exports to the OECD....The Caribbean countries outside of the
Commonwealth, in particular the Dominican Republic, suffer to a
proportionately similar extent because of their exports of metals and
minerals, leather and footwear, electrical equipment and other industrial
products."
20. This result is anticipated due to the impact of tariff changes primarily
on preferentially traded goods from the Caribbean and the anticipated increase
in the price of temperate agricultural commodities as a result of declining
protection and subsidisation of the latter sectors. The two most important
products which are likely to experience a negative effect as a result of the
UR are bananas and sugar.
21. The production of bananas has been a major contributor to the economic
mainstay of some Caribbean islands as well as South and Central American
countries. Bananas were responsible for 69% of Dominica's merchandise
exports in 1992, 59% of those of St. Lucia in the same year, and 42 % in the
case of St. Vincent. Whereas the comparable contribution of bananas to
merchandise exports were, in 1992, 36% in the case of Honduras, 29% in Panama
and 20% in Costa Rica for the same year. The banana industry is dominated by
small holder operators in the Caribbean. 69% of the bananas holdings in
Dominica are under 1 acre; for St. Lucia, the comparable figure is also 69%
and for St. Vincent it is 61%
22. Most of the bananas from the English-, and Spanish-speaking Caribbean,
and Americas are exported to Europe. As of July, 1993, there were three (3)
major
sources of supply of bananas to the European Community/European Union: bananas
grown and marketed in the EU itself; (ii) ACP bananas provided, in the main,
by the Caribbean (8.8%) and Africa (5.7%); and (iii) bananas provided by Latin
American producers with 62.3% of the market. It is obvious from these data
that Latin American banana-producing countries are the dominant suppliers of
bananas to the European market. The latter can be divided into three (3)
distinct sub-markets: a preferential market in France, the UK, Spain and
Italy; (ii) a duty-free market in Germany; and (iii) a market subject to a 20%
tariff in the Benelux countries viz, Belgium, Netherlands and Luxembourg.
23. The main explanation of the preferential market access is the fact that
although the Caribbean- particularly the English-speaking Caribbean has, for a
long time, been a net exporter of bananas to the EU, production costs are
relatively higher in this region: "Productivity and quality levels are higher
in Latin America due to a more favourable climate, topography and soil types.
As a result, by far the more important contributors to the international
banana trade are Central and South American exporters, commonly known as the
dollar banana "suppliers". 15/ On July 01, 1993, the existing trade
regimes for the supply of bananas, were replaced by what has became known as
the New Banana Regime (NBR). The main elements of the NBR include:
~ basic tariff-free quotas for ACP bananas at levels no less than
traditional supplies;
~ tariff levied on banana imports from Latin America up to a fixed
2
million tonne quota at a duty of ECU 100 per tonne and a tariff
of ECU
850 per tonne on imports in excess of that level;
~ a limit on the entry of Latin American bananas to the EU if
traditional ACP and DOM supplies are disrupted.
24. Concerns by Latin Americans with regard to the terms and conditions
outlined in the NBR eventually led to an agreement to increase their quota
under the NBR from 2 million tonnes to 2.1 million tonnes in 1994 and to 2.2
million tonnes in 1995. This "Framework Agreement" (essentially an addendum
to the NBR) became operative from January 01, 1995. GATT has been used as a
means of recourse for the Latin American producers disgruntled with their
terms under the NBR. In a GATT panel decision published on February 11, 1994,
the NBR was condemned as discriminatory and inconsistent with GATT. The panel
called on the EU to have the NBR dismantled.
25. For CARICOM banana producers, any reduction in preferences, as a result
of the implementation of the UR, could have serious economic repercussions.
One immediate consequence is that CARICOM producers will have to compete with
cheaper "dollar bananas" provided by the Latin Americans. In response to this
situation, the EU has proposed direct aid to improve the quality of ACP
producers' bananas. This proposal has not yet been ratified and it is
anticipated that several member states of the EU may oppose its ratification
given the "preferential" policy which ACP countries currently enjoy. The NBR
will be in effect until 2002 by which time it is hoped that CARICOM producers
will be able to compete profitably against the more efficient Latin American
producers.
26. With regard to sugar in 1992, the Caribbean exported some 539,000 tonnes
to the EEC and US combined. The principal sugar producing countries among
Caribbean islands are Jamaica, Trinidad and Tobago, Barbados, St. Kitts/Nevis,
the Dominican Republic and Cuba. The major sugar exporters of CARICOM
exported some 2.24 million tonnes of sugar with a gross value of US $997.5
million between 1985 and 1990. The combined export earnings from sugar and
molasses in the same period were US $1029.5 million of which sugar contributed
97 percent and molasses 3 percent. Sugar and molasses continue to contribute
a significant proportion of agricultural production and exports, and account
for sizeable employment, in some Caribbean island economies. Sugar exports,
in terms of agricultural production, in Jamaica and Barbados were 35% and 32
%, respectively. Exports of sugar and molasses dominate total agricultural
exports from these countries
and were as high as 95% of this total in the case of Barbados. Exports of
sugar and molasses also contributed 17% of the domestic exports of Barbados.
27. Caribbean sugar producers have been depending on preferential access to
metropolitan markets for a long time. Sugar exports go mainly to the EEC and
the US markets and most Caribbean sugar exporters benefit from the EEC Sugar
Protocol quota. Under the EEC Sugar Protocol, there is a guarantee of
preferential prices for Caribbean sugar and these prices are fixed against the
EEC's domestic sugar prices. As such, the Sugar Protocol has ensured
sustained export earnings for Caribbean sugar producing countries.
28. Additionally, under this protocol, the EEC has agreed to buy specific
quantities of sugar from particular Caribbean countries, including Jamaica,
each year through the duration of the Lome' IV Convention. However, the
recent harmonization of the EEC market has posed a threat to the continuation
of the preferential prices which Caribbean sugar exporters currently enjoy.
Davenport has estimated, that the UR will lead to a net reduction in export
earnings of some $ 21 million with a noticeable gain for the Dominican
Republic as opposed to declines for most other sugar-exporting Caribbean
economies. 16/
c. The impact of regional trading arrangements on the Caribbean
region
(i) NAFTA
29. The United States is CARICOM's main export market. CARICOM exports to
the United States grew from US$1927 million in 1988 (36% of total CARICOM
exports) to US$ 2494 million (44% of total exports) in 1994. About one-third
of CARICOM's imports also come from the USA. Some general studies have
attempted to project the trade-, and investment-diverting impact of NAFTA on
the Caribbean relative to Mexico.
30. Rodriguez notes that countries which are beneficiaries of the Caribbean
Basin Initiative(CBI) enjoy preferential access over Mexico on only 7 per cent
of CBI exports to the USA and that NAFTA's provisions could place 60 % of
exports to the USA from Caribbean Basin countries in a disadvantageous
position in terms of tariff and non-tariff barriers. 17/ Rodriguez further
notes that NAFTA increases the attractiveness of Mexico in terms of foreign
investment for two reasons: "First, concessions to Mexico will be on a
contractual FTA which is more secure than the unilateral CBI concessions.
Second, investors will know the end result of the process of increasing
concessions from the beginning and will act accordingly." There also have
been several recent studies looking in more detail at the potential
implications of NAFTA for the Caribbean. 18/ The two most significant
Caribbean export sectors which are expected to be affected by NAFTA are
Textiles and Apparel and Processed Foods. 19/
31. The Apparel and Textiles subsector is of major significance to Caribbean
countries in terms of employment, foreign exchange earnings and GDP
contribution. Jamaica leads in CARICOM apparel exports. There were 322
registered apparel factories in Jamaica in 1994. The sector contributes
approximately 5 percent
of the total GDP of the Jamaican manufacturing sector, equivalent to about 1
percent of the country's GDP. The major market for Jamaican exports of
textiles/apparel is the USA (80%) with Canada, Europe and the Caribbean
accounting for the remaining 20 percent. Between 1989 and 1993, the gross
foreign exchange contribution of the apparel/textile subsector, to the
Jamaican economy was US $1667 million (approximately 31 percent of total
merchandise exports). The subsector contributes approximately 36 percent of
the employed labour force in the manufacturing sector (95,000 in 1993). It
contributes a comparable proportion to the main economic indicators noted for
Jamaica in the case of the Dominican Republic. Barbados and Trinidad and
Tobago also are significant apparel exporters.
32. NAFTA provides for the elimination of import duties and the reduction of
non-tariff barriers on textile and apparel exports (from Mexico). It has been
suggested that these provisions are likely to affect CARICOM apparel and
textile producers in two ways. First, the larger and easier market access for
Mexico's apparel/textile goods under the preferential trading terms, may lead
to displacements of CARICOM apparel/textile exports for the benefit of Mexican
producers. Second, on the average, Mexico's labour costs in the garment
industry are approximately 27 percent lower than CARICOM's average of US $1.12
per hour. As a result, low cost, high volume garment manufacturers may find a
greater cost- competitive advantage in locating their plants in Mexico,
instead of Caribbean countries like Jamaica 20/ or St. Lucia.
33. Davenport (1995) draws conclusions, based on a partial equilibrium trade
model, with respect to clothing exports, and projects a clothing trade
diversion of 3.5 percent (between US $13.1 and $17.6 million). He suggests
that the sector where trade diversion is likely to be greatest is apparel,
particularly apparel exports from Jamaica. Evans (1995) draws similar
conclusions. There already may be some indicator of apparel trade diversion
from CARICOM and other CBI countries to Mexico. For the first six months of
1994, 807 A apparel imports from Mexico in the US market grew by 183 percent
(up from US $304 million in 1993 to US $860 million in 1994) while there was a
2 percent decline in 807A apparel imports from CBI countries. The 2 percent
decline in 807A apparel imports from CBI countries into the US market compares
with an average annual growth rate of 22 percent to 24 percent prior to the
implementation of NAFTA.
34. The processed food sub-sector also is significant in the Caribbean. The
most important products are sugar and citrus. The citrus industry ranks
second as a source of foreign exchange earnings. Between 1985-1990, the total
value of exported orange juice by CARICOM members was US $86.15 million while
that of grapefruit juice and concentrates was $31.32 million, giving a
combined foreign exchange contribution of US $117.47 million. Much of this
citrus is exported to the United States, together with a proportion of sugar
exports.
35. Over the first six years of NAFTA, the US will reduce its tariff on
sugar imports from Mexico by 15 percent, after which remaining sugar tariffs
will fall to zero. Evans (1995) suggests that the US importation of duty-free
sugar from Mexico is not likely to have any negative impact on CARICOM's
sugar trade with the US. The main reason for this conclusion is the fact that
Canada is not a sugar exporting country, while the USA and Mexico are net
importers of sugar.
36. With respect to citrus, Jamaica and Bahamas are among the main CARICOM
exporters of citrus to the USA and Canada. Jamaica exports frozen
concentrated orange juice, fresh grapefruit, tangerines and mandarins to the
USA. Under NAFTA, tariffs on citrus will be phased out over 5 to 10 years.
Additionally,
increased US investments in Mexico's citrus industry are expected, given the
lower labour costs in Mexico and the labour-intensive nature of citrus
growing.
37. Davenport (1995) estimates that Caribbean exports of raw or processed
agricultural goods to North America will not be greatly affected by NAFTA.
The main effect is likely to be through investment in food-processing
industries in
Mexico. This could impinge on the Caribbean in a number of sectors, including
ethanol. Jamaica exported some $9 million US of ethanol to the US in 1992.
These sales could be endangered by reduced costs through additional investment
and economies of scale in the larger Mexican industry.
ii). European economic integration
38. Stevens has attempted to project the impact of European Economic
Integration on the African, Caribbean and Pacific countries which benefit from
the Lome' Agreement 21/. Robertson also has attempted a similar exercise
for small island states, thereby including the Caribbean 22/. Stevens and
Robertson both conclude that the deepening of the liberalisation process in
Western Europe will have negative direct impacts on the Caribbean relative to
their current areas of preferential access. Stevens notes in this connection
that: " Whereas the NICs may fear a 'Fortress Europe' the main danger for the
Caribbean is the exact opposite: that the fortress is being dismantled!"
Caribbean exports of bananas and sugar from the English-speaking Caribbean
appear to be most at risk for the reasons detailed earlier. 23/
d. General observations
39. The response of any country to negotiated changes in the world trading
regime can be evaluated in terms of three time-related phases. The first
relates to responses prior to the start-up of negotiations. The second
possible response relates to the actual process of negotiated change, for
example, active participation in the Uruguay Round negotiations. The third
response is with respect to addressing the implications flowing from the
completion of negotiated changes in the world trading regime of which, the UR,
is the best example. In terms of conducting an evaluation of Caribbean
responses within these three phases one could seek to identify whether these
three types of policy responses came at the national, sub-regional or regional
level.
40. Within the context of this evaluatory framework several general
observations can be made in terms of Caribbean responses. 24/ First,
Caribbean countries have had a very limited presence in terms of the first two
phases of the UR. Most Caribbean countries did not actively participate in UR
negotiations. In the case of the CARICOM countries, for example, only a few
Caribbean countries maintain permanent diplomatic missions in Geneva. 25/
41. Second, since the completion of the UR, Caribbean countries have been
attempting to respond to the time-table of demands for notification to the WTO
in terms of implementation of the concessions. The implication is that
Caribbean countries have not had the time to study all the UR Agreements in
terms of their long run implications and pro-active policy responses. In the
case of two Caribbean countries where interviews were conducted, inter-
Ministerial teams have been established to study different aspects of the WTO
framework relevant to the Ministries involved. Third, with the exception
perhaps of the Organisation of Eastern Caribbean States, policy responses have
been largely conducted at the national level. This appears certainly to be
true of the first two phases. There has been greater regional cooperation in
terms of the Lome Agreements as a result of the insistence of the EEC in
dealing with regional groupings in Africa, the Caribbean and the Pacific. At
the 1995 meeting in Denver, Colorado on the Free Trade Agreement of the
Americas, there was a greater degree of regional cooperation. In the current,
post- UR phase, the CARICOM Secretariat has become involved in seeking to
coordinate the responses of its members to the demands of the WTO.
42. Perhaps the most striking observation that can be made in terms of the
current phase of responding to the demands of the UR. Public officials seem
to be stretched beyond their limits of effective response. The public sector
officials allocated to trade policy matters tend to be few in number and
subject to problems of retaining those who have acquired some expertise in the
field. These few officials, which in most Caribbean countries could be less
than five in number, are responsible for effectively monitoring the large
range of trade-related issues. Unavoidably, there is a loss of focus, of
detail, and of anticipatory capacity. Moreover, some of the technical
requirements for meeting WTO commitments are not necessarily met by the
officials assigned as the latter are predominantly economists while many of
the issues are legal or even scientific (e.g. phytosanitary requirements).
26/
43. The regional private sector has not been actively involved in
formulating national or regional positions on these trade issues whether in an
advisory or policy capacity. However, there has been some national
variability in the presence of the Caribbean business sector in national
delegations at international trade policy fora. A similar situation exists
with regards to the presence of the private sector in the responses post-UR
demands. Furthermore, the regional private sector seems to be largely out of
touch with the details of the new multilateral trade framework. In fact,
private sector individuals interviewed did not seem to be aware of the large
range of national commitments which flow from the UR. Public sector
representatives in Ministries of Trade, for example, are better informed as to
the implications and time-tables for implementation, than the private sector.
In the case of the latter, most of those interviewed seemed to have little
specific knowledge about the implications of the UR in terms of general
requirements such as tariff bindings and more so in terms of more specific
implications for sectors or commodities. The private sector seems to be moved
by a view that there are some commodities or sectors which are likely to
continue to be profitable.
Chapter III
THE SCOPE FOR SUSTAINABLE TRADE
DIVERSIFICATION IN CARIBBEAN
ISLAND COUNTRIES IN THE CONTEXT OF TRADE
LIBERALIZATION AND GLOBALIZATION
A. Some patterns of trade specialisation in the Caribbean
44. A number of summary points can be made on Caribbean trade. First,
historically Caribbean economies began, in the post-Columbian period, as the
purest forms of export-propelled economies which, in what has become cliched
jargon, "produced what they did not consume, and consumed what they did not
produce." In this sense there was a virtual perfect correlation between trade
and total output. Second, Caribbean economies began with a specialisation in
the production of primary commodities for export, originally cane sugar,
followed later by other agricultural crops, and then minerals such as bauxite
and oil. Third, with the declaration of free trade in sugar by Britain, in
the 19th century, a significant share of Caribbean output has been dependent
on preferential access to metropolitan markets. Fourth, attempts at
diversification in the post-world war 11 period, and particularly after
political independence, have been generally unsuccessful as a result of a bias
to easy import substituting industrialisation. Fifth, most Caribbean
countries have been rapidly liberalising their economies from the turn of the
1980s in the context of structural adjustment programmes, supported by the
multilateral agencies. The new export-oriented strategies have been
predicated on the attractiveness of cheap labour to investors, particularly
foreign ones, specialising in labour-intensive, relatively unskilled export
production, or in tourism.
45. The end of the 20th century finds Caribbean economies still dominated in
terms of export earnings, and hence economic prospects, by the fortunes of
sectors which are dependent on preferential access. This is true not merely
of the agricultural sector but also of some of the new labour-intensive
activities, particularly in the areas of garments. This is, of course, not
the entire picture. Tourism has become a dynamic, internationally competitive
sector. Eco-cultural tourism is a small but rapidly growing segment within
the overall tourism picture. There is also some downstream investment,
certainly in natural gas-based products in Trinidad and Tobago.
46. In the context of trade liberalisation, some manufacturers have proven
to be very innovative in finding 'niche' markets in the wider Americas, and
even further afield. Information processing industries have been growing
rapidly. It is against this background that the scope for sustainable trade
diversification in Caribbean island countries in the context of trade
liberalization and globalization is being briefly examined below.
B. Sectoral developments
47. The data potential of biologically-based products is substantial in the
Caribbean 27/. Casual evidence points to the opportunity. 'Blue Mountain'
Coffee from Jamaica and a range of liquors and similar products already are on
the international market. In one case, 20% of the company's sales are
reported to be exported. 28/ Another entrepreneur/innovator in Trinidad
and Tobago has been able to penetrate markets for herbal cosmetics and hopes
to increase foreign sales from a 1995 level of 27% to 40%. 29/
48. Another interesting sector is that of Information processing. As of
March, 1995, an estimated 7,500 people were employed, by some 74 companies
involved in the export-based information processing industry in the Caribbean.
Regional employment in the industry in 1992/3 at some 5,000. In so far as
these estimates are based on comparable surveys, it is suggestive of a 50%
increase in employment in this sector in the Caribbean within 2-3 years. The
industry is concentrated in three Caribbean countries: Jamaica, Barbados and
the Dominican Republic which were collectively responsible for 90% of the
total number of companies as well as employment in the region. Jamaica
accounts for the largest number of enterprises (82%) and employment(47%).
49. Data-entry processing is the most common form of information processing
activities in the Caribbean and the United States is the major market
destination. There were some thirty-two (32) information processing firms
operating in Barbados in March, 1995 with fourteen (14) involved in export-
based information processing. The latter grew from 10 in 1988 to an estimated
14 by the end of 1994. The number of jobs created by the export-based
information processing industry in Barbados has grown by 141 per cent over the
period 1988-1994, from 947 employees in the former year to 2282 in 1994. The
Information Processing sector in Barbados also has been recording a growing
share of employment in the Manufacturing sector with which it is grouped by
official data sources. Its share grew from 12% in 1988 to a peak of 24% in
1992 before declining somewhat to 17% in 1994.
50. In the case of Jamaica, the number of firms involved in export-oriented
information processing grew from two in 1986 to 29 in 1989, fell to 20 in 1991
and then grew to 49 by end 1993. Employment also grew over the period from
300 to a little over 3000. Investment in the sector has been estimated at
US$ 100 million between 1984-1989. The net foreign exchange earnings of the
information processing sector in Jamaica are estimated to have grown from US$
1.5 million in 1986 to US$ 17 million in 1991.
51. The export-based information processing industry is of more recent
vintage in the rest of the Eastern Caribbean with a few firms existing in
Trinidad and Tobago, Grenada and St. Lucia. There also are reported to be two
large operations in the Dominican Republic, one being a subsidiary of American
Airlines, which also runs the single largest firm in Barbados.
52. Tourism has been the major growth sector throughout the Caribbean over
the last decade. Some 14 million tourists visited in the Caribbean in 1994
and spent an estimated US$ 11,668 million. However, the tourism market is
itself in a state of flux as consumer taste shifts from 'mass' to
'specialised' tourism. Eco-tourism is the segment in which the Caribbean has
some potential. Countries have been attempting to add eco-tourism elements to
their existing tourist attractions. One of the main indicators of a growing
eco-tourism perspective is the establishment of reserved nature areas whether
on sea or land. A 1994 survey conducted by the United National Environmental
Programme (UNEP) provides some details, as captured in Table 19 which shows
that there were 46 terrestrial protected areas in the 10 Caribbean islands
surveyed, together with 9 coastal protected regions and 7 areas which were
under marine protection.
53. The UNEP survey also attempted to capture the popularity of different
destinations. Although no details are provided for Barbados, it is well known
that two of its major tourist attractions are Harrison Caves and an underwater
submarine available for viewing marine life. In the case of Tobago, Buccoo
Reef is a major attraction, drawing an estimated 40,000 visitors per year.
30/ In the case of Trinidad, The Asa Wright Nature Reserve and the Point-a-
Pierre Wildfowl Trust have gained international recognition. The UNEP survey
also has attempted to describe growth plans in terms of its survey published
in 1994.
54. Another growing sector, somewhat linked to tourism, is that the export
of Caribbean music 31/ In the case of Jamaica export sales of recorded and
printed music totalled US$ 1 million between 1988-1994; Bob Marley's estate
earns annual royalties of US$ 250,000. Three top Reggae performers 32/ are
reported as having annual incomes ranging between US$ 250-750,000. Sales of
Reggae music in the United States are estimated to have been US$ 270 million
in 1992/93. " Japan Splash" is estimated to draw some 100,000 in concerts
across that Asian country. In the case of Trinidad and Tobago, US$ 0.54
million is estimated to have been earned between 1989-1994 in exports of
steelband music instruments to the United States (50%) and 34 other countries.
Another $ 91,000 is estimated to have been earned over the same period in
exports of recorded music.
55. These data are partial and do cover the contributions of island cultural
festivals (Reggae Sunsplash, jazz festivals, Cropover in Barbados, Heritage
Month in Tobago, Carnival in Trinidad and Tobago,) and the metropolitan
versions, particularly of the latter (e.g. Labour Day in Brooklyn, Caribana in
Toronto, Brixton Carnival in London, and many smaller variants throughout
North America and some European cities). These cultural activities are
globally competitive and flow from initiatives at cultural expression, rooted
in the Caribbean society.
56. Over the last two decades, the Caribbean has become a leading region in
the offshore financial and legal services industry, and has demonstrated a
remarkable ability to respond to the diversification of the international
demand for offshore services. After a period of rapid development of offshore
banking activities during the 1970 decade and until the mid-1980s, the sphere
of Caribbean offshore investment services has become more complex, as island
jurisdictions have adopted new legislation to attract offshore business.
Competitiveness has become vital in the industry, and innovation in the
development of offshore products has been successful. In particular,
Caribbean jurisdictions have become competitive in responding to the needs of
international enterprises that are interested in swift offshore company
formation that enables them to operate in the rapidly changing global
environment. It is important to note that considerable efforts have been made
by these countries, in recent years, to regulate and monitor the industry with
a view to preventing offshore jurisdictions from harbouring criminal financial
activities.
57. Caribbean offshore jurisdictions accounted for 74% of the total number
of offshore companies registered in all island jurisdictions at the end of
1994. The leading Caribbean offshore banking centres are presently the
Bahamas, the Cayman Islands and the Netherlands Antilles. Non-banking
offshore services are also available in these territories. The highest
individual country ratio of total number of registered offshore companies to
the population, among all island regions, is found in the British Virgin
Islands.
58. A growing sector of service activities, in the Caribbean, is the film
support industry. This sector provides film makers with a range of goods and
services that require planning, coordination and reliability. Offering the
greatest possible local input while meeting international standards of quality
is the challenge which Caribbean islands try to face in this sector. Not all
film enterprises that come to the islands and use support services relate to
the tourism industry. However, films are generally expected to reflect the
environmental qualities of the islands, thereby having a promotional impact,
either in attracting tourists or in portraying qualities that are relevant to
business.
59. The other benefits received by island countries from film support
activities derive from the multiplier effect of the filmers' expenditure
(government fees, short-term wages, purchases of various goods and services,
etc.). The film support industry therefore benefits island economies in a way
that is similar to that of tourism activities. In some countries and
territories of the region, the government has appointed a Film Commissioner to
facilitate and coordinate the provision of goods and services required.
60. Although this is an unplanned activity and one which does not have the
slightest chance of being liberalised, export of labour services do provide a
significant source of foreign exchange inflows to many Caribbean countries.
The estimates of net labour service earnings for several Caribbean islands as
well as such inflows as a percentage of merchandise exports are as follows: in
the case of Antigua such labour service inflows were equivalent to 62% of
merchandise exports; 33/ in the case of Grenada it was 85%; St. Vincent
and the Grenadines, 37%; Jamaica, 17%; St. Lucia, 15%; Barbados, 9% and
Belize, some 10%.
Chapter IV
REGIONAL TRADE COOPERATION FOR TRADE
DEVELOPMENT
A. CARICOM
61. Following the collapse of the short-lived Federation of the West Indies
(1958-1961), the strategy of regional economic integration began in 1967 with
the formation of the Caribbean Free Trade Agreement(CARIFTA). This interim
stage was soon superseded, in 1973, by the Chaguaramas Treaty which
established CARICOM. The Chaguaramas Treaty provided for several forms of
integration from the convention market integration to the less orthodox
production integration. CARICOM has now moved to the stage of the single
market and economy. The very fact that CARICOM has been able to survive and
to deepen regional economic linkages is a success given the fate of so many
other regional integration experiences elsewhere in the developing world.
Beyond this, there are two major areas of action: free trade and functional
cooperation.
62. CARICOM has been successful in the virtual elimination of tariff and
non-tariff barriers to the free movement of goods and services among member
states. A Common External Tariff(CET) is in place and a ceiling tariff of 20%
will become operational as of Jan.1,1998. Barriers to cross-border
investments in national stock exchanges have also been lifted The process of
eliminating barriers to labour movements have been initiated for graduates
from the University of the West Indies and the University of Guyana.
Discussions have been underway on a common regional currency. 34/ There
has been success in the harmonisation of fiscal incentives to foreign
investors, although there has been some slippage on this score.
63. Functional Cooperation has also been an area of success of CARICOM.
Examples include secondary school examinations(Caribbean Examinations
Council), Health and Meteorology. Functional cooperation with a more direct
bearing on sectoral development include the Windward Islands Banana
producers(WINBAN) and a project of the Caribbean Tourism Association (CTO) to
market the Caribbean as a single tourist destination. The CARICOM Treaty also
includes several provisions which, in effect, seek to influence the location
of sectoral activities within the Caribbean Community. The three main
categories of CARICOM-wide policy initiatives relate to agriculture,
manufacturing and regional enterprises.
64. From the very onset of CARICOM, efforts were made to influence the
nature of regional agricultural production. This began with the Agricultural
Marketing Protocol, the Oils and Fats Agreement and the Guaranteed Markets
Scheme. These
three programmes essentially sought to provide a guaranteed market in the four
larger CARICOM countries for agricultural output from the OECS countries (and
Belize) 35/. This initial programme was relatively successful but the
products involved represented only a small proportion of output in the
targeted regional countries as well as of intra-CARICOM trade.
65. A more ambitious Regional Food Plan was adopted by the 1975 Conference
of Heads of Government. The "Caribbean Community Programme for Agricultural
Development" (CCPAD) was developed over much of the 1970s and 1980's at the
CARICOM Secretariat. Pre-feasibility and feasibility studies were conducted
on a number of regional agricultural products including: grains, legumes,
fruits and vegetables, spices and essential oil, livestock and livestock
products, fish and fish products and oils and fats. Individual CARICOM
countries were identified as the most appropriate locations for such
agricultural production based on a mix of economic and political criteria.
66. An effort similar to that of the CCPAD programme for manufacturing also
was initiated by the CARICOM Secretariat in the 1980s. The focus was on
regional investment projects. Several forms of protection were proposed for
the initial period of establishing these regional industries. On the basis of
a report on an " Industrial Programming Scheme for CARICOM" by the CEGIR
Consulting group, the CARICOM Secretariat commissioned follow-up feasibility
studies by consulting organizations. In the light of the result of these
studies a number of potentially viable projects were identified together with
recommended locations. The CARICOM Heads of Government meeting in 1985 agreed
on the establishment of a CARICOM Industrial Programming Scheme(CIPS) with
eighteen projects allocated to member states. The meeting also recommended
that the CIPS be established within the framework of a Protocol on Industrial
Programming. The final text of this Protocol was agreed upon in 1988 but it
took a further three years (to 1991) before the last signature was appended to
the Protocol.
67. As early as 1976, three years after the signing of the Chaguaramas
Treaty, agreement was reached by CARICOM Finance Ministers for the creation of
a CARICOM Enterprise Regime (CER). This agreement committed CARICOM countries
to provide special, and positively discriminatory policy support for the
creation of regional enterprises engaging in production integration in the
agricultural, manufacturing and mineral sectors. The special provisions
related to areas of credit; remittance of profits; import protection via
quantitative restrictions and fiscal incentives. The latter were only
available to agriculture, tourism and forestry.
68. A number of other regional enterprises also have been formed by CARICOM
countries in the area of infrastructure. The Leeward Islands Air Transport
Company(LIAT) is one example. Others are the West Indian Shipping
Company(WISCO), and Caribbean Air Cargo (CARICARGO). A final example is that
of the joint venture Arawak cement company between Barbados and Trinidad and
Tobago.
69. The attempts at regional production integration in terms of both
agriculture, industry and regional enterprises seem to have been overcome by
events, including unilateral trade liberalisation among the large CARICOM
countries, the Uruguay Round, NAFTA and the impending FTAA. The CARICOM
Secretariat has diagnosed limitations in the administration of these
programmes as having played a major role in the actual outcomes. In 1991 the
CARICOM Secretariat undertook a review of the experience with the allocation
of industries and concluded that, at the national level, no guidelines had
been established for these projects and no specific action had been
undertaken.
B. Free Trade Agreement of the Americas (FTAA)
70. CARICOM also was involved in the December, 1994 Miami Summit of the
Americas where there was an agreement to form a Free Trade Agreement of the
Americas (FTAA) by 2005. At a meeting called in Denver, Colorado in 1995 to
begin discussions on the implementation mechanism of the FTAA, six working
groups were formed. One of these is on Small Economies with Jamaica in the
chair. The understanding seems to be that CARICOM will be involved in this
Working Group and at least one meeting has already been called to involve
regional institutions in this process.
C. Association of Caribbean States (ACS)
71. The most significant independent initiative taken by Caribbean countries
to address the changing global economic environment has been the formation of
the Association of Caribbean States (ACS). The membership of this body
includes Caribbean and Central American countries and the G-3 countries
(Mexico, Venezuela and Columbia). The ACS is not a regional trade agreement
but contains the possibility of evolving in this particular manner. The ACS
is a system of cooperation with trade liberalisation mentioned but there are
no mechanisms for trade integration although Article 20 permits two or more
members to form trade integration. At the launching of the ACS in Trinidad in
late 1995, the three economic issues tabled for discussions in terms of
cooperation were those of tourism, trade and transportation. CARICOM also has
signed special one-way trade agreements with Columbia and Venezuela. Trinidad
and Tobago has negotiated a Partial Scope Agreement with Venezuela.
D. The special case of Cuba
72. The critical question in terms of Cuba is what would be the implications
for the rest of the Caribbean of the lifting of the US economic embargo on
Cuba. US firms already are reported to be surveying the prospects, 36/
while the European Economic Community sent a delegation to Havana in November
of last year. 37/ One perceives potential trade and investment
opportunities in the Cuban market of 11 million people if the embargo is
removed. Cuba has signed the WTO Agreement and has reportedly established 20
inter-ministerial committees to study the implications for the Cuban economy.
At the hemispheric level, Cuba has signed Bilateral Agreements with members of
ALADI- Mexico, Columbia, Venezuela, Ecuador, Peru, Bolivia, Brazil, Argentina,
Uruguay. Each Agreement includes a list of products with preferential access.
In 1996 Cuba will begin negotiations with MERCOSUR countries to substitute for
Bilateral Agreements with the member countries.
73. In the case of CARICOM, Cuba has proposed a Bilateral Agreement, and
discussions are still underway. However, a Declaration of Intent has been
signed with Trinidad and Tobago with the objective of negotiating a Bilateral
Agreement. Concerning trade linkages with the Caribbean, Cuban officials
indicated that there were several constraints to Cuba- Caribbean linkages
including transportation, information gaps and the absence of agreements with
the Caribbean. As one Cuban official indicated, entrepreneurs find it easier
to buy from Mexico because there is an agreement which means non-payment of
tax. Bilateral Agreements also are proposed with the Dominican Republic,
Haiti, Venezuela, Mexico, Colombia. The Cuban Chamber of Commerce, with some
250 members, is planning a big trade fair in 1996. This business organisation
is interested in collaborative agreements with other Caribbean countries in
terms of multi- tourist destination visits but there has not been much
response from the region.
Chapter V
CONCLUSION AND RECOMMENDATIONS
74. The fundamental challenges facing IDCs in general have two main facets:
to time-manage the eventual negative effects of the changes in the world trade
system, and to optimize opportunities resulting from these same changes. The
capacity of the Caribbean IDCs to respond effectively to these challenges has
ben highlighted in the report. The following observations give a brief
account of some conclusions and recommendations.
A. Salient features of islandness
75. Perhaps the greatest strength of the Caribbean is the resilience of its
people. The Caribbean societies possess a tremendous capacity to endure and
adapt. A second strength is the advantage of smallness. With a total
population of some 32 million people, the physical resources required for
basic survival are not as overwhelming as in, say, Sub-Saharan Africa or
continental Asia (China, India, Bangladesh). Third, there is the proximity to
large, affluent markets in North America (United States, Canada). This is
unlike some other islands and countries which are remote from major consumer
markets.
76. Caribbean economies, however, face three main types of threats. First,
there is the threat of natural disasters, particular exacerbated by climate
changes. Second, there is the spectre of the collapse of preferential markets
which has already been detailed above. Third, there is the threat resulting
from globalization. Finally, the danger of breaching the limits of eco-
cultural carrying capacity. All of these factors have trade-related
implications.
77. Island economies are highly susceptible to natural hazards particularly
hurricanes. The Caribbean is no exception. It is estimated that between 1722
and 1990, 43,000 lives were lost from Hurricanes, 30,000 from volcanoes and
16,000 from earthquakes. 38/ Now, many of the current scientific
predictions suggest that the global climate change increases the probability
of a greater frequency and intensity of natural disasters(especially
hurricanes).
78. A UNEP background paper for the April 1994 Small Island Developing
States (SIDS) conference warned that: "The wider Caribbean region with its
many island based economies such as fishing and/or tourism is particularly
vulnerable to the physical changes associated with climate change and sea
level rise." The year 1995, for example, was particularly bad for many of the
Eastern Caribbean islands in terms of hurricanes. Damage to the islands of
the OECS, French, British, Dutch and American dependent territories including
Puerto Rico, is estimated at US$ 5 billion in 1995, with 25 deaths and many
more injured or rendered homeless. 39/ Such damage impacts directly on
agricultural and tourist export capabilities.
79. Island economies, including those in the Caribbean, are marked by
fragile ecological systems, which can easily be affected by socio-economic
activities. Small islands can be considered, from an environmental impact
perspective, to be comprised solely of coastal zones. In other words, there
is an immediate, direct impact of terrestrial-based socio-economic activities
on the marine environment. Even tourism can affect a pristine environment and
threaten sustainability.
80. The very fact of "islandness" creates a mentality of insularity- not so
much vis-a-vis the rest of the world, but among neighbouring islands and
countries. Islandness leads individual countries to fail to adequately share
notes and experiences and to take common action in dealing with the rest of
the world. Another set of realities, flowing from small islandness in
particular, is that of diseconomies of scale in production, marketing and the
provision of social and physical infrastructure and public administration. A
third category of weaknesses flows from the openness of the economy and
society. These increase the probability of a high external trade dependence
and a vulnerability to exogenous shocks, together with national security
problems.
B. Policy agenda
~ Emerging export market opportunities
81. More focused research into dynamic "emerging" economic activities such
as eco-tourism, "green" products, information services(particularly in high-
level skill activities), and cultural services (music, film and
festival/heritage) should be promoted. This should increase the knowledge
base toward public policy measures with a view to augmenting entrepreneurial
efforts.
~ Support to existing export industries
82. There are a number of services which can be provided at reasonable cost
to support significant export industries (tourism, minerals, agriculture etc.)
based on locally available inputs. This includes the repair maintenance and
sheltering of ships and other marine vessels. The growth of such service
industry should be accorded high priority.
~ Planning for meeting new world trade challenges
83. A number of product-specific agreements under NAFTA and EEC are now in
place which are of vital importance to IDCs in the Caribbean, particularly the
Banana and Sugar protocols. It is essential to work out alternative
strategies for responding to new requirements which will emerge when such
protocols are reviewed. This equally applies to the various provisions of
WTO, whose interpretation and implementation requires enhanced technical know-
how.
84. In general there is limited knowledge, both in public and private
sector, about the implications of the UR, NAFTA, EEC/Lome' and FTAA. It is
therefore proposed to enhance the dissemination of relevant knowledge through
various media of communication as well as workshops and conferences. Unless
Caribbean peoples are sensitized to changes in the world trading environment,
the capacity to respond and seize opportunities will remain limited. Donor
countries should stand ready to provide the required technical assistance.
Regional cooperation initiatives in this area should also be vigorously
promoted.
Notes
1/ Data used in the preparation of this report will be made available in a
separate annex document.
2/ This follows the closure of the offshore oil refineries in Curacao and
Aruba.
3/ The latter include oil which is imported and refined locally. Hence the
1980 figure of 63%.
4/ Jamaica, the Dominican Republic, Trinidad and Tobago and even to some
extent Haiti, and Barbados together with Cuba (as a result of the collapse of
the Soviet bloc).
5/ Pantin, D.A. The impact of Trade Liberalization on the Import Competing
Sectors in Trinidad and Tobago: with particular reference to the Manufacturing
sector. Trinidad & Tobago Manuf. Ass. Dec. 1992.
6/ Witter, M. On the Impact of the Proposed Reform of the Common External
Tariff on the Cost of living and on the Manufacturing Sector in Jamaica.
Planning Institute of Jamaica. Oct. 1992.
7/ For a recent assessment of "Free Trade in the Americas" see Canada,
Senate of. Free Trade in the Americas: Interim Report of the Standing senate
Committee on Foreign Affairs. August 1995.
8/ World Bank Policy Research Bulletin, Vol.6. No.1. January/February 1985.
9/ REDMA Group The Uruguay Round Agreements: Implications for the CARICOM
Region. First draft of report prepared for the CARICOM Secretariat. August,
1995.
10/ World Bank Policy Research Bulletin. Vol.6. No.1. January/February
1985:1)
11/ Greenaway, David and Chris Milner. The Uruguay Round and Commonwealth
Developing Countries: An Assessment. Commonwealth Secretariat. June, 1994.
12/ Greenaway and Milner cite a study by Stevens and Kennas which reports
that the EU will liberalize less than 1 per cent (0.12%) of the previously
restricted trade in Phase 1 of the transition
13/ Since 22 February 1996, all Caribbean island States are members of the
World Trade Organization.
14/ Davenport, M., Impact of the Uruguay Round and NAFTA on Commonwealth
Caribbean countries with special reference to Jamaica. Commonwealth
Secretariat, May 1995.
15/ REDNA Group, op.cit.
16/ Daveport, op.cit.
17/ Rodriguez Enmio. Central America. Common Market, Trade liberalization
and Trade Agreement. Conference on Economic Integration in the Western
Hemisphere: Prospects for Latin America. Univ. of Notre Dame. mimeo. April,
1993.
18/ See G.S.R. Associates Report on the NAFTA for CARICOM Secretariat.
June, 1994. Also for summary "think pieces" see:
- Gill, Henry, the NAFTA problematic and the Challenges for the
Caribbean Community. North-South Centre Caribbean Program. Sept.
1993.
- CRS, Report for Congress (US), Caribbean Basin Countries:
Implications
of NAFTA. May, 1993.
19/ The side-agreements of NAFTA on labour and the environment also may have
some trade implications but these need to be interpreted from more detailed
studies
20/ The hourly labour costs in the industry in Jamaica are US $0.91 compared
to US $0.88 in Mexico.
21/ See the following works by Christopher Stevens:
- Non-Technical Experts from Jamaica Overseas Development
Institute.
London. mimeo. Jan. 1990.
- The European Single Market: Implications for Caribbean
Manufacturing
and Agricultural Trade. Senior Policy services on EC and the
Caribbean in the 1990's. Caribbean Development Bank. Nov. 1990
22/ See Robertson, D. EEC 1992 and the small island States., mimeo National
Centre for Development Studies, The Australian Univ., 1990.
23/ See 2.3.2(a) and 2.3.2(b)
24/ This Section is based on interviews conducted with public and private
sector officials in Trinidad and Tobago, Guyana (including the Caricom
Secretariat), Barbados, Jamaica and Cuba. See Appendix 1 for a list of persons
interviewed.
25/ Jamaica, Trinidad and Tobago, Dominica, Cuba, the Dominican Republic and
Haiti.
26/ In the case of one Caribbean country, officials admitted of their
ignorance on the implications of the commitments in terms of Services and
organised attachments for two economists to the WTO in Geneva. This country
has since shared this expertise with two other neighbouring and smaller
islands.
27/ Seaforth C. "Agricultural Production and Natural Products" in A.
Mohammed and D.A. Pantin (eds.): Planning for Sustainable Development in the
Caribbean. UWI/McGill. 1995.
28/ Sangster's rums and liquors. Sunday Express. Trinidad. Feb.13,1994. page
8.
29/ Herbarium Ltd. Supplement. Sunday Express. Trinidad. Dec.10,1995.
30/ Much of which comes from internal tourist arrivals from Trinidad but the
share of foreign visitors has been growing.
31/ The data that follows comes from Bourne and Alsopp. See Boneue, C and
M. Alsopp - The potential of Cultural Service Exports from the Caribbean.
Conference on Services in the Caribbean. Jamaica. mimeo. 1995.
32/ Shabba Ranks, Buju Banton, Lady Patra.
33/ Note, however, that Antigua is a tourist-dependent economy.
34/ Already, the sub-regional grouping of the Organisation of Eastern
Caribbean States share a common currency- the Eastern Caribbean dollar.
35/ Predominantly root crops and coconut products.
36/ See Associated Press Report by Maggie Jackson headlined: " Havana ho? US
companies look toward Cuba despite embargo. Trinidad Guardian Nov.29,1995:10.
37/ See David Jessop: "Anxiety as Europe eyes Cuba's open window. Trinidad
and Tobago" Sunday Express. Nov. 19, 1995.
38/ See Table 2(ii) in Pantin. D.A. The Economics of Sustainable Development
in Small Caribbean Islands. The University of West Indies: Centre for
Environment and Development, Jamaica, and Economics Dept. Trinidad. April,
1994. 18-20.
39/ Ricky Singh, The Barbados Advocate. Dec. 28,1995: 14.
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