Economic Regionalism and the CSME Back to the Future?

1. Economic Regionalism and the CSMEBack to the Future? Norman Girvan UWI Graduate Institute of International Relations Presentation at Centre for Caribbean Studies London Metropolitan University 2 March 2006 For John La Rose, 1928 - 2006

2. Regionalism – political & economic • Political/administrative • Grouping of several polities under a common political administration, e.g. (Con) Federation, multi-island state; political union • Economic • Grouping of several economies that eliminate national barriers to economic transactions; e.g. free trade area, customs union, common market

3. Caribbean regionalism--colonial style • Emphasis on political/administrative regionalism—British-sponsored unions, federations—top-down • The West Indies Federation (1958-1962) • Sponsored by Britain—grant independence • Supported by local leaders— ‘West Indian nationalism • Debate and disagreement over economic content--murky economic regionalism • Failure of the WI Federation—consequences for political regionalism--insular independence & ‘national sovereignty’

4. Regionalism – post-colonial • Emphasis on economic regionalism • CARIFTA - Caribbean Free Trade Association 1968 • CARICOM – Caribbean Community and Common Market - Treaty of Chaguaramas 1973 • CSME - Caricom Single Market and Economy – adopted as objective 1989 • Caricom Single Market inaugurated 2006 • Caricom Single Economy target 2008 • Can economic regionalism succeed without the political?

5. CARICOM 1973 – 1989 The Balance • Failure of regional resource-based projects • Ideological divisions • Economic differentiation • Common Market not established • Intra-regional trade stagnant • Payments clearance system collapsed • Successes in functional cooperation – external negotiation (ACP)– foreign policy – education – health - sport

6. Background to the CSME • Sense of growing marginalisation and vulnerability • EU Single Market & Economy • GATT Uruguay Round • NAFTA • Impending changes to EU-ACP relationship • New regionalism worldwide • Ideological convergence – Washington consensus

7. TARGETS SET FOR 4 JULY 1993 OUTCOMES 1. Common External Tariff, Rules of Origin, and Harmonised Scheme of Fiscal Incentives Deferred 2. Customs cooperation/ strengthening/ preparation for a Customs Union Deferred 3. CARICOM Industrial Programming Scheme (CIPS) Abandoned 4. Legislation implementing CIPS and CARICOM Enterprise Regime (CER) Abandoned 5. Free movement of capital Deferred 6. Regional Equity/Venture Capital Fund Work initiated 7. Multilateral Clearing Facility Abandoned The ‘Grand Anse Declaration’ for the Establishment of a Caricom Single Market and Economy – 1989

8. TARGETS FOR 4 JULY 1993 8. Co-operation on monetary, financial and exchange rate policies Deferred 9. Removal of remaining barriers to trade Deferred 10. Co-operation on macro-economic &, sectoral policies and projects Deferred 11. Free movement of skilled and professional personnel and for contract workers on a seasonal or project basis Deferred 12. Regional system of air and sea transportation Deferred 13. Joint representation in international economic negotiations and sharing of overseas facilities and offices Deferred Grand Anse Targets (con’t)

9. Lessons learnt from Grand Anse • Need for a legal framework to give effect to economic regionalism • 1992-2002 • Nine Protocols of Amendment– incorporation into Revised Treaty • Common External Tariff implemented in phases (incomplete) • Steps towards free movement of skilled persons • Beginnings of regional stock exchange

10. The Revised Treaty of Chaguaramas • Purpose--create the CSME—single economic space with free movements of goods, services productive factors and common policies • Response to globalisation based on principle of ‘Open Regionalism - integration market-led and private sector-driven • Functional cooperation - joint negotiation in external trade relations – complementary element

11. Preamble Chapter One: Principles Chapter Two: Institutional Arrangements Chapter Three: Establishment, Services, Capital and Movement of Community Nationals Chapter Four: Policies For Sectoral Development Part One: Industrial Policy Part Two: Agricultural Policy Part Three: Common Supportive Measures Chapter Five: Trade Policy Part One: Preliminary Part Two: Trade Liberalisation Part Three: Subsidies Part Four: Subsidies to Agriculture Part Five: Dumping Chapter Six: Transport Policy Chapter Seven: Disadvantaged Countries, Regions and Sectors Part One: Preliminary Part Two: Regime for Disadvantaged Countries, Regions and Sectors Part Three: Special regime for Less Developed Countries Chapter Eight; Competition Policies and Consumer Protection Chapter Nine: Disputes Settlement Chapter Ten: General and Final Provisions

12. Architecture of the CSME

13. CSME – the balance so far • Lengthy process, many delays • Legal infrastructure established; but few institutions • Single Market advanced in goods, less so in services, labour, capital, and right of establishment • Single Economy still to be addressed

14. The CSME—a hard road to travel • Legal infrastructure – 1992-2002 • Distinction between ‘legal establishment’ and ‘implementation’ • Distinction between ‘Single Market’ and ‘Single Economy’ • 6 of 12 countries signed declaration of Single Market compliance in January 2006 • 6 O.E.C.S. countries pledged to accede in June 2006 • 2008 -- target for the Single Economy

15. Institutional infrastructure • 17 possible institutions needed—two operational • Implementation costs 2004-2010 estimated at US$70 million--no financing provided • The Caribbean Court of Justice financed by borrowing for Trust Fund • No agreement yet on formula for financing of regional institutions—such % GDP, % revenue, etc.

16. Existing Caribbean Court of Justice Standards Organization To be established Competition Commission Regional Property Rights Office Phyto-Sanitary Organization Regional Fisheries Organization Regional Development Fund Regional Securities Commission Conciliation Commission CARICOM Commission Revenue Authority Court of Auditors Caribbean Assembly of Parliamentarians (Upgraded) Caribbean Central Bank Economic and Social Committee Ombudsman Office Regional Environmental Organization Institutional requirements

17. Single Market status – c. 2006 • Goods – some tariffs and NTBs still in place – exceptions to CET • Services – legal framework in place, regulatory and administrative framework pending • Labour – limited to 5 skilled categories; PMT staff of regional investing companies • Capital – cross-border company listings; but some restrictions on capital transfers

18. Single Economy status – c. 2006 To be completed… • Coordination of fiscal, monetary, and foreign exchange policies; Caricom Monetary Union • Common sectoral policies for Agriculture, Industry, Services and Transport • Community Investment Policy • Regional Competition regime • Harmonised Corporation Tax • Government Procurement Regime

19. Gaps in the CSME architecture • The Revised Treaty of Chaguaramas preserves the national sovereignty of member states • Decisions of the Conference of Heads of Government can only be implemented by national legislative or executive action, which is discretionary—no ‘supranationality’ • The Treaty makes no provision for financing of regional institutions independent of members state contributions—no ‘own resources’ • Attempts to remedy problem—no resolution

20. Addressing the ‘Implementation gap’ • The Report of the Independent WI Commission (1992) identified the ‘implementation gap’ as a major problem in the Caricom integration process • It recommended the appointment of a body of ‘Caribbean Commissioners’ with executive authority to implement decisions • This was rejected by the political leaders • Their chosen alternative was a ‘Caricom Bureau’ and a Caricom ‘quasi-cabinet’

21. Implementation mechanisms • “Caricom Bureau” – 3-person body consisting of the current, outgoing and incoming chair-persons of the Conference of Heads of Government • ‘Quasi-cabinet’—assignment of portfolio responsibilities for implementation to individual Heads of Government (external negotiations, CSME, agriculture, education, health, science and technology, security, etc.) • Neither the Bureau nor the quasi-cabinet have any legal authority to enforce/ensure implementation of collective decisions

22. Rose Hall Declaration 2003“Mature Regionalism” • Agreement in principle that • Decisions of the Conference of Heads of Government will have the force of law in member states; but taking into account Constitutional Provisions and Caricom as a Community of Sovereign States • Commissioners will be appointed with the power to monitor and implement decisions of Heads; but legal powers undefined • ‘automatic resource transfers’ will be adopted for the financing of the CSME adopted; but no specific mechanism agreed • Implementation RHD referred to various committees –no agreement reached • ‘Sovereignty dilemma’ – has economic regionalism without political dimension reached its limit?

23. Economic differentiation in Caricom • Intra-regional trade performance • Extra-regional trade patters • Income levels • Size

24. Intra-regional export performance

25. The Caricom market is more important to some than to others… XG Exports of goods, 2001-2003 XGS exports of goods & services, 2002 (estimated) Source: based on INTAL Caricom Report No. 2, Tables 2,3 & 5

26. Income inequality in Caricom

27. Ratio of richest to poorest members (per capita income) in integration schemes

28. Composition of exports Percent total exports of goods and services

29. Direction of merchandise exports

30. Composition of exports Percent total exports of goods and services

31. Economic differentiation and discretionary implementation • Wide differences among member states in incidence of costs and benefits of market integration • The smaller, high-income service economies have less technical and institutional capacities in implementation, limited export capabilities to the regional market, stand to lose fiscal revenues and employment from tariff cuts/elimination, and fear the influx of labour from the more populous, poorer member states • Bear many direct, short-term, financial & economic costs with little corresponding benefits • Main benefit - collective bargaining power in external trade negotiations - indirect • They have been pressing for activation of the Special Regime for Disadvantaged Countries to assist them in implementing the Single Market

32. Special Regime • The Treaty calls for a special regime for Less Developed Countries and “Disadvantaged Countries, Regions & Sectors” to enable them to become more competitive and to redress the adverse impact to the CSME (Ch. 7) • “Disadvantaged Countries” are (i) six LDCs (OECS) and (ii) Member States that require special support measures of a ‘transitional or temporary nature’ because of natural disasters; adverse impact of the CSME; ‘temporary low levels of economic development’, or a HIPC designated country (Art. 1; ch. 7,) • Disadvantaged Regions and Sectors are those within Member States satisfying above criteria

33. Special regime measures • Can include technical and financial assistance to governments and the private sector to promote diversification and infrastructural development; raise competitiveness, attract investment in new industries; and help fulfill Treaty obligations • Establishment of a Regional Development Fund –February 2006--to be initially capitalised at $250 M. • Only $17 M pledged so far—pressure on T&T to increase fund from oil revenues Ch. 7, Arts. 143, 157, 158

34. The future -- challenges • Macroeconomic deterioration • Slowdown in growth; widening fiscal deficits; rising indebtedness • Preference erosion • Sugar-- 36% price cut--$90M loss export earnings; 90,000 jobs affected; bananas -- 65% fall in production and 70% in number of growers in Windward Islands, 1993-2000 • Technology gap • Less than 2% of exports are high-tech; around 12% intermediate-tech • Traditional services exports under pressure • Tourism -- saturation of mass-tourism • Offshore financial services – tightening of regulations

35. Strategic imperatives • Adjustment:Phase out uncompetitive production in preference-dependent industries • Diversification: produce for international niche markets in knowledge-intensive and skill-intensive goods and services

36. Demands of external negotiations • EPA negotiation with the EU to be completed end 2007 • WTO Doha Round to be completed end 2006 • Agriculture, industry & services are key sectors of negotiation in both • Caricom is negotiating collectively in both

37. Dual role of common policies • Common policies are a requirement • To pursue strategic imperatives in adjustment and transformation • To provide a coherent basis for external negotiation on several front • Common policies for agriculture, industry, services and transport are provided for in the Revised Treaty • Need for a regional development strategy • Need for ‘selective transfer’ of Sovereignty

38. Limitations of market integration • Small economies limited scope for intra-regional trade – highly unequal benefits • Given limited technical and professional expertise and low bargaining power, functional cooperation in external negotiations a major potential benefit • Common macro-economic and sectoral policies key to reaping the benefits of regionalism in adjustment/transformation, external negotiation • Common policies imply selective transfer of sovereignty

39. Conclusion--back to political regionalism? • Selective transfer of sovereignty – supranational arrangements – political dimension • Political dimension requires political participation – e.g. reform and expansion of Assembly of Caribbean Community Parliamentarians • Benefits of economic regionalism require element of political regionalism • Can the CSME create a dynamic that leads to political association?

40. Thank you!