A Regional Trade Agenda for CARICOM

The key characteristics of Caribbean trade challenges have been well documented. The region’s economies are open (i.e. external trade as a share of GDP is high) thereby exposing countries’ vulnerability to swings in performance of the global economy. Caribbean economies exude limited export diversification (in both market destinations and products). In addition, these economies’ small size and lack of physical contiguity result in high trade costs while limiting the import of regional integration. The Caribbean are preference-dependent economies in a context of diminishing value and facing earnest adjustment as can be demonstrated from the cases of traditional exports such as bananas, sugar and rum. Finally, trade infrastructure (including regulatory framework and institutions) remain underdeveloped in part due to the height of public debt but also reflective of prioritising other development challenges. This set of factors result in Caribbean trade competitiveness being ruined and the region’s capacity to fully harness the developmental benefits of foreign trade further limited.

Pursuit of strengthened regional integration has been a longstanding development tool going back to the formation of the West Indies Federation in 1959. Subsequent iterations within CARICOM, namely, CARIFTA, Caribbean Common Market to the current CSME have been suffered the same fate of less than adequate implementation. The Caribbean’s other principal regional integration efforts – CARIFORUM and the OECS display contrasting degrees of success. As attested to in the mandatory 5-year review, the CARIFORUM-EU EPA (CEPA) has muted implementation levels in terms of Caribbean members discharging their respective commitments. But worse, implementation of the Caribbean-EU trade and development agreement has been legalistic in manner by a near exclusive fixation on compliance with the FTA’s provisions. Most progressive countries tend to leverage new trade agreements to launch (or anchor) earnest economic reforms and upgrade sectoral strategies. The pending withdrawal of the United Kingdom from the EU will further diminish the CEPA’s value (from the Caribbean’s perspective) and thereby dampen the region’s political willingness to fully implement its FTA with a major development partner. In contrast, the OECS remains bent on further advancing its already deep integration process that already has common central bank, currency, judiciary and telecommunication regulator by establishing an economic union.

One final element in sketching the Caribbean’s trade challenges stems from the multilateral environment. At the WTO, the DDA has been effectively stalled with the Trade Facilitation Agreement (TFA) being the sole concrete outcome since multilateral trade talks began in 2001. Both Canada and the EU recently released respective proposals on WTO reform but the prospects of a reinvigorated DDA would be straining incredulity in light of the trade tensions between China and the US, i.e. the two most significant actors in global trade. Also, the UN SDG Agenda remains robbed of earnest political engagement and accordingly failed to produce the accentuated focus on sustainable development issues germane to the Caribbean. Compounding this reduced multilateral engagement is the retreat of longstanding development partners from the Caribbean notably the US (seeming political disinterest) and EU (post-Cotonou accent on Africa and graduation of middle-income countries from aid).

The mix of structural and atmospheric issues framing Caribbean development assumes greater resonance in a context whereby new concepts are reshaping global trade. Global value chains have resulted in a notable shift from the production of final goods to the rise in trade of intermediary goods and accentuation on specific tasks. The new wave of globalisation has emerged spurred by mega-RTAs such as TTIP, TPP and CETA accentuating the pursuit of regulatory convergence. Servification (i.e. tradeable services are increasingly embedded in merchandise goods) constitutes another manifestation of the arrival of new trade concepts. For example, the 2015 African Competitiveness Report noted that 83% of the value of Ethiopian roses sold in the Netherlands stem from trade in services ACR 2015. Similarly, the mega-RTAs involving OECD countries introduced provisions on competitive neutrality (i.e. measures aimed to curb state-owned enterprises from gaining any commercial advantages relative to private-owned firms). In addition, the 2018 edition of the WTO World Trade Report focuses on the possible impact of disruption of new technologies such as blockchain, artificial intelligence and machine learning on global trade and proffers a number of commercial opportunities challenges and regulatory requirements. The Caribbean FTA engagement might be muted, and multilateral trade talks have stalled, but global trade is throwing up new concepts and deeper complexities.

The most pertinent question therefore remains the region’s enumerating a trade policy agenda that chimes with 21st century global economic realities. It should not be overlooked that the Caribbean provided political and intellectual leadership to the ACP that resulted in the first ACP-EU trade and development compact retiring the previous paradigm of reciprocity (euphemistically called reverse preferences in favour of non-reciprocal trade preferences. Another example of Caribbean trade advocacy is the formation of the Small, Vulnerable Economies (SVEs) Group in the WTO and its near perennial leadership by various Barbadian Ambassadors. The successful negotiation on the Trade Facilitation Agreement (TFA) constitutes the most recent example of Caribbean trade leadership. The TFA overturned the traditional articulation of special and differential treatment as reflected in either full exemption from trade rules or lengthy transitional periods to comply with new trade commitments. Instead, the TFA created a new architecture by making the assumption of new trade commitments by developing countries contingent on the delivery of trade support measures. This innovative approach was driven by Caribbean trade diplomats, most notably, Jamaican Ambassador Wayne McCook and OECS’ Stephen Fevrier in their respective capacities as ACP Convenor and Focal Point on Trade Facilitation.

The following constitutes an initial sketch of the key research agenda that the Region could undertake to underpin germane Caribbean trade and development issues. First, explore the extent to which the TFA approach of linking new trade commitments contingent on the receipt of trade capacity support could be extended across the span of trade regulatory issues where Caribbean needs remain overwhelming. The amplification of such an expansive approach could also constitute the basis of a new trade and development paradigm for articulation in multilateral and regional trade negotiations. The salience of the TFA approach also reflects the increasing weight of trade regulatory capacity as a determinant of trade competitiveness in today’s global marketplace.

Second, BREXIT creates economic opportunities that could be exploited by the Caribbean. The United Kingdom added nurses to the list of shortage occupations in October 2015, thereby prioritizing non-EEA nationals’ application to for work visas to work in the United Kingdom. Assuming BREXIT is consummated, a new trade arrangement between the UK and Caribbean would be required. Instead of merely rolling over the CEPA provisions, the Caribbean could instead moot innovative trade and development proposals that transcend the narrow GATT/GATS approach. For example, the region could adapt the TTP approach of identifying specific support for SMEs in a host of regulatory issues. Beyond this, the Caribbean should accentuate commercially-relevant sectors such as Mode IV in educational, health and cultural services. More specifically, the region could support the amplification of a “Seacole Initiative” that comprises the following four elements, namely, (a) the UK providing Mode IV quotas for Caribbean nurses; (b) a complementing MRA to ensure that Caribbean nursing certificates are readily recognised in the UK; and (c) increase the capacity of Caribbean-based nurse training institutions through UK public-private partnerships to also attract UK nationals to study in the region at market-based tuition fees. The synergetic approach could commercially exploit the Caribbean’s patent comparative advantage in the training of nurses with a major trade and development partner, i.e. the UK.

Third, develop a clearer understanding of the impact of new technologies on Caribbean export potential and trade competitiveness. The recently published WTO World Trade Report 2018 charts the economic opportunities offered by digital technologies such as artificial intelligence, blockchain, machine learning and 3D printing but also enumerates ways in which global commerce are being impacted by these new productivity tools. The report highlights the digital technologies’ potential reduction in trade costs, especially in MSMEs. However, the analysis does not amply extend a detailed mapping of the trade regulatory framework required to be instituted by SVEs and how such effort can be supported by development partners. The importance of digital technology resonates from two key aspects, i.e. (a) as a catalyst to overcome structural lack of Caribbean trade competitiveness, and (b) an area to solicit technology transfer in light of China’s perceived advantage in artificial intelligence.

Fourthly, a review of latest approaches in regional integration. As stated earlier, the CEPA was also aimed at re-energising the Caribbean regional integration processes. However, the anaemic implementation of that trade agreement in part reflects the stalling of the flagship CSME enterprise. For example, limited implementation has materialised on the unfinished policy agenda captured in Article 239 (electronic commerce; government procurement; treatment of goods produced in free zones and similar jurisdictions; and free circulation of goods in the CSME) in spite of coming into effect in 2006. In addition, some CARICOM Members are questioning the regional integration project, most notably the Jamaican Government with its Golding Report. While the CSME might have been subliminally influenced by the EU (note the similar nomenclature), other models of regional integration have emerged that are institutionally lighter and less regulatory accented. Prime examples are ASEAN (with a degree of inter-regional trade that mirrors the EU), MERCOSUR (with its light secretariat) and public-private partnerships such as the Maputo Development Corridor and North-South Corridor (NSC). But the most interesting regional pact to have recently emerged is the Pacific Alliance that binds Colombia, Mexico, Peru and Chile through a series of political, economic and regional cooperation and integration measures. Beyond the impressive 92% of elimination of tariff liberalisation at the outset, the Pacific Alliance also extends to functional cooperation areas such as innovation, sustainable mining practices, SME support and joint diplomatic missions. Consideration of alternative and business-orientated regional integration initiatives should not be viewed as an effort to supplant the current Caribbean efforts. Instead, the region needs to institute regional integration in a manner that injects confidence among Caribbean leaders and populace rather than maintaining the veneer of adhering to formal processes that are weakly implemented.

The global trading system faces a critical juncture with limited traction in the DDA while tension mounts between the two most leading exporters – China and the US. In this context, the ensuing uncertainty of the global trade governance affects small, open economies such as the Caribbean. As trade-dependent economies, the region needs to fashion a progressive and forward agenda for engagement with its major trade and development partners. On that score, the Caribbean can reconstitute and leverage its own rich history of proactive political leadership complemented by the tabling of sound technical proposals in multilateral and regional trade negotiations. This renewed trade advocacy effort must be predicated on the development of rigorous and sound policy research framed in compelling language to frame Caribbean trade and development interests. In undertaking this compelling task on articulating the region’s trade and development agenda, Caribbean policymakers, trade negotiators and diplomats should remain focused on an emergent global trade agenda to catapult the region’s economic development and retire the reflex of waging yesterday’s trade debates.