A Regional Trade Agenda for CARICOM
A Regional Trade Agenda for CARICOM Author: 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 SRC Trading Thoughts May 13, 2019 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