Economic Regionalism and the CSMEBack to the Future?

Norman Girvan UWI Graduate Institute of International Relations

Presentation at Centre for Caribbean StudiesLondon Metropolitan University

2 March 2006

For John La Rose, 1928 - 2006

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

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’

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?

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

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

The ‘Grand Anse Declaration’ for the Establishment of a Caricom Single Market and Economy – 1989

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

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)

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

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

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

Architecture of the CSME

SING LE M ARKETM ovem ent of G oods, Services, Skilled Persons

& Capita l; R ight of Establishm ent; Special MeasuresChapters 3, 5, 7 & 8

SING LE ECO NO M YC om m on Sectoral & Macroeconom ic Policies

H arm onised C om pany & Taxation LawsChapters 4 & 6

INSTITUTIO NAL INFRASTRUCTUREOrgans of Governance

C aribbean Court o f Justice & o ther Reg ional InstitutionsChapters 2 & 9

PRINCIPLES AND O BJECTIVESPreamble & Chapter 1

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

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

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.

Institutional requirements

Existing 1. Caribbean Court of Justice2. Standards Organization

To be established 3. Competition Commission4. Regional Property Rights

Office5. Phyto-Sanitary Organization6. Regional Fisheries

Organization7. Regional Development Fund8. Regional Securities

Commission9. Conciliation Commission

• CARICOM Commission • Revenue Authority• Court of Auditors• Caribbean Assembly of

Parliamentarians (Upgraded)n Caribbean Central Bank• Economic and Social

Committee• Ombudsman Office• Regional Environmental

Organization

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

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

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

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’

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

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?

Economic differentiation in Caricom

Intra-regional trade performance

Extra-regional trade patters

Income levels

Size

Intra-regional export performance AAGR

1993 2003 1993 2003 %Trinidad & Tobago 370 1059 59 72 11.1OECS 72 85 12 6 1.6The Bahamas .. .. .. .. ..Barbados 71 103 11 7 3.7Belize 5 18 1 1 13.9Guyana 35 99 6 7 11.1Haiti 0 0.2 0 0 ..Jamaica 62 63 10 4 0Suriname 8 40 1 3 17.5Total Caricom 624 1467 100 100 8.9Caricom ex. T&T 254 408 4.9

US$ Million Percent Total

The Caricom market is more important to some than to others…

% XG % XGS

Trinidad & Tobago 20.8 18.1Guyana 18.8 13.9Belize 17.2 10.8Barbados 43.6 8.5OECS 38.2 7.8Suriname 6.3 5.7Jamaica 4.8 1.9The Bahamas 0.4 0.1Haiti 0.1 0.1

Intra-regional exports

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

Income inequality in Caricom

Per capita income US$

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CARICOM 35:1

CARICOM (exc. Bahamas & Haiti) 11:1

EU (after enlargement) 11:1

EU (before enlargement) 4:1

CACM 6:1

ANDEAN COM 4:1

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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

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

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

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 gapLess than 2% of exports are high-tech; around 12% intermediate-tech

Traditional services exports under pressureTourism -- saturation of mass-tourism

Offshore financial services – tightening of regulations

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

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

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

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

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?

Thank you!