Economic Regionalism and the CSME Back to the Future

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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

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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

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Caribbean regionalism--colonial style

• Emphasis on political/administrative
  regionalismBritish-sponsored unions,
  federationstop-down
• The West Indies Federation (1958-1962)
• Sponsored by Britaingrant independence
• Supported by local leaders West Indian
  nationalism
• Debate and disagreement over economic
  content--murky economic regionalism
• Failure of the WI Federationconsequences for
  political regionalism--insular independence
  national sovereignty

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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?

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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

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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

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The Grand Anse Declaration for the
Establishment of a Caricom Single Market and
Economy 1989
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Grand Anse Targets (cont)
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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

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The Revised Treaty of Chaguaramas

• Purpose--create the CSMEsingle 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

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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
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Architecture of the CSME
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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

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The CSMEa 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

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Institutional infrastructure

• 17 possible institutions neededtwo operational
  
• Implementation costs 2004-2010 estimated at
  US70 million--no financing provided
• The Caribbean Court of Justice financed by
  borrowing for Trust Fund
• No agreement yet on formula for financing of
  regional institutionssuch GDP, revenue, etc.

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Institutional requirements

• 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

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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

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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

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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
  discretionaryno supranationality
• The Treaty makes no provision for financing of
  regional institutions independent of members
  state contributionsno own resources
• Attempts to remedy problemno resolution

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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

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Implementation mechanisms

• Caricom Bureau 3-person body consisting of
  the current, outgoing and incoming chair-persons
  of the Conference of Heads of Government
• Quasi-cabinetassignment 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

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Rose Hall Declaration 2003Mature 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?

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Economic differentiation in Caricom

• Intra-regional trade performance
• Extra-regional trade patters
• Income levels
• Size

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Intra-regional export performance
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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
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Income inequality in Caricom
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Ratio of richest to poorest members (per capita
income) in integration schemes
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Composition of exports
Percent total exports of goods and services
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Direction of merchandise exports
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Composition of exports
Percent total exports of goods and services
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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

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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

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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 farpressure on TT to
  increase fund from oil revenues
• Ch. 7, Arts. 143, 157, 158

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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

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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

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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

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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

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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

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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?

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Thank you!