Trinidad and Tobago plays a leading role in advancing goals of regional integration and single market access

Trinidad and Tobago has played a crucial role in the integration of the Caribbean, particularly among the anglophone countries of the region, for decades now. A promoter of the Treaty of Chaguaramas in 1973, the first step towards deeper regional integration after the mixed fortunes of the establishment of the short-lived West Indies Federation between 1958 and 1962, T&T subsequently became a founding member of the Caribbean Community (CARICOM). Alongside T&T, the international organisation currently has 14 full members, five associate members and eight observers.

Single Market 

The Revised Treaty of Chaguaramas in 2001 laid the legal foundation for the future implementation of the CARICOM Single Market and Economy (CSME), an organisation for regional trade and economic integration, comparable to bodies such as the European Community, and later the EU, and the Association of South-East Asian Nations.

Created to serve the needs of its participating members with the exception of the Bahamas, which has not opted into the single market owing to opposition to the its freedom of movement component, the CSME assists small regional economies confronting declining growth and reduced access to preferential markets. At the outset, the single market’s function was to help member states better integrate into the global economy and repeat the success of other trade blocs internationally. The two branches of the revised treaty are the single market and the single economy. The former allows for the free movement of labour, goods, services, capital, and people, while the latter addresses the harmonisation of economic, investment, fiscal, and monetary policies.

Within CARICOM, T&T has established itself as a developed and diversified economy in the region, enjoying economic and commercial dominance for decades. Between 1998 and 2013 T&T’s share of total intra-CARICOM exports rose from 37% to 70%, according to 2015 data from intergovernmental organisation the Latin American Economic System, with Jamaica being the lead importer of T&T exports over this period. Both the original and revised treaties of Chaguaramas sanctioned Belize, Guyana, Jamaica, Suriname and T&T as CARICOM’s more economically developed countries. The latter is one of the region’s goods-producing economies, as well as the community’s most relevant intra-regional trading partner. These trends aside, all Caribbean economies, regardless of differences in wealth, income and population sizes share several characteristics. Their insular nature, small markets and lower scales of production, as well as their over-reliance on external markets and high vulnerability to natural disasters, to different degrees categorise them as small, vulnerable economies (SVEs), according to the UN World Trade Organisation (WTO).

External Shocks

SVEs are characterised by both structure – in terms of physical area and population – as well as susceptibility to exogenous shocks such as environmental disasters and economic downturns. In addition to these factors, trade relations between regional economies are also marked by a high level of uneven trade openness, with a significant dependence on food imports; limited export baskets; high state revenue from tariffs, at over a third in the case of Jamaica; relative inflexibility to external adjustment; and very high transport and transit costs. Regional policymakers are well aware of the specific conditions of the subregion, especially with regards to the area’s insular nature and the ensuing transport premiums paid as a result. “Our maritime space is 400 times that of our land area, and unless we come to the understanding of how to conserve and how to exploit (it) economically ... we will not be able to fully deliver to our people,” Prime Minister of the Bahamas Mia Mottley said in a speech to the 39th Regular Meeting of the Conference of the Heads of Government of CARICOM in July 2018.

Trade Levels

The fact that only a handful of countries in the community can be classified as goods and merchandise producers has made all Caribbean economies extremely liable to negative external shocks. All of CARICOM’s less economically developed countries (LEDCs) are heavily dependent on services and imports to satisfy the demand of tourism-related activities, as well as a reliance on a limited array of export products and a reduced number of export markets. This is particularly marked during periods of fluctuation in commodity prices and economic recession in North America and Europe. In terms of exports, 44% of T&T’s are petroleum gases; gold represents 50% of exports for Suriname, and 43% for Guyana; artificial corundum is Jamaica’s largest at 40%; and 71% of Antigua and Barbuda’s exports are pleasure or sports vessels. Meanwhile, average annual growth in the Caribbean was 1.5% between 2012 and 2016, with debt rising to make up 71.1% of GDP over the same period, according to the UN’s Economic Commission for Latin America and the Caribbean (ECLAC) January 2018 “Caribbean Development Report”. As a result, the region’s current growth model tends towards sporadic and overall sluggish rates of economic expansion in the long-term, and uneven development. Several positive indicators for the region remain, however. “Most of the Caribbean has achieved at least middle-income status, and other development factors, including health and education, are in line with global standards,” William Warren Smith, president of the Caribbean Development Bank, told OBG.

Debt Cconcerns

Given the region’s aforementioned vulnerabilities, at a macro level Caribbean economies are prone to structural imbalances and high current account deficits. While most CARICOM members register trade openness indices of over 100% – that is the ratio of a country’s trade (exports plus imports) – this is a direct result of narrow resource availability and small internal markets, which means most of the region is unable to support certain types of manufacturing.

The imbalanced nature of international trade transactions comes at a high price, with current account deficits as high as -17.8%, -16.4% and -14.4% of GDP in Dominica, the Bahamas, and Saint Vincent and the Grenadines, respectively. In Belize, Grenada and T&T these figures are lower at -7.7% , -6.6% and -5.6%, respectively, while Suriname is the only country to register a surplus in this regard, at 8.9% of GDP. High current account deficits usually have an almost immediate effect on macroeconomic imbalances, particularly in Caribbean economies where the levels of aggregate demand are disproportionate to corresponding levels of supply, thus prompting governments to use fiscal deficits to sustain adequate demand levels. Governments in the region have run deficits to cover current expenses, or to finance more extensive state policies such as subsidies and transfers, particularly in the energy industry, public sector wages, and make-work programmes.

Such practices have had extensive consequences in the region: between 2000 and 2012, the debt stock of service-oriented economies in the Caribbean increased, on average, from 63.9% to 81.6% of GDP. In 2015 the public debt stock ranged from 6% to 127% of GDP in Montserrat and Jamaica, respectively, while six out of CARICOM’s 15 members could be categorised as highly indebted, with public debt levels of over 80% of GDP in Jamaica, Barbados, Grenada, Antigua and Barbuda, Bahamas and Belize; meanwhile, Saint Vincent and the Grenadines, Dominica, Saint Lucia, Saint Kitts and Nevis, Suriname, T&T and Guyana were classified as moderately indebted, with public debt levels of between 40% and 80% of GDP; and only two members – Montserrat and Haiti – had figures below 40% of GDP.

Intra-Regional Trade

Intra-regional trade still remains largely untapped, with over 80% of imports into the Caribbean coming from external sources. The structural weaknesses of intra-CARICOM trade are perhaps of greater concern, since most commercial exchanges in the region involve high value-added merchandise and are therefore characterised by a higher incidence of interaction with local small and medium-sized enterprises than extra-regional trade. Furthermore, intra-regional trade volumes have consistently declined, with the value of total imports and exports peaking at $7.1bn in 2013, before decreasing by around 20% each year in consecutive years: to $5.6bn in 2014, $4.1bn the following year, and $3.8bn in 2016.

In addition, CARICOM’s intra-regional trade flows have been among the region’s most volatile, especially when considering the effects of external shocks and global market corrections on the subregion in recent times. For instance, the onset of the global economic and financial crisis in 2009 saw a 35.8% decrease in intra-regional exports against the previous year, compared to declines of 20% in the Andean Community and the Central American Common Market trading blocs. Similarly, in 2015, following the global trade collapse due to the sharp correction in oil prices and the regained strength of the US dollar, CARICOM’s intra-regional exports fell by 19%, this time in line with other trade blocs in Latin America and the Caribbean.

This is particularly relevant given that since 2012 the annual average growth rate of the world trade volume in goods and services has halved to just over 3%, from more solid 6-8% growth rates in previous decades.

Open Trade

The negotiation and ratification of several trade agreements has had a negligible outcome on CARICOM’s export performance, largely because of the inability of member countries to transform their production systems and move their output to the new markets opened by these trade agreements. More trade deals have not translated CARICOM’s improved integration into global value chains, and products that are extremely specialised have become less competitive over time, as has the region’s services sector.

Despite this, a case for more trade integration both at the regional and supra-regional levels is to be made. In order for Caribbean economies to further diversify their export structure, and avoid turbulence when negative price shocks hit products for export, trade facilitation is to be pursued. According to a 2015 study from the UN’s ECLAC, the higher the degree of bilateral trade complementarity between two countries or trading blocs, the greater amount of free trade there is to be generated after the signing of an agreement. Additionally, the IMF’s March 2017 “Trade Integration in Latin America and the Caribbean” report suggests that more trade, and thus better integration into global value chains, can result in knowledge spillovers and higher economic growth, which is especially the case for upstream participation in value chains as panel data regressions have shown that such outcomes bolster economic activity over time.

Single Market Implementation

A more decisive regional initiative to enact and implement the most relevant provisions of the CSME has been gaining momentum over the past months. The 39th Regular Meeting of Heads of Government of CARICOM in July 2018 saw the granting of free movement of labour for 10 categories of certified, skilled workers from all CSME member states, as well as the possibility of family reunification for workers in Barbados, Grenada, Jamaica, Saint Lucia, Saint Vincent and the Grenadines, Haiti and Suriname. Similarly, intra-CARICOM visa-free travel was granted for Haitian citizens.

Business leaders across the region have applauded the revived momentum in the application of CSME mechanisms. Christopher Alcazar, president of the T&T Manufacturers Association, told OBG that he welcomed the recent developments and urged policymakers to support national trade facilitation frameworks, particularly as they affect the operations of the most relevant regulatory and border control agencies. Alcazar added that intra-regional competition would help CARICOM manufacturers to increase productivity and thus compete more effectively in the global market. Following the meeting of heads of state in July 2018, a special CSME meeting in November 2018 will be hosted in the Port of Spain, Trinidad, where it is expected that CARICOM members will make the full implementation of CSME prerogatives the focus of the agenda. Among the topics set to be discussed at the conference are the conclusion of an open skies agreement for the CARICOM region currently in the pipeline, as well as other legal and policy details that will allow for the full implementation of the Revised Treaty of Chaguaramas.

“We are looking forward to the ratification of the open skies agreement,” Garvin Medera, CEO of Caribbean Airlines, told OBG. “This would effectively allow all airlines based in the community to establish flights within the jurisdiction without needing additional permits. CARICOM-based airlines could fly more easily in the community, which would boost regional air travel.”

Challenges

Until today, however, a series of hindrances have limited the overall success of the CSME, namely the absence of internationally accredited testing facilities; inadequate financing mechanisms; a lack of relevant market intelligence; insufficient export management skills; high transport costs and saturated infrastructure, and a lack of common digital and e-commerce payment platforms. The slow delivery of the single economy within the CSME not only has an impact on digital transactions, but also on intra-regional currency exchange. In January 2018 Saint Vincent and the Grenadines and T&T were in a dispute over the preferred currency for transactions between the two countries, with the former purchasing most of its imports from T&T in US dollars, while being paid in T&T dollars for their exports to the twin-island nation.

CARICOM’s shortcomings are widely acknowledged by the organisation itself and its participant states. At a conference in July 2018 Irwin LaRocque, the community’s general secretary, expressed his disappointment with the overall achievements of the CSME’s implementation, underlining in particular the difficult and lengthy negotiations processes that any substantial policy change and the implementation of over-arching legal instruments imply. The business community has openly voiced its concerns about the CSME’s limitations, including the free movement of CARICOM citizens, for example, which hinders the optimal use of production factors in the trade bloc. “In order to optimise and secure greater uniformity in the distribution of benefits, more attention has to be paid to strengthening and deepening the regional institutional architecture; synchronising and improving policy frameworks, and the regulatory and institutional networks that support competitiveness at the national level; and making use of existing dispute settlement mechanisms to ensure fairness, transparency and the building of investor confidence in those mechanisms,” Warren Smith told OBG.

Agricultural Produce & NTBs

Competition in CARICOM’s agricultural market is particularly high at present. “The majority of members are offering similar products,” Neil Poon Tip, managing director of local food and drinks manufacturer Universal Foods, told OBG. “Additionally, the use of Article 164 of the Revised Treaty of Chaguaramas allows LEDCs to suspend community origin treatment to all imports eligible on grounds of production,” he added. “This enables CARICOM’s LEDCs to increase the flow of their agricultural products into the regional market, and generates more competition with advanced economies.”

Non-tariff barriers (NTBs), according to the World Trade Organisations’ definition, also hinder the full development of trade potential. While the Caribbean Animal Health and Food Safety Agency is in charge of auditing control and processing facilities for intra-regional trade and agricultural, animal and food health safety, overarching standards in the region are yet to be fully aligned. Further obstacles stem from the rulings observed under the US Food and Drug Administration’s Food Safety Modernisation Act, which regulates all agricultural sales to the US. Such infrastructural NTBs present a further case for the modernisation of regional sanitary and phytosanitary infrastructure in order to secure CARICOM producers’ access to major external markets, particularly as the region holds a significant comparative advantage in a variety of produce, including sugar, beverages, fish and fish products, vegetables and fruits, coffee, cocoa and spices. Such obstacles have had a knock-on effect on imports. “Most CARICOM members prefer to import poultry from extra-regional sources, namely the US,” Robin Williams, director of marketing at local poultry producer and distributor Arawak, told OBG. With further development in this area, it is felt that development opportunities in the sector could be fully untapped. “We are confident that regional agriculture will improve as CARICOM members recognise the need to control their growing food import bill,and save foreign exchange,” Joe Pires, managing director at Caribbean Chemical Agencies, told OBG.

Outlook

In the process of diversifying the CARICOM economies, trade and regional integration will play a central role. The success of trading blocs across the globe hinges on combining the interests of the private sector and the business community with active policies to promote trade and investment, coupled with the still relevant role of the unilateral liberalisation of tariffs and the elimination of NTBs. The case for deeper integration is now stronger than ever, with the impact of the digital revolution necessitating an overhaul of economic relations in the years to come.

Consumption, production business and employment in all sectors, have already been affected, and this is set to continue. Digitalisation will facilitate communication and shortened value chains, while redefining the boundaries between goods and services. Global trade in this century will be shaped both by traditional and digital platforms of transaction, including both tangible and intangible goods and services. Trade blocs and agreements will have to adapt themselves to this, and this no exception for the Caribbean and CARICOM.