REGIONAL ECONOMIC

INTEGRATION: THE
CARIBBEAN EXPERIENCE
Session outline

 Provide an overview of Regional Integration Initiatives

 What is Regional Integration
 Levels of Integration
 History of Caribbean Integration
 Federation, Carifta, Caricom
 CSME
Regional Integration Initiatives

 Many Caribbean countries recognised that they share similar

backgrounds & goals
 Some drivers of integration were:
 Similar historical & cultural history (common identity)
 Strength in numbers (Caribbean islands were small)
 Create policies that fit Caribbean
Regional Integration Initiatives

 “small countries like ours encounter great difficulty in establishing

their influence in the world dominated by power and regional
associations. The general difficulty is aggravated in our case by
centuries of subordination to outside control, which has given rise
to a view not common outside of the West indies, that we are
satellites by nature and exist. Only to serve as pawns to outside
countries-Dr. Eric Williams
Regional Integration Initiatives

 The British idea in the 1800s was to form a single administrative unit
with her colonies
 The Windward Islands (Grenada, St. Vincent, St. Lucia) were under
the Windward Islands Federation 1833-1958
 1871-1956: British governed the Leeward Islands (Antigua, Barbuda,
Dominica, Montserrat & St. Kitts & Nevis-Anguilla)
 Labour started raising the issue of integration in 1930s
 This differed from the British
 Names like: T.A. Marryshow (Grenada) was considered the father
of the Federation
Regional Integration Initiatives

 A.A. Cipriani (TnT): wanted a constitution-establishing a federal

structure (with Marryshow) drafted by West Indians for universal
suffrage
 1937-38 labour movement unrest in the islands
 They called for a Federation
 The West India Labour Congress in 1938 meet with the British
government and made some recommendations
 Federation of W.I with full internal control + adult suffrage
Regional Integration Initiatives

 After 1945, the British was more open to the idea of a Federation
 They wanted to rebuild their economy after WW11
 Their was also growing resistance to British rule
 It was costing the UK government much to keep the colonies as
opposed to the early days
 The West Indies federation formed in1958
 Most W.I leaders this would result in political union
What is the W.I Federation

 Established in 1958: 10 countries (Antiguan & Barbuda, Barbados,

Dominica, Grenada, Jamaica, Montserrat, St. Lucia, Trinidad
Tobago, St. Kitts-Nevis, St. Vincent)
 Set up by the UK to achieve political union
 It would have Executive Governor-General
 Prime Minister elected by among & by members of House of
Representatives
 A cabinet of PM & 10 other elected members
What is the W.I Federation

 A Council of State presided by the Governor-General

 45 Member house representatives
 19 member senate
 Ran from 1958-62
 Deal with tax issues, central planning, Regional Customs Union
 Also looked at supporting structures & institutions (West Indies
Shipping Service, BOAC)
 !948 University College of the WI
W.I Federation Issues & problems

 UK imposed governance & administrative structures

 Policy disagreements by members (taxation, central planning)
 Federalism requires some centralization and individual members
did not want to
 Location of the capital disagreement
 Jamaica withdrew from the Federation and this led to its demise
(1962) & later independence
 Premier Eric Williams, “one from 10 leaves nought”
CARIFTA

 1965 some WI leaders announced the formation of the Free Trade

Area
 Some aspects of CARIFTA:
 Increasing & diversifying trade
 Liberalizing trade (removing tariffs)
 Benefits of trade to be equalized
 Promote industrial activity
 Rationalize agriculture
CARICOM

 In an effort to deepen integration pressure to develop

another framework
 1973 CARICOM was formed
 3 Objectives were:
 Economic integration-common market & trade policies
 Pooling of resources & sharing of services (human &
social development)
 Coordination of foreign policies
What is the CSME?

 Heads of Government expressed their determination to work

toward establishing a single market and economy.
The CARICOM Single Market and Economy is intended to
benefit the people of the Region by providing more and
better opportunities to produce and sell our goods and
services and to attract investment. It will create one large
market among the participating member states.

www.caricom.org
What is CSME?

 The main objectives of the CSME are: full use of labour

(full employment) and full exploitation of the other
factors of production (natural resources and capital);
competitive production leading to greater variety and
quantity of products and services to trade with other
countries.
 It is expected that these objectives will in turn provide
improved standards of living and work and sustained
economic development.
www.caricom.org
Origins

 Decision in 1989 to set up the CSME is a way to deal with

globalization & deepen the integration movement which many
past leaders have tried
 The predecessor to CARIFTA
 Globalization is especially harsh on WI small countries:
 Small size means less economies of scale
 Smaller capital base
 Less natural resources (exc. Larger countries)
 Smaller nations have more exposure
 Not part of larger trading blocks
Mission of CSME

 To deeper trade within WI so that intra-regional trade can grow

 To reduce the impact on extra-regional trade from countries that
have significantly lower cost bases and high on the experience
curve
 While 95% of the goods move freely there is need to focus on the
others areas to complete the process
 The removal of restrictions on the right of establishment, the
movement of services, capital and skilled labour.
 To enact new laws, create the appropriate institutions and adopt
the relevant administrative and other facilitating measures.
Membership

 Full Members: Antigua & Barbuda, The Bahamas, Barbados, Belize,

Dominica, Grenada, Guyana, Haiti, Jamaica, Montserrat, St. Lucia,
St. Kitts & Nevis, St. Vincent & The Grenadines, Suriname, Trinidad &
Tobago
 Associate: Anguilla, Bermuda, British Virgin Islands, Cayman Islands,
Turks and Caicos Islands
 We will leave out them most part the associates
Key Areas of the CSME

Free movement of goods and services - through measures

such as eliminating all barriers to intra-regional movement
and harmonizing standards to ensure acceptability of goods
and services traded;
Right of Establishment - to permit the establishment of
CARICOM owned businesses in any Member State without
restrictions;
A Common External Tariff - a rate of duty applied by all
Members of the Market to a product imported from a country
which is not a member of the market;
Key Areas of the CSME

 Free movement of Capital - through measures such as eliminating

foreign exchange controls, convertibility of currencies (or a
common currency) and integrated capital market, such as a
regional stock exchange;
 Free circulation - free movement of goods imported from extra
regional sources which would require collection of taxes at first
point of entry into the Region and the provision for sharing of
collected customs revenue;
Key Areas of the CSME

 A Common trade policy - agreement among the members on

matters related to internal and international trade and a
coordinated external trade policy negotiated on a joint basis;

Free movement of labour - through measures such as removing all

obstacles to intra-regional movement of skills, labour and travel,
harmonizing social services (education, health, etc.), providing for
the transfer of social security benefits and establishing common
standards and measures for accreditation and equivalency.
Key Objectives of CSME

 Strengthen, coordinate & regulate economic & trade relations

among members & stimulate their harmonious & balanced
development
 Promote continued expansion of economic activities to share
equitably among members, paying attention to LDCs
 Work towards achieving a greater measure of economic
independence & effectiveness of member states in their dealings
with other states & groups of states
Challenges of CSME

 Movement to a seamless economic space has been slow

 “64% level of compliance to CSME goals, is yet to fully supported by
member states (Singh, Express 29/1/12)
 Completed a common external tariff, launched a single market in
2006, limited mobility (university graduates, artists, media, & sports
person), easing intra-travelling & creating a regional stock
exchange in larger countries
 Court of justice in 2005
Challenges of CSME

 A parliamentary assembly in 1995

 Regional security framework in 2006
 Some progress in forging links with central & south America (ACS in 1994),
 Trinidad, Jamaica, DR have worked to join FTAA
 Regional trade with Latin America has been small
 There is a slowness to accept liberalization as it requires some economic
pain; not popular politically
Challenges of CSME

 Despite all of this there is need to strength regional integration to deal with
the larger forces/issues:
 Larger trading blocs (EU, NAFTA)
 Removal of protection for some industries (sugar & banana)
 Drug & money lauder ring
 Climate change (small nations are exposed to rising sea levels, hurricanes, severe
weather)
 Resource depletion (Oil & gas in Trinidad)
 Regional transport a problem; affecting passenger, cargo, tourism)
 Some have proposed political union; little support
Challenges for CSME

 Narrow export base; few agricultural commodities, mineral

resources
 Little manufacturing base
 Smallness of size of islands
 Means they are especially exposed to falling prices of primary
products or commodities
 Bananas key commodity for Dominica & St. Lucia
 Sugar: St.Kitts/Nevis
 Natural disturbances like hurricanes, floods, etc.-threat to
economies
Challenges For CSME

 Large scale production of a single agricultural economy on large

plantations for export
 Implication for this is dependence on export markets for a single
commodity beginning with slavery era
 Contemporary Caribbean does it exist?
 In many yes, as CSME nations have single commodities that are at
the mercy of the developed countries
 Trinidad has a ‘one horse’ economy
Key Instruments & Measures
Common External Tariff (CET)

 One the main issues is to harmonize the varying degrees of

customs duties & regulations in members
 Three pillars of CSME:
 A customs union with CET
 A coordinated range of fiscal incentives to industry
 Common policy on foreign investment
 Coordinated efforts to promote & rationalize agriculture & industrial
development
Key Instruments & Measures
Common External Tariff (CET)

 A customs union is a free trade area between 2 or more nations

which has the same custom duties & other conditions of trade to
trade with external nations (compared to Free Trade Area)
 The CET ranged from 20% with a minimum at 0-5%
 Special arrangement were provided for the LDCs (not Barbados,
Trinidad, Guyana & Jamaica-MDC) especially for goods not
available within CSME
 There was special rate of 40% due to the high support for
agriculture in the world; need for members to protect their farmers
Key Instruments & Measures
Foreign Investment & Fiscal Incentives to
Industry

 The issue of foreign investment has been a struggle for members, it

was tabled in 1974 but withdrawn it was never raised again
 Harmonization of fiscal incentives to certain industries; exceptions
from corporate taxes & customs duties on inputs from third
countries (tax holidays)
 These were based the strategic importance of these industries;
export potential, use of regional labour, & inputs
CARICOM Enterprise Regime (CER)

 While stimulating foreign investment is important, it is also important to

increase regional investments
 The goal of CER was to stimulate regional trade, investment, & regional
ownership of businesses & joint development of natural resources
 It intention of the CER was to set out the guidelines to allow a firm to
operate in any member state & be treated in the same as a national;
CARICOM Enterprise
 CSME later put in place Right of Establishment Free Movement of services,
& capital
Regional Stock Exchange

 To encourage more investment; establish a regional stock exchange

 Existing (1989); TnT, B’dos & Jamaica; agreement for cross border trading &
listing trading of stocks & bonds
 Difference between shares/stocks & bonds
 What is a stock exchange?
 The Regional Exchange seeks to promote the movement of capital across
the region & encourage the best possible financing
 Key Economic Sectors

 The Caribbean started of as an agricultural producer

 After WWII mining and tourism was pursued
 Agriculture plays a central role; contribution to foreign exchange,
income & employment, 5.2% region’s GDP in 2001 and is declining
 Trade in agricultural products is in deficit (see table)
TRADE 2008 2009 2010
US$000

EXPORTS
FOOD AND LIVE
ANIMALS
326,637 326,791 317,509
IMPORTS FOOD
AND LIVE
ANIMALS
344,277 297,825 309,386

BALANCE -17,640 -28,966 -8,123

Agriculture

 Trinidad & Jamaica (largest economies) agriculture is not very

important
 Jamaica services play a bigger role; tourism, gov’t services,
manufacturing, mining & quarrying (bauxite & alumina)
 TnT; oil & gas (40% of GDP)
 Agriculture are bigger contributors: Belize, Dominica, St. Kitts/Nevis,
Grenada, Guyana, St. Lucia, St. Vincent
 Since 1973, there was a general decline in agriculture in all
countries except Guyana (30%)
Agriculture-key crops

 Sugar, bananas, & rice have dominated about 75% of total output
 But there was decline in exports of these three crops:
 Reduction of preferential treatment
 Falling prices (until recently for sugar)
 Reduction in investment
 Cheaper global producers

 Sugar is important to Guyana, Belize, Jamaica, St.Kitts/Nevis,

Windward Islands(was), Suriname
 Key export market is EU, US, intra-regional (Trinidad is a big importer
of Guyanese sugar)
Agriculture-key crops-sugar

 Lomé Convention: ACP countries are the beneficiaries of

preferential treatment for sugar, bananas, rum, rice
 Sugar (Sugar Protocol): Agreed quantities , guaranteed prices for
an indefinite period
 Prices are aligned to the beet sugar producers
 2009 a move in the EU regime for ACP sugar imports. This followed
the ending of the ACP EU Sugar Protocol
Agriculture-key crops-sugar

 Caribbean has signed full Economic Partnership Agreement (EPA)

with Europe
 Sugar entering the EU market ceased to be subject to any quota
as of 2009, offering the region unlimited access at the prevailing
minimum price for ACP sugar in the EU market
 2011 the EC’s Agriculture Directorate announced that it intended
to abolish all quotas on the domestic production of sugar - mainly
from beet but also some cane - as of September, 2015
Agriculture-key crops-sugar

 During the transition period, minimum guaranteed prices are being

reduced up to September 2012.
 This price is set at a level no lower than 90 percent of the EU
reference price for the marketing year in question. After September
2012, prices will be determined by the market
 ACP cane sugar suppliers disadvantaged with the Commission’s
proposals to eliminate EU sugar quotas in 2015
 It has jeopardized the European market balance and the future of
their sugar industries
Agriculture-key crops-bananas

 Bananas was developed to secure supplies to UK; had the

exclusive right of entry at reasonable prices
 Special protocol on bananas maintained in 1973 when the UK
joined the EEC
 When the EU came in 1992; all bananas imports from ACP with
guaranteed market access & other benefits
 Challenged by US & Latin American (LA) countries in the WTO
 WTO upheld the claims & EU had to change its regime
Agriculture-key crops-bananas

 Forced to give up access by ACP banana exporters for more than

100k tonnes, transferred to LA exporters
 Prices had to be reduced for ACP
 Dominica has been hard hit & Suriname has lost its entire market
 Others; Belize, St. Lucia, St. Vincent
Agriculture-key crops-rice

 Guyana & Suriname produced the bulk of Caribbean supplies;

export to EU
 EU has restricted export from these countries & affected both
countries
 Rice imports from larger external producers had hit the industry
hard over the years (US)
Agriculture -summary

 Much of the price support removed

 Globalization & trade groups meant that preferential treatment was
abolished
 Caribbean producers exposed as high cost producers
 Impact was reduced or curtailed production
 Some Caribbean countries had to stop production
 Barbados does not produce sugar in commercial quantities
 St. Lucia switched to tourism
Tourism

 Leading industry in many islands; British were the first to vacation here
 Major destination were: Bahamas, B’dos, Jamaica, Antigua, St. Lucia
 Cruise ship has been growing in importance
 Early days were banana boats returning from US with people after
dropping of cargo
 About 50% of all cruise ships ‘floating hotels’ visit the Caribbean
 They pose a problem given that their visitors have everything on board
Tourism

 Caribbean Tourism Organization (CTO) estimates that 20.5 m visitors (2003)

stay overs + 18.1 cruise ship visitors
 Spent US$19B & employs some 1-3m persons
 Spin off industries; agriculture, craft, manufacturing, entertainment,
transportation
 US the main source, followed by EU
 Caribbean people also like the Caribbean. Example?
 Areas for development; regional tourism marketing, tourism product
development, HR development & regional air travel & supportive financial
& investment policies
Tourism

 $$ spent on North America 1993 was a success

 Another launched in EU countries
 Sustainability of small ecologically delicate islands is important
 Sustainable tourism; environmental standards, safety, security, regulations
to deal with crime & harassment
 Eco-tourism is growing
 UWI has a Centre for Hotel & Tourism management in The Bahamas
Manufacturing

 TnT & Jamaica are the largest manufacturers

 Need to set up industries in LDCs but attracting capital &
technology an issues
 Energy is expensive save one country
 More on industry when we cover those two countries
 Maritime & air transport as always been an issue
Manufacturing

 A safe & efficient system of transport is key part of the infrastructure

& necessary for regional integration
 Issue is the great expanse of water & land areas
 It is easier to fly to the Caribbean than within it
 Many of the airlines (TnT, Jamaica & Leeward Islands) are subsidized
by gov’t; some with huge losses
Summary

 WI integration has been a rocky road with much political divisions

 Many members have great challenges economically: high debt,
budget & trade deficits, low growth
 Many have lost market share in services
 Ease of doing business has gotten worse
 CSME has a long way to go as a functioning body