After a long and intense debate in the Region on the pros and cons of NAFTA entry and hemispheric integration, CARICOM governments finally accepted the idea to create a Free Trade Area of the Americas (FTAA) by the year 2005 as proposed and endorsed a t the recent Summit of the Americas.
In that decision, two routes to FTAA were formally recognised. The first is negotiation between NAFTA and individual countries or groups of countries for NAFTA entry. The second is the expansion of regional integration in South America, in particular MERCUSOR, to include other countries or regions and then to finally link up with NAFTA. These two routes did not exhaust all the options and most of all, did not indicate a clear choice for CARICOM.
More specifically, whether NAFTA would expand individually or multilaterally, was left unanswered. Also relevant to this region is whether an ACS/FTAA link is in the offering? The alternative routes to FTAA being left vague and NAFTA expansion still up in the air due to change in US attitude, CARICOM countries have been left to play "blind all fours".
The above has compounded an already difficult situation in CARICOM. CAR1COM countries are in disarray regarding a common approach to NAFTA. This stems in the first place from different perceived gains from NAFTA/FTAA. On the one hand, the countries with a manufacturing base obviously see NAFTA/FTAA as expanding their market base to allow them to achieve easier economies of scale. Trinidad and Tobago (T&T) in particular, consider wider market access in the hemisphere as critical to attracting investment and providing outlets for production from its world scale plants in the energy and petrochemical sectors and the downstream manufacturing derivatives that are planned from these sectors. The composition of existing trade with NAFTA/FTAA is therefore not a sufficient basis on which to judge potential gains especially since export-
On the other hand, the more service-
This is an area that CARICOM has not fully examined even though it may be necessary to trade goods concessions for services concessions. Rather, there has been the tendency to argue that the areas in which CARICOM has actual potential competitive strength are those not restricted by trade barriers such as tourism and data services. It would be in the interest of CARICOM to investigate this much further with a view to seeing in what ways a future NAFTA would better facilitate its objectives in the service sector. I suspect that there would be several areas where it would be helpful for CARICOM to get involved early in negotiations with a view to shaping the future evolution of the services provisions and capturing its share of the investment that would flow from this.
Alongside this basic difference in perception about gains, there is also a different perspective regarding the timeframe for entry. The dominant view in CARICOM seems to be that time is needed for the EU to clarify its development policy after LOME IV and in the short-
An alternative view is that the separation of the short from the long run neglects the fact that global investment has begun to prepare for the FTAA and decisions are already being made on plant location in anticipation of its creation. The countries that therefore make the early moves to FTAA would send the right signals indicating a willingness both to institutionalize unilateral trade reforms in a multilateral setting and to follow the policy discipline required from participating in such a venture. They would thus be more attractive to investors. T&T believes that it is well placed to attract a fair share of the expected increase of global capital flow. It therefore sees the free trade option as one that has to be immediately pursued either with NAFTA or individually with any NAF IA countries willing to negotiate with it as well as with Latin American countries, in particular Venezuela and Colombia. Simultaneous bilateral free trade negotiation with both North and South America seems to be the direction in which Trinidad and Tobago is heading.
Another factor which contributes to this divergence in CAR ICOM is the variation in the speed with which CARICOM countries have been preparing themselves for a liberalized environment and thus attempting to satisfy free trade entry conditions. NAFTA entry for instance, requires low and uniform tariffs, macroeconomic stability (low inflation and steady growth in foreign reserves), debt servicing capacity, liberalization in the foreign exchange market, and a certain minimum respect for the environment, labour rights and intellectual property. Not all CARICOM countries meet these criteria or are even actively trying to meet them either with the help of programmes such as the Enterprise for the Americas Initiative and its attached Multilateral Investment Fund or purely on their own efforts.
Loss of Preferences
Another concern and in a sense the major one, is the "loss" of’ EU preferences in the event of NAFTA entry. This perceived loss is somewhat perplexing in so far as the Caribbean has not used EU preferences to diversify and has in fact little comparative advantage in manufacturing in Europe. European investors have not used the Lomé agreement to develop export-
No serious Caribbean country can therefore continue to count on Lomé preferences, even though some transitional arrangements in specific areas may be reasonably expected. Countries in the region that have understood this as well as those that are less reliant on EU preferences see benefit in new initiatives to deal with the EU/FTAA trade-
Recognition of the above differences in interests and outlook in CARICOM, has led CARICOM to accept the view that countries can choose their own timetable and pursue individual entry into NAFTA/ FTAA provided no less favourable treatment is given to CARICOM countries. In these circumstances, is it still realistic to expect a unified CARICOM approach? Many still argue for it on the grounds that one needs to maximize negotiating strength and to pool regional negotiating skills. These arguments how ever, no longer stand up to in-
Jamaica and T&T have already individually negotiated critical elements of the NAFTA package-
The Single Market
Some observers see the real problem with individual negotiation in the threat that it poses to the very fabric of CARICOM. CARICOM agreed years ago to engage in a process of widening and deepening. The trauma it faces today comes from the fact that no real progress has been made with deepening. The single market objectives that are loudly and laudably proclaimed are really little more than those of a Customs Union which already has little meaning in the context of hemispheric integration and universal liberalization. In addition, there is as yet no institutional and legal basis for achieving this limited single market and economy (SME).
Any meaningful single market objective must necessarily focus on labour market integration. This is because, with liberalization of the foreign exchange market and further dollarization of the economy in terms of its acceptance in domestic use, monetary integration and capital mobility no longer hold the spotlight yet, even the minimalist goals set, such as free movement of some categories of skilled labour and hassle-
More importantly, at this point one can seriously question CARICOM ‘s commitment to the single market idea. Even though the idea is high on the agenda, realistically, not much could he expected from proposals on labour mobility given the sensitivity of this issue. Inability to move ahead on the SME means that the loss of trade protection which is the main instrument of integration, will leave CARICOM with little with which to consider itself an integration movement. That, however, would certainly not signal the end of CARICOM. CARICOM exhibits a resilience to stay as a loose and flexible form of integration that allows its member states to seek their bread and butter elsewhere.
I have argued elsewhere that CARICOM’s most important achievement in the past has been the use of its collective strength to successfully negotiate trade and aid agreements. With the erosion of trade preferences and the decline of external aid however, this cohesiveness of CARICOM will wither since countries with different economic interests will seek deals on the basis of reciprocity. The present developments are not therefore surprising. It is also evident in other integration schemes as ACM and CACM. Open regionalism is therefore pushing for more optimal trade and investment ties that go far beyond a small integration
The long history of internal and external protection has made CARICOM unwilling to frontally face the process of universal liberalization. While some marginal progress is recorded in GATT in terms of bindings, CARICOM is yet to decide on some baseline reciprocity. Until it does, it will not be in any position to approach the trading blocs in any coordinated way. This undetermined measure of reciprocity is at the heart of the proposed common framework approach to negotiations with NAFTA -
In the final analysis, it must be recognized that in a context of reciprocal negotiations (which are essentially inter-
(Dr. Anthony Gonzales is Senior Lecturer, Institute of International Relations, U W 1, St. Augustine, T& T)