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-oriented policies have only been put in place in the last few years.

Services Provisions

On the other hand, the more service-oriented economies consider NAFTA to be mainly beneficial for the goods sector even though NAFTA does contain provisions for some service sectors. The question of whether NAFTA entry will expand foreign investment in services (a key element in building comparative advantage) remains unclear. NAFTA has already gone beyond GATT in terms of opening the financial services sector (banking and insurance) and telecommunications. The Caribbean is essentially looking at comparative advantage in educational services, offshore financial services, data services, , tourism, etc. Some observers believe that NAFTA entry could enhance foreign investment and provide professional and educational certification as well as the regulations that could facilitate greater movement of persons and the establishment of service providers.

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-to-medium term, it is in the region’s best interest to negotiate for an interim non-reciprocal arrangement that would give some parity with NAFTA particularly in textiles, petroleum and garments. This CBI parity option is now being actively pursued.

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-oriented investment in this region. Furthermore, the real areas of gain for the region have been and continue to be in the traditional commodity arrangements such as sugar and bananas. These are very special provisions and are not fully related to other Lomé trade preferences. The Sugar Protocol for instance, is separate from Lomé and the Banana Protocol is only up to the year 2002. In addition, Lomé preferences have been whittled down by the successive GATT rounds culminating in the Uruguay Round, the enlargement of the EU, EU trade agreements with some Eastern European countries and additional EU preferences to non-Lomé GSP countries, in particular the least developed. The EU has moreover, indicated that it is seeking to overhaul its preference system by cutting out preferences for middle-income developing countries and seeking to integrate them more in the WTO on the basis of reciprocity and non-discrimination.

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-off They see the option rather than the Mercusor or any other southern variant as offering much more because of stronger trade and investment links with that region. The real question for them is how to ensure that the gains in NAFTA/FTAA would offset the losses, if any, from the EU. In terms of existing trade, the vast majority of the region’s exports go to the US (and the FTAA) therefore represents potentially its "natural" trading area in terms of comparative advantage. Greater and more secure market access from reciprocal and contractual arrangement should offer net compensatory benefits to the region. This argument I have developed elsewhere.

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-depth scrutiny. Negotiating skills can be mobilized especially in the larger countries and can even be purchased if needed like any other skills these days.

Jamaica and T&T have already individually negotiated critical elements of the NAFTA package-Bilateral Investment Treaties and Intellectual Property Agreements. In any case, there are precedents to follow which make the negotiating process less pioneering and less onerous. Nevertheless, it is generally believed that negotiating as a group could add at the margin some more strength. The significance of this gain however remains doubtful, especially in the context of reciprocity. There is no guarantee that, as in the case of nonreciprocal negotiations, the net benefits would naturally be conferred on each individual country. The reason for this is that unlike the EU, CARICOM integration is too shallow and there are no real internal compensatory mechanisms for those who may lose in that process.

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-free travel have not received the consideration they deserve, let alone in-depth implementation. Furthermore, building an integration movement without trade protection involves more focus on investment facilitation, business conditions, technical and marketing support to industry and concentration on integrating infrastructure, in particular the "software" aspects, such as human resource development, communication, etc.

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

Universal Liberalization

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 - an idea which was advanced some time ago especially when the US was indicating that it could not waste valuable bureaucratic time negotiating separately with 13 CARICOM countries. Without that minimum common agreement, negotiations would descend into bilateral discussions.

In the final analysis, it must be recognized that in a context of reciprocal negotiations (which are essentially inter-state and bilateral unless the group is as structurally integrated as the EU and can have some collective competence in some areas such as trade, customs, etc.), a common CARICOM approach to negotiations as in the past cannot be anticipated. Given the difficulties in finding a common approach and the fact that countries have already started individual negotiations, CARICOM has accepted this reality on the condition that it could not lead to more favourable treatment being given to non-CARICOM countries in the hemisphere. In this situation the minimum that one can hope for is that individual countries or groups of countries would consult with the Group and the Secretariat and even take the Secretariat as part of their negotiating teams to ensure that more favourable treatment is not given to non-CARICOM countries. The only escape from this bilateral fate is if the FTAA process is frozen over time and in such a way that CARICOM gains some more time to get its act together - something which may appear quite plausible in view of the present recalcitrance coming out of Washington these days. This, however, is wishful thinking since the time that CARICOM would require goes much beyond what can reasonably be anticipated from a slowing-down of the FTAA process.

(Dr. Anthony Gonzales is Senior Lecturer, Institute of International Relations, U W 1, St. Augustine, T& T)




Anthony Gonzales

Senior Lecturer, Institute of International Relations,

U W 1, St. Augustine, T& T.