Regional trade agreement in the caribbean

Regional integration in the Caribbean: The role of trade agreements and structural transformation

Despite having relatively open economies and a dedicated strategic focus on export expansion, Caribbean economies still account for a small proportion of global trade (goods and services). Indeed, the continued failure of the institutional machinery of the Caribbean and the mechanics of the Single Market to deliver the competitiveness, productivity, trade and welfare gains upon which it was premised, has limited the region in its development efforts. This, not surprisingly, has increasingly brought the relevance and validity of the current regional integration initiative into question. In addition, the subregion’s bilateral Free Trade Agreements (FTAs) have not yielded the intended broad-based expansion in exports, with utilization rates among many CARICOM countries being relatively small.

The CARIFORUM-EU Economic Partnership Agreement, which came into force at the end of 2008, sought to address the absence of trade-led growth within the subregion by leveraging development support and market access towards deepening subregional integration as well as enhancing supply side capacity, competitiveness in CARIFORUM. However, the agreement has not yet succeeded in improving intra-regional trade or subregional integration. More specifically, empirical analyses have unmasked a clear disparity between the competitiveness of the Dominican Republic and other Caribbean commodity exports in the EU market. Hence it may be necessary for the subregion to examine alternative platforms for delivering convergence.

It would appear that domestic production systems within the subregion have not been transformed to optimize resource allocation and facilitate exploitation of strategic extra-regional niche markets, where preferential access is on offer. What is equally crucial is that the subregion generally has relatively low trade complementarity with the EU and North America, its major export markets. This notwithstanding, the Caribbean has relatively higher and increasing complementarity with the Central American Integration System (SICA) and Asia, suggesting that these economies may be the subregion’s natural trading partners.

This paper therefore posits that the subregion adopt a new dais of regional integration, which favours deeper trade and economic integration with countries which are the region’s natural trading partners. This would, however, necessitate greater intervention by regional governments and the private sector in the production of regional public goods that are crucial for structural transformation towards the sustainable development of the subregion. Under such conditions, the nexus of Regional Trade Agreements (RTAs), FTAs and regional integration frameworks advanced here can be expected to be net trade creating, efficiency enhancing and welfare gains optimizing.

UN symbols: LC/L.3916 - LC/CAR/L.448