Caribbean trade and integration: trends and future prospects

This paper analyses recent trends and future prospects in the Caribbean Community (CARICOM), an incomplete customs union of 15 States in the Caribbean that includes most English speaking countries in the region plus Haiti and Suriname. In these small economies, the promotion of exports is of utmost importance, as in the medium term these are the only means to pay for the import of capital goods, intermediate inputs and technology necessary to build up their economic infrastructure. This study reviews first the progress made with reforms to complete the CARICOM Single Market and Economy (CSME) by 2015, concluding that important advances have been made towards this goal, but many obstacles remain. In this context, the implementation of the single economy component of the CSME, which should have started in 2009, needs to be fast-tracked. In particular, CARICOM needs to establish a mechanism to manage the implementation of decisions taken by the Heads of Government Conference. Also, the Community must strengthen the special treatment of its most disadvantaged members, as the recently created CARICOM Development Fund is probably not sufficient to fulfill this goal. Second, the paper analyses CARICOM's recent trade performance. Intra-s ubregional trade represents a small share of the total, and is skewed towards few countries and a handful of products. Export diversification efforts under way in the Caribbean are moving in the right direction, but the process needs to be accelerated by strengthening local technical capacities of producers. Also, tourism services need to be linked more strongly to the creative industries and domestic agriculture with a view to enhancing production and employment spillovers. Third, the paper evaluates progress on the Economic Partnership Agreement (EPA) with the European Union now in force, which offers great opportunities both to boost trade and investment with Europe and to enhance trade integration within the Caribbean itself. Implementation of the EPA has been slow, in part because several small CARICOM economies lack technical resources and disbursements from the European Development Fund to help these countries have been slow. Moreover, the implementation of the EPA requires CARICOM and the Dominican Republic to rapidly resolve their differences over the tariff treatment of exports from the Dominican Republic to CARICOM. The CARICOM member countries need to position themselves better to capitalize on the market access provided by the EPA and thereby diversify their exports. This requires countries to take full advantage of the financial and technical assistance available under the EPA with a view to developing production capacity, strengthening institutions and improving competitiveness. Finally, in the context of the very limited financial resources of Caribbean countries, this study highlights the key role of Aid for Trade to strengthen the region's ability to capitalize on international trade opportunities. CARICOM should encourage donors to improve the implementation and effectiveness of AfT initiatives by correcting the main shortcomings identified by beneficiaries.