Trade and investment flows between the Caribbean and the rest of the hemisphere in the context of the FTAA

Introduction The evolution of trade and investment flows between the Caribbean and the rest of the western hemisphere has been influenced by historical incorporation into the world economy and changes over time. The most important historical factor was the incorporation of the region into the international capitalist economy as producers and exporters of primary products and importers of technology, manufactured goods and finance. This pattern of specialisation and exchange led to exports of primary goods such as sugar,bananas and minerals (oil and bauxite);. Investment flows followed trade and were driven by profit-seeking, foreign, transnational corporations that were interested in the exploitation of natural resources. This pattern of trade and investment led to a highly volatile growth pattern in the region that was subject to the vicissitudes of terms-of-trade and foreign investment shocks. Over time, the economic base of some countries in the region shifted from primary goods to services, particularly tourism and financial services. This has led to significant foreign investment and trade in these services. The change from the inward-oriented import-substitution industrialisation development framework to the export-led growth model, along with structural adjustment programmes (SAPs); economic liberalisation, has led to increased opening and reform of the regional economy. These market-opening policies, including trade liberalisation, macroeconomic reforms (such as the control of inflation, fiscal prudence and flexible exchange rates in some countries); and privatisation have led to significant dependence on trade and an upsurge in foreign direct investment inflows to the region in the last decade. At the subregional level, the ongoing implementation of the Caribbean Community (CARICOM); Single Market and Economy (CSME); has facilitated intraregional trade and investment. This has been manifested in the development of regional firms and a number of mergers and acquisitions to confront external competition. Complementing the CARICOM initiatives have been continued negotiations to establish the Free Trade Area of the Americas (FTAA); by 2005. The proposed FTAA is likely to lead to trade and investment creation in some activities, diversion in others and dynamic optimising benefits in yet others in Caribbean countries. The net impact on the countries will depend on whether trade and investment creation and dynamic gains supersede diversion. From any standpoint, the scenario is expected to present quite a challenge for small Caribbean economies. The region needs to undertake the necessary strategies in areas such as technology adaptation, marketing and human resource development to develop competitive advantage so as to optimise beneficial trade and investment effects. This paper provides an analysis of trade and investment flows between the Caribbean countries and those of the rest of the hemisphere and the implications of the proposed FTAA for the future evolution of these flows. The paper is divided into seven substantive sections: Section I provides an overview of global trade and investment flows, Sections II and III provide an analysis of intraregional and hemispheric trade and investment flows. They account for the salient patterns and trends in trade flows within the Caribbean and between the Caribbean and major partners in the hemisphere, particularly the United States of America. Importantly, it points to the meagre trade between Latin American countries and the Caribbean and highlights the need for policies to boost this trade under the FTAA. Section IV examines the main drivers of trade and investment flows, while Section V is an analysis of the impact of trade and foreign investment on accumulation and growth in the region. Section VI examines the impact of policy measures on trade and investment flows, and finally, the last section provides an analysis of the major potential implications of the FTAA for the future patterns of trade and investment flows between the Caribbean and other members of the future hemispheric grouping. (1); The Caribbean for the purpose of this paper is limited to the Caribbean Development and Cooperation Committee (CDCC); countries. These countries are Anguilla, Antigua and Barbuda, Aruba, Bahamas, Barbados, Belize, British Virgin Islands, Cuba, Dominica, the Dominican Republic, Grenada, Guyana, Haiti, Jamaica, Montserrat, Netherlands Antilles, Puerto Rico, St. Kitts and Nevis, Saint Lucia, Saint Vincent and the- Grenadines, Suriname, Trinidad and Tobago and the United States of America Virgin Islands.