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Trinidad and Tobago: Appendix C. the Caribbean Community and Common Market
Country Study > Appendices > Appendix C. the Caribbean Community and Common Market

APPENDIX C. THE CARIBBEAN COMMUNITY AND COMMON MARKET


In the late 1980s, the members of the Caribbean Community and Common Market (Caricom) consisted of Antigua and Barbuda, the Bahamas, Barbados, Belize, Dominica, Grenada, Guyana, Jamaica, Montserrat, St. Christopher (hereafter, St. Kitts) and Nevis, St. Lucia, St. Vincent and the Grenadines, and Trinidad and Tobago. The members faced problems typical of many developing societies: high birth rates, unemployment and an unskilled labor force, inadequate infrastructure, balance of payments constraints, and insufficient domestic savings to achieve development goals. In addition, Caricom members lacked diversified economies and were incapable of producing most capital goods and some basic consumer goods necessary for productive expansion. The Caricom members, therefore, were forced to rely heavily on imports of essential goods. As a result, development goals were subordinated because of the need to raise foreign exchange to pay for the imports.

Since 1981 the ability of Caricom members to raise the needed capital via export expansion has been severely limited by the lack of export diversification and the reliance on primary products and tourism services, which are extremely vulnerable to changing forces of demand, supply, and price in the international political economy. In the late 1980s, intraregional cooperation was urgently needed to create an atmosphere conducive to overcoming the handicaps of small market size, economic fragmentation, and external dependence.

Caricom's goal of regional integration was designed to serve as a catalyst for sustained growth in the short or medium term by allowing for market expansion, harmonization of production strategies, and development of economies of scale. Integration was also expected to promote industrial growth by eliminating excess capacity in the manufacturing sector and to stimulate investment in new sectors of the expanded market. The long-term hope was for balanced growth, minimal unemployment, a higher standard of living, and optimal use of available human and natural resources.

BACKGROUND AND OBJECTIVES

Following the example of the European Economic Community (EEC), many nations have organized themselves into regional integration organizations, such as Latin America's Central American Common Market, the Latin America Integration Association, and the Andean Pact. The Commonwealth Caribbean made a serious move toward establishing a unit of integration by creating the West Indies Federation in 1958. The federation, formed under the auspices of the British, was doomed from the start by nationalistic tendencies and the lack of taxation privileges, and it failed when Jamaica and Trinidad and Tobago attained independence and withdrew in 1962. Nevertheless, a few institutions, such as the University of the West Indies (UWI) and the Regional Shipping Council, were established under the short-lived federation and continue today. After the demise of the West Indies Federation, economist W. Arthur Lewis attempted to organize a smaller organization among the so-called Little Eight islands (Antigua and Barbuda, Barbados, Dominica, Grenada, Montserrat, St. Kitts-Nevis-Anguilla, St. Lucia, and St. Vincent and the Grenadines); however, his efforts yielded little success.

The first call for a regional Caribbean community was made in a January 1962 speech by Eric Williams, former prime minister and first head of state of independent Trinidad and Tobago. However, it was not until the late 1960s that advocates of a new federation focused their attention on the issue of regional integration. In July 1965, Antigua and Barbuda, Barbados, and Guyana signed the Treaty of Dickenson Bay, which established the Caribbean Free Trade Association (Carifta). Under the terms of the 1968 Treaty of St. John's, Carifta was widened to include Anguilla, Dominica, Grenada, Jamaica, St. Kitts and Nevis, St. Lucia, Montserrat, St. Vincent and the Grenadines, and Trinidad and Tobago. Although a free-trade area was established, Carifta did not provide for the free movement of labor and capital or the coordination of agricultural, industrial, defense, and foreign policies. Thus, over the next five years, little progress was made toward creating a regionally integrated unit. In 1970 the prospect of Britain's joining the EEC alerted the islands to their vulnerability to any disruption in their preferential trading ties with Britain. In the same year, economists at the UWI issued a report contending that the creation of a free-trade area alone was not sufficient to procure full gains from regional integration. These events led to the development of the present Caricom structure.

In 1973 the Carifta members signed the Treaty of Chaguaramas, replacing the ineffective Carifta structure with Caricom. Caricom has three essential components: economic integration based on a regional common market; functional cooperation in such areas as culture, education, health, labor relations, tourism, and transportation; and coordination of foreign and defense policies. Although the regional common market is an integral part of the broader based community arrangements, it has a completely separate identity juridically. Thus, it was possible for the Bahamas to become a member of the community in 1983 without joining the Common Market. In 1981 the Eastern Caribbean islands of Antigua and Barbuda, Dominica, Grenada, Montserrat, St. Kitts and Nevis, St. Lucia, and St. Vincent and the Grenadines established an associate entity, the Organisation of Eastern Caribbean States (OECS -- see Glossary), which replaced the West Indies States Association (WISA) as the islands' administrative body. The OECS coordinates development strategies among its members and provides for cooperation in economic, foreign policy, and defense matters. The OECS was created after studies indicated that most of the benefits derived from integration were flowing to the larger islands (especially Jamaica and Trinidad and Tobago) at the expense of the smaller.

INSTITUTIONAL STRUCTURE

The institutional structure of Caricom consists of the Heads of Government Conference, the Common Market Council of Ministers, the Caribbean Community Secretariat, and other special bodies (see fig. A, this appendix). Unlike in the EEC, each member has a right of veto. Decision making in Caricom, although centralized at some levels, is quite decentralized at others.

The Heads of Government Conference is the supreme decision making body. Each member of Caricom has one vote, and a unanimous vote is required to legislate decisions or to make policy recommendations. The conference determines the policies to be pursued by Caricom's related institutions. This conference also is responsible for concluding all treaties, making financial disbursements, and maintaining relations with other international organizations.

The Common Market Council of Ministers is the second principal body of Caricom and the principal body of the regional Common Market. The Common Market Council consists of one ministerial representative from each member. Decisions are made by unanimous vote, with minor exceptions. The council resolves problems and makes proposals to the Heads of Government Conference to achieve efficient development and operation of the Common Market.

The Caribbean Community Secretariat is Caricom's principal administrative component. The Secretariat operates to serve the interests of the region rather than those of each government. Although the Secretariat has no decision making-power, its discussions, studies, and projects have made it a dynamic element in the integration process.

Other offices responsible for specific sectoral aspects of regional integration are the nine Standing Committees of Ministers (health, education, labor, foreign affairs and defense policy, finance, agriculture, mines, industry, and transport). In addition, independent associate institutions include the Caribbean Development Bank (CDB), the Caribbean Examinations Council, the Council of Legal Education, the University of Guyana, the UWI, the Caribbean Meteorological Council, the Caribbean Food Corporation, the Regional Shipping Council, and the Caribbean Marketing Enterprise. Finally, the Joint Consultative Group, comprising business, consumer, and trade groups, meets to review the integration process and ensure interest group participation in Caricom activities.

MARKET INTEGRATION MECHANISMS

Caricom seeks to achieve economic integration through market forces. The Common Market was established to promote intraregional trade. It achieves this through trade liberalization by removing duties, licensing arrangements, quotas, and other tariff and nontariff barriers to trade; the Rules of Origin; the Common External Tariff (CET) and the Common Protective Policy (CPP); and trade arrangements such as the Agricultural Marketing Protocol and the Oils and Fats Agreement.

The Common Market contains a number of important mechanisms for liberalizing trade. These include eliminating extraregional export duties, removing quantitative restrictions on regional exports, permitting free transit for products of members, and eliminating quantitative restrictions on imported goods. Article 28 of the Treaty of Chaguaramas permits the application of quantitative restrictions if the member has severe balance of payments problems. However, because of the invocation of this clause in 1977 by both Guyana and Jamaica and the continuing economic problems confronting the Caricom members, removal of this provision was being considered in 1987.

The Rules of Origin establish the conditions of eligibility of regional products so that they may be considered of Common Market origin and thus qualified for preferential treatment. In 1986 a new set of Rules of Origin was adopted to increase the use of regional products and promote employment, investment, and savings of foreign exchange. Given the scarcity of products within Caricom in the late 1980s, observers believed that achieving high levels of regional value-added worth even with the new Rules of Origin would be difficult.

The Treaty of Chaguaramas mandates gradually implementing the CET and CPP. The CET stimulates production by imposing low tariffs on capital goods and industrial raw materials and higher tariffs on finished products. The CPP standardizes quantitative restrictions to protect specific regional industrial sectors. Together, the CET and CPP, coupled with intraregional trade liberalization, were expected to stimulate reciprocal investment and trade among members. In reality, these had not been achieved by the late 1980s because of problems in implementing the CPP and excluding goods from the CET.

The final market integration mechanism aims at providing guaranteed markets and prices for Caricom exports to overcome the volatile trade in primary commodities. The Agricultural Marketing Protocol and the Oils and Fats Agreement regulate intraregional trade via certain buy-and-sell accords at fixed prices resulting from shortages or surpluses within Caricom. Caricom also has the Guaranteed Market Scheme, whereby in certain circumstances Jamaica, Barbados, and Trinidad and Tobago will purchase fixed quantities of agricultural products from the other members.

MECHANISMS OF COOPERATION IN MARKETING AND PRODUCTION

Joint regional action in production and marketing activities is viewed by Caricom as a means of coordinating and controlling each member's output to avoid injury to other members or to the entire region. Coordinating policies is also intended to encourage specialization and complementary production. One important mechanism in this regard is regional industrial programming aimed at promoting specialization and economic diversification and avoiding duplication of investment. Although regional industrial programming was first considered in 1973, concrete actions did not begin until 1985 with the completion of the first phase of regional industrial programming. Of the thirty-five projects originally considered, only twenty-three have been identified as feasible. Only sixteen had been implemented by 1986. The most cited example of industrial cooperation and integration was a regional alumina (see Glossary) refinery that was to use bauxite (see Glossary) from Jamaica and Guyana and oil from Trinidad and Tobago. Although the project was thoroughly discussed during the 1970s, it remained doubtful in the late 1980s that such a project would ever be realized. In addition, related agricultural programs offered joint efforts to provide extension, marketing, and research and development services to reduce unit costs, increase quality and yield, and slash imports of basic foodstuffs.

The Regional Food and Nutrition Strategy is the main instrument for Caricom's agricultural development. The strategy establishes a framework and identifies priorities for a regional approach to agricultural self- sufficiency. The Caribbean Food Corporation, founded in 1976, is the main mechanism for planning and implementing the strategy's objectives. Also, the Caribbean Food and Nutrition Institute was established by Caricom at the UWI in Mona, Jamaica.

Transportation is indispensable for effective trade, export promotion, and other integration objectives. Cooperation in maritime transportation is envisioned through the West Indies Shipping Corporation (WISCO), which was established in 1961 and restructured in 1975. WISCO theoretically provides services to all Caricom nations. In early 1987, however, Belize, Dominica, and St. Vincent and the Grenadines withdrew from WISCO, claiming they had received few benefits from the service. In the late 1980s, air transportation remained inadequate because of the lack of coordination among the existing airlines. Standardizing air transport by coordinating and planning routes and fares, as well as mergers, was necessary to improve service and reduce costs.

Tourism is important to the region by providing foreign exchange, increasing employment, encouraging the production of tourist-oriented products and services, and stimulating the construction of basic infrastructure. Some regional cooperation in tourism has been carried out by the Caribbean Tourism Association, the Caribbean Tourism Research and Development Centre (located in Barbados), and the Hotel Training School at the UWI in the Bahamas. Nevertheless, in the late 1980s further cooperation was needed to link the tourism sector to the rest of the economy and to establish regional tourism enterprises.

MECHANISMS OF FINANCIAL COOPERATION

Financial cooperation tries to fulfill the objectives of economic integration by facilitating payments for intraregional trade and by mobilizing investment funds to productive sectors of the economy. The principal vehicle for financial cooperation is Caricom's Multilateral Clearing Facility (CMCF). It was established in 1977 by the central banks and other financial entities of Caricom's members. The facility's objectives are to reduce the use of foreign exchange and expedite intraregional payments through credit and other financial arrangements. Other related mechanisms include harmonizing exchange rates by pegging the six existing currencies to the United States dollar and by issuing regional traveler's checks through the Central Bank of Trinidad and Tobago. Finally, the CDB contributes to the equitable development of the region by providing low-interest loans for projects and related integration plans.

FUNCTIONAL COOPERATION

The Treaty of Chaguaramas also envisioned coordinating efforts in many noneconomic areas. The Caricom structure has formalized and expanded this kind of cooperation to include meteorological services and hurricane insurance; health and nutrition services; technical assistance; public utilities; education and job training; broadcasts, printed media, and information; culture and language; social security, labor, and industrial relations; science and technology; and harmonizing the laws and legal systems within Caricom. This cooperation has been successful in improving services to the members (especially the smaller ones) and lowering costs of activities through joint ventures. The regional university and health and nutrition systems are examples of successful functional cooperation.

COORDINATION OF DEFENSE AND FOREIGN POLICIES

The Heads of Government Conference and the Standing Committee of Ministers of Foreign Affairs and Defence Policy are responsible for coordinating the defense and foreign policies of members to increase their international bargaining power. Caricom has been able to present a regional foreign policy position in defense of the principles of regional security and nonintervention; support of the territorial integrity of Guyana and Belize in their border disputes; and various negotiations for the Lomé Convention (see Glossary), by which many Third World nations have gained preferential access to EEC markets and economic assistance.

A BRIEF EVALUATION OF THE INTEGRATION EFFORT

One method of evaluating Caricom's integration efforts is to look at three of its principal goals: defense and foreign policy coordination, functional cooperation, and economic and trade cooperation. In the late 1980s, some positive results had been achieved in defense and foreign policy coordination. Caribbean expressions of solidarity on issues of regional security and territorial integrity focused international attention on the region and strengthened Caricom's bargaining position in negotiations with regional and extraregional nations and in international forums. Ultimately, however, parochial concerns have always overshadowed regional interests. The ideological pluralism of the region and the often drastic changes in government orientation have hurt the coordination process through bilateralism and polarization of interests.

Functional cooperation had improved by the late 1980s, as reflected in the successful regional air transport, education, and health systems. However, Caricom had not expanded beyond these programs to develop common cultural and political linkages. Although a Caribbean parliament could potentially be an important force, in the late 1980s none appeared likely to materialize. Many observers argued that Caricom had spread itself too thin and should concentrate on solving problems rather than expanding.

Economic and trade cooperation had also improved. Examples of such improvements are Caricom's collective ability to mobilize large volumes of external capital, to gain greater access to third-country markets, to facilitate significant financial transfers to its members (especially to those not producing or refining oil), and to achieve a fair degree of access to internal markets. Nevertheless, two outstanding shortcomings remained: the failure to achieve significant benefits from the complementary use of the region's human and natural resources and the inability to formulate a common policy vis-à-vis foreign investment. Both of these issues have immense significance for the long-term development objectives of greater self-reliance and reduced external dependence.

Although the increase in intraregional trade in the 1973-81 period consisted largely of manufactured consumer products not previously traded, such an increase indicated neither diversification nor specialization of production as envisioned by Caricom's designers. On the contrary, duplication of production was evident. When coupled with the foreign exchange crisis and the weak extraregional trade performance since 1981, the nations have been forced to borrow from abroad; this has caused increased foreign debt and reduced imports of consumer goods, which comprise much intraregional trade. The Caribbean Community Secretariat reported that the decline in intraregional trade was approximately 33 percent in 1986, following declines of 3.3 percent in 1985, 10.9 percent in 1984, and 12.2 percent in 1983. Finally, many observers have noted the polarized development patterns and disproportionate gains from Caricom's integration mechanisms. Nevertheless, this polarization may not be an inherent fault of Caricom, but rather the result of a political economy that many argue continues to be biased toward the more developed nations. Thus, simple changes in trade patterns could not modify the situation without substantial structural change.

Since its inception, Caricom has experienced continuous crises. These have occurred to such a degree that many observers have come to regard the situation as a natural condition associated with developing nations, especially in light of external debt and trade constriction. However, in 1987 a group of Caribbean experts expressed cautious optimism because the institutional framework of the community remained intact, intraregional dialogue was maintained, and trade and functional cooperation continued to show resilience.

EVENTS AFFECTING THE COMMUNITY IN THE 1980s

A purposeful and cooperative spirit characterized Caricom's seventh summit conference, which was held in Guyana in July 1986. The highlights of this conference included establishing a regional Export Credit Facility (ECF) by July 1987 and implementing the regional industrial programming by late 1986.

In a declaration published at the end of the summit, Caricom leaders decided to implement the articles dealing with external trade, industrial policy, and joint development of resources. The creation of the ECF (ratified in May 1987) was aimed at providing pre- and post-shipment credit for Caricom manufacturers exporting goods both inside and outside Caricom, excluding such traditional products as bananas, bauxite, oil, and sugar. The industrial policy was intended to encourage regional joint ventures and investment initiatives geared toward improving the production structure of the Caricom members.

Approximately 25 percent of the funding for the ECF -- around US$75 million -- will be subscribed by the Caricom nations. The remainder will be raised through loans from the CDB, the World Bank (see Glossary), and other sources. Colombia has offered to provide technical assistance and will help to coordinate the ECF program. At the seventh summit conference, talks continued on reactivating the CMCF, whose activities were suspended in 1983 after reaching its credit ceiling via emergency loans to Jamaica and Guyana. Related to this, Barbados and Guyana discussed a US$100 million joint venture in lumber production and marketing that should help Guyana finance its debt to the CMCF. (In 1987 Jamaica was several years in arrears on its debt to the CMCF.)

Much of the discussion at the seventh summit conference focused on the 1984 Nassau Agreement. This agreement, aimed at reducing trade barriers and harmonizing external tariffs, recommended the use of the CET, not quantitative restrictions, to protect industrial development. The agreement also advocated removing price controls, developing incentives for industrial production, and improving training programs for displaced workers. A proposal for creating a common monetary unit was rejected on the grounds that the frequent fluctuation in Caricom's exchange rates would undermine such efforts. Nevertheless, summit participants decided that the members should consult Caricom's financial institutions if planning devaluations or pegging exchange rates.

In addition to the collective decisions reached at this summit, certain bilateral accords and negotiations were announced. One principal accord involved air transport between Jamaica and Trinidad and Tobago. Air Jamaica was granted landing rights in Port-of-Spain (with intermediate locations), whereas Trinidad and Tobago's carrier, British West Indian Airways, was authorized to service Kingston with intermediate stops. Barbados and Trinidad and Tobago announced talks aimed at a similar accord.

In the years since Caricom was established in 1973, a considerable amount of material has been published on the structure, positive and negative aspects, and future of the organization. The Inter-American Development Bank's Ten Years of Caricom and Economic and Social Progress in Latin America and the Caribbean Community Secretariat's yearly publication, Report to the Secretary General of Caricom, are recommended. A concise overview of Caricom may be found in Eduardo Margain's Development Challenges and Cooperation in the Commonwealth Caribbean; detailed essays on Caricom and the Commonwealth Caribbean may be found in Anthony Payne and Paul Sutton's Dependency under Challenge. (For further information and complete citations, see Bibliography.)




Last Updated: November 1987


Editor's Note: Country Studies included here were published between 1988 and 1998. The Country study for Trinidad and Tobago was first published in 1987. Where available, the data has been updated through 2008. The date at the bottom of each section will indicate the time period of the data. Information on some countries may no longer be up to date. See the "Research Completed" date at the beginning of each study on the Title Page or the "Data as of" date at the end of each section of text. This information is included due to its comprehensiveness and for historical purposes.

Note that current information from the CIA World Factbook, U.S. Department of State Background Notes, Australia's Department of Foreign Affairs and Trade Country Briefs, the UK's Foreign and Commonwealth Office's Country Profiles, and the World Bank can be found on Factba.se.

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