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A US-Caricom free trade agreement?

Antigua Sun

A US-Caricom Free Trade Agreement?

By Sir Ronald Sanders

18 April 2006

US Trade Representative, Robert Portman, met Trade Ministers of the Caribbean Community (Caricom) countries on 12 April giving rise to speculation that a Free Trade Agreement (FTA) between the US and Caricom countries might be in the offing.

No statement had been issued from the meeting after it was held. Therefore, whether or not a FTA was formally mooted remains a matter of speculation.

In any event, a meeting between Portman and Caricom trade ministers was long overdue. The US is the Caribbean’s biggest trading partner in both goods and services, and it is vital that a keen awareness of the problems facing the economies of Caricom countries should be understood at the highest levels of the US government.

For, if the US is disposed to doing so, it can lead action in the World Trade Organisation (WTO) and in the international financial institutions, such as the IMF and World Bank,that could accord Caricom countries treatment that is special and different from the rules that apply to larger countries.

Similarly, Portman should be made aware that if the US government were to offer Caricom a FTA, it should not be on the basis of reciprocal treatment.

Caricom countries would require that such an FTA grants them duty free access to the US market equal to Canada and Mexico (under the North American Free Trade Agreement) while giving them time to adjust their economies to allow US goods full reciprocity.

Also, the US would have to consider the establishment of some mechanism for compensating Caricom economies for the disruption they will experience from the unfettered importation of US goods and services.

Convincing the US government that Caricom countries need special treatment is not easy.

Bureaucrats tend to look at the traditional criteria, such as per capita income, for determining the health of economies. On these criteria, except for Guyana which is an acknowledged Highly Indebted Poor Country, Caricom countries come out as middle income.

Therefore, it will take more than one meeting with Portman to generate empathy with the vulnerability of small Caribbean economies and the limitations that size imposes.

This problem may be further complicated by the fact that in 1995 both Jamaica and Trinidad & Tobago had indicated their willingness to join the North American Free Trade Area (NAFTA) with Canada, Mexico and the US. It could be argued that, if these two countries were prepared to join NAFTA eleven years ago, they should be ready now to join an FTA with the US.

Of course, should Jamaica and Trinidad & Tobago make such a decision now, the implications for the embryonic Caribbean Single Market (CSM) would be quite serious; so serious, as to render it worthless.

In any event, there has been such a strong commitment to the CSM by the governments of Jamaica and Trinidad & Tobago that it is most unlikely that such a fractious development would occur. It is much more likely that unity will prevail among Caricom countries in their dealings with the US on trade.

What is driving ambition in some Caricom quarters for an FTA with the US is the conclusion of a FTA between the US and Central America plus the Dominican Republic. There is a fear that Caricom products will lose market share to the Central Americans and the Dominican Republic whose goods will enter the US duty-free once the agreement comes into full force.

There is legitimacy in such a fear for some Caricom countries, but not all. Those who now export goods to the US in competition with Central America, the Dominican Republic and Mexico have reason to fear. But, in reality, the majority of Caricom countries have no great level of exports to the US; their imports are far more. And, they stand to lose both revenues and businesses in a FTA with the US unless advantageous terms, including non-reciprocity over an agreed period, are negotiated up front.

While this discussion is taking place, Caricom countries are actually engaged in negotiations with the EU on Economic Partnership Agreements (EPAs). In these negotiations, Caricom countries partner with the Dominican Republic in the Caribbean as well as African and Pacific states to constitute the ACP.

The partnership in the ACP places the Caribbean in a better position to negotiate with the EU than if the region were conducting the negotiations alone. In this sense, more favourable terms may be wrested from the EU than might be achieved in bilateral negotiations between the US and Caricom countries for an FTA.

And, since the US will insist upon trading terms that are no less favourable than those which Caricom countries grant to the EU, it would make sense to complete the EU negotiations before turning to the US.

In the meantime, time and effort should be spent in Washington educating opinion makers in government departments and in the Congress of the kind of FTA between Caricom and the US that would strengthen their relationship and give benefits to the region.

Sir Ronald Sanders is a former Caribbean diplomat, now a corporate executive who publishes widely on small states in the international community.