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Caribbean-North American trade in a state of flux
Anthony Gomes
Wednesday, October 21, 2009
Caricom's prospects for future trade with the US and Canada have entered a state of flux. Certain developments have arisen, including as yet, the undefined US trade policy direction towards the Caribbean, and the disappointing postponement of the Caricom Heads meeting with President Obama arranged at the Summit of the Americas in Trinidad. Much was anticipated from that meeting which would have laid the foundation for Caricom's future trade relationship with the US and the Democratic administration.
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| Anthony Gomes |
It should be recalled that in 2006 comprehensive studies were conducted on a possible Caricom-US Free Trade Agreement that the previous US administration insisted should include "substantially all trade" envisaged to be about 90 per cent plus, as the only option they were prepared to consider. Caricom's capacity to move forward was hampered by the turbulent aftermath of signing the European Partnership Agreement, coupled with the cost of negotiating an FTA estimated to be approximately US$2 to US$5 million. The upshot of these distractions was that Caricom "missed the boat" and then along came the new Obama administration.
Information was recently received that a Free Trade Area agreement with the US has been "taken off the table". Jamaica with Caricom is therefore developing a new strategy relying on the Caribbean Basin Initiative (CBI) to be the foundation for its future trade in goods and services with the US in perpetuity, if it can be achieved. The United States Representative has called for observations by the 15 Caricom states on the operation and benefits associated with their CBI experience. The information submitted would be the basis for a report to Congress regarding the future of CBI in whatever form they may determine.
By way of background, the CBI introduced in 1984 a combination of two specific trade pacts, which comprise the Caribbean Basin Economic Recovery Act that operates under a WTO waiver valid to December 31, 2014, and the Caribbean Trade Partnership Act which also operates under a WTO waiver due to expire on September 30, 2010.
Unlike some other Caricom countries, Jamaica has a significant and escalating trade deficit with the US. In 2007 the value of imports from the US was US$2.7 billion that in 2008 increased to US$3.3 billion, while 2008 preliminary returns indicate that Jamaica has a trade deficit with the US of US$2.3 billion, increased from US$1.9 billion in 2007. Based on this performance the US is at present the primary beneficiary under the CBI.
Opportunities to improve performance of the regional trade in services, now 61.7 per cent of total exports to the US, should be given priority in a new CBI regime as Caricom has a competitive advantage and a strong interest in securing new markets for services exports. As the US is Caricom's main trading partner, member states would benefit significantly from a liberalised services environment that should also prompt increased US investment in the region. The range of Caricom's services, however, needs to be diversified particularly in the case of Jamaica, due to the overdependence on tourism which is a fickle industry, vulnerable to unpredictable dislocation by unforeseen world events. The way forward is seen to be a new enhanced version of the CBI of indefinite duration, to reduce Jamaica's trade deficit with the US and to engender a resurgence of trade between Caricom and the US, particularly in the services sector.
Turning to Canada, the 15th Special Meeting of the Council for Trade and Economic Development (COTED) agreed to negotiate a Caricom-Canada Trade and Development Agreement aimed at providing duty-free and quota-free access to the Canadian market, similar to that which obtains with the European Union.
Since 1986 the Canadian trade regime evolved into the Canada/Commonwealth Caribbean Trade Agreement (CARIBCAN) due to expire in 2011, in which duty-free access was granted for most goods originating in Commonwealth Caribbean countries. CARIBCAN's coverage is limited to trade in goods and does not include services which is a major growth sector for Caricom-Canada trade. However, under the Most Favoured Nation (MFN) rules Jamaica enjoys duty-free access to Canada for 94 per cent of its merchandise exports. The challenge for Caricom is to gain market access for services exports acknowledging that Canada is one of the most competitive markets in the world for services. Jamaica's main export to Canada is alumina with only 6 per cent approximately consisting of other merchandise products, mostly consumables.
Tariffs are not an issue as nearly 98 per cent of total Caricom merchandise exports enter Canada duty-free under MFN, CARIBCAN or a General Preferential Tariff. The preferential access under CARIBCAN and GPT is considered inadequate on which to secure the region's future trade and economic future with Canada. This appears to be COTED's reason for proceeding with the FTA negotiations which appear unattractive at present because of the minimal benefits to be gained after 18 to 24 months of negotiations at an estimated cost of US$3 to US$5 million. The chapter on development proposed by Caricom is so far limited to C$600 million granted to Caricom over 10 years of which approximately C$450 million remains to be allocated.
Of the 15 negotiating Caricom states, Jamaica's economic and financial crisis is a seriously limiting factor. The collapse of alumina demand and other manufacturers underperforming due to the recession, means that Jamaica has only minimal goods to export to Canada. The negotiators must therefore expect that Jamaica's economic future would improve during the next 18-24 months to obtain an equitable and balanced agreement.
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