A renegotiated NAFTA — Implications for Caribbean countries

BY ELIZABETH MORGAN

Tuesday, August 14, 2018

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From 1979, during his presidential election campaign, Ronald Reagan (Republican) advocated the establishment of a North American free trade area and called for the USA, Canada and Mexico to negotiate such an agreement. He was convinced that it would be beneficial to all three countries.

In 1990 negotiations for the North America Free Trade Agreement (NAFTA) commenced under Canadian Prime Minister Brian Mulroney, US President George H W Bush (Republican), and Mexican President Carlos Salinas de Gortari. The agreement was concluded and signed in 1992. It was ratified under US President Bill Clinton (Democrat) in 1993 and entered into force in 1994. Although there are some challenges, NAFTA has been assessed as beneficial to its three parties.

At the time of its adoption, countries in the Caribbean Basin were exporting textiles and clothing to the USA under its 807 programme. Jamaica, for example, had an agreement for textiles and clothing with the US under which quotas were set. Jamaica exported textiles and clothing to the USA from its free zones. Sugar was also exported to the US under quotas.

Caribbean trade with the USA was generally covered by the Caribbean Basin Initiative (CBI), which was primarily the 1983 Caribbean Basin Economic Recovery Act (CBERA) expanded in 1990. CBERA — aimed at promoting development — allowed Caribbean countries to export goods, with some exemptions, including for textiles and clothing, duty-free on a non-reciprocal basis. This meant that while Caribbean goods entered the US market duty-free, US goods exported to the Caribbean were subject to duties (tariffs). In 1986, under the US Super 807 programme, partial duty-free access was given to some textiles and clothing products.

Concerns of Caribbean countries

With the conclusion of NAFTA, Caribbean countries exporting textiles and clothing and sugar to the USA were concerned about the impact of NAFTA provisions on their trade with the USA. They were worried that Mexico, with duty-free access and expanded quotas, particularly for textiles and clothing and sugar, would threaten their access to the US market and investments would also be diverted to Mexico. Caribbean countries, particularly those in Caricom, feared they would not be able to compete with Mexico.

Their concerns seemed justified as Mexico, under NAFTA, received duty-free treatment for textiles and clothing and, for sugar, received an expanded quota as well with the guarantee of further access if they became net exporters of sugar.

Caribbean countries, commencing in 1993, lobbied the US Administration for NAFTA parity (similar access as Mexico), citing the negative impact specifically on their textiles and clothing and sugar industries. While the Clinton Administration was sympathetic, various members of Congress opposed NAFTA parity. For these Congress representatives the Caribbean case was exaggerated — as they saw no evidence that NAFTA impeded Caribbean exports. Some were opposed to the CBI feeling that Caribbean countries should give reciprocal access to US exports. As Caribbean countries battled to obtain parity in Washington, DC, the textile and clothing industry in Jamaica was declining.

In his January 30, 1997 article in The New York Times, entitled 'Blows from NAFTA batter the Caribbean economy', Larry Rohter stated: “From the apparel plants in Jamaica to sugar cane fields in Trinidad NAFTA has already resulted in loss of jobs, markets and income for the vulnerable island nations of the region. The capital and investment projects that are vitally needed for future growth, officials say, are increasingly flowing out of the Caribbean into Mexico.”

NAFTA parity

The countries of the Caribbean were finally accorded NAFTA parity in 2000 with the adoption in Congress of the Caribbean Basin Trade Partnership Act (CBTPA). This Act was further extended by the 2002 US Trade Act. Textiles and clothing received duty-free access to the US market.

By 2005, however, the World Trade Organisation Agreement on Textiles and Clothing had fully liberalised the trade in textiles and clothing ending the system of quotas. The textile and apparel industry in Jamaica, which had employed nearly 40,000 women at its peak, had folded by this time. Without quotas, production in Jamaica could not compete with production in Mexico, other Latin American and Caribbean countries, and the large producers in Asia.

For sugar, some Caribbean countries, such as Trinidad and Tobago and St Kitts and Nevis, have phased out sugar production. Countries, such as Jamaica, Guyana, Belize, and Barbados, continue to have small US quotas. They remain concerned about Mexico's access to the US sugar market fearing further erosion of these quotas. US domestic sugar producers, who have always been opposed to Mexico's expanded access under NAFTA, are seen as allies by Caribbean sugar producers. This is ironic as government subsidies to US sugar/sweetener producers since the 1980s and a dispute settlement in the General Agreement on Tariffs and Trade (eg 1989 Australia vs USA), reduced Caribbean sugar quotas and flexibility in supply. In addition, the Caribbean's main market for sugar has been in the European Union (UK).

Renegotiation of NAFTA

US President Donald Trump, describing the 23-year-old NAFTA as the worst trade deal ever for the USA, has insisted that it should be renegotiated or he would withdraw from it. The renegotiation commenced on August 16, 2017. Caribbean countries, given the history, may want to monitor these negotiations to determine whether any changes to the agreement could have positive or negative effects on their interests.

Elizabeth Morgan is a specialist in international trade and politics. Send comments to the Observer or elizabethmorganstliz@gmail.com.

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