Caribbean integration and lessons from the European Union
Although there is no indication whether the integration project of the Caribbean Community (Caricom) had aspirations of reflecting the European Union (EU) model or the federal model of the United States of America, one researcher believes that there a lessons that the regional organisation can learn from the former.
Collin Constantine, in his review of the Caricom Review Commission report — otherwise called the Golding Report — noted the document’s failure to “recognise the teachable moment in the Eurozone crisis.
“I outline two principal lessons the Caribbean integration project can learn from the European experience. First, enhanced economic integration without community wide social solidarity — in the form of effective redistributive mechanisms to laggard countries — inevitably produces significant socio-economic costs and/or disintegration. Second, financial integration can serve as a powerful propeller for intra-regional polarisation — as is evident in the Eurozone periphery,” he continued.
While Caricom initially served as a customs union after its establishment in 1973, preceded by the Caribbean Trade Association, the organisation has taken further steps toward integration as member states cooperate on matters including health, sport, education, agriculture, and transportation. But the organisation has, since 2001, attempted to achieve even further integration through the creation of the Caricom Single Market & Economy.
Whereas the ultimate goal under the Revised Treaty of Chaguaramas was to create a single economic space and ultimately, economic union, complete policy coordination, harmonisation of functional areas and a common currency, the last component has since been removed from consideration.
Even though a common currency has been achieved among Organisation of Eastern Caribbean States (OECS) through the Eastern Caribbean Currency Union, other territories in Caricom still maintain their own currencies with exchange rates to the US dollar. In fact, while Trinidad and Tobago, Barbados, Belize and the OECS maintain relatively fixed exchange rates to the US dollar (from $2 – $6), Jamaica and Guyana both subscribe to flexible exchange rates (approximately $150 and $200).
This aside, Constantine argues that Caricom member states do not share similar economic structures and, as a result, will have different economic circumstances and policy priorities across the region. Examples of different economic structures include goods-producing versus services-based economies or natural resource-dependent economies vs manufactured-based economies.
Another disparity, Constantine points out, is between more developed countries (MDCs) and less developed countries (LDCs) of Caricom. So whereas Caricom has preferential trade agreements with the US, UK and Canada, it has reciprocal trade agreements with Cuba, Dominican Republic and mainland Latin American countries. While MDCs like Jamaica, Trinidad and Tobago, Guyana and Belize may take advantage of reciprocal trade relations, this may not be the case for Grenada, Dominica, St Lucia or other Eastern Caribbean member states. In this regard, the difference between an MDC and an LDC is the former’s greater industrial capabilities.
Even when considering the benefits LDCs gain from offshore financial centres and citizenship by investment programmes, they are more vulnerable to the regulatory monitoring of Organisation of Economic Co-operation and Development countries.
Here, Constantine notes a parallel between Caricom and the Eurozone, pointing out that “asymmetric integration can produce winners and losers”.
“This is unfortunate because even the poorly implemented CSME has clearly produced leader and follower countries — potential poles of core and periphery — with Trinidad and Tobago dominating intra-regional trade.”
He adds: “The central point is that integrating economies with sufficiently different productive structures…will produce substantially unequal gains among member states.”
In the case of the Eurozone, financial and economic integration created core countries and periphery countries.
While theories on integration predict lower interest rates and more efficient allocation of capital, in reality capital flows were misallocated towards non-tradable and low technology economic activities in Europe’s periphery countries — namely Portugal, Spain, Italy and Greece.
Following the global economic downturn between 2008 and 2011, whereas countries like the UK, France Germany rebounded, periphery countries struggled to pull themselves out of debt.
“Quite contrary to the theoretical prediction, financial integration divided European countries,” Constantine said, adding that failure to intervene in Caricom will lead to a similar result.