SOME ISSUES OF TRADE POLICY IN THE WEST INDIES

II. The British and Canadian Rationale for Preferences

 As far as the first point is concerned, the reasons for Britain’s diminishing interest in Commonwealth discrimination are fairly well known. In the first place, British exports have been losing ground in Commonwealth markets, and in general the British export trade has tended to swing in recent years towards Non-Commonwealth markets, especially in Western Europe. Secondly, the main motive behind Britain’s introduction of bulk purchase and import licensing was that of protecting the balance of payments, during a period when there was a dollar problem and a world-wide shortage of primary products.

Neither of these factors is operating at present. On the whole, the dollar problem has disappeared, while the market situation in respect of the primary products for which the West Indies desire external protection, has changed from one of excess demand to one of potential excess supply. In the special case of sugar, the major change has been in the control which is exercised by importing countries over world supplies. R. J. Hammond has reminded us that one of the main objectives underlying Britain’s policy of providing a guaranteed market for Commonwealth sugar, was that of pursuing a procurement policy which was independent of the United States.

This objective had its roots in the failure of the sugar procurement policy which was adopted during the First World War. From mid-1916 onwards, shipping shortages became so acute, that Britain had to tum to the Caribbean for the bulk of her supplies.

This involved entering into an arrangement with the United States for inter-Allied procurement of Cuban supplies. The arrangement worked well up to the Armistice. The United States failed to procure the 1919/20 Cuban crop on behalf of the Allies, and in view of the uneasy supply situation, fantastic fluctuations in sugar prices resulted. The f.o.b. price of Cuban sugar rocketed to 10d. per lb. only to slump within six months to about one-fifth of that figure. Because Britain was forced on to the market during the short-lived boom, substantial losses had to be borne later on stocks purchased at boom prices. The harsh lessons of this experience were not forgotten in framing a procurement policy during the Second World War. And the relevance of these post-war policies was underlined by the fact that until the cessation of diplomatic relations between the United States and Cuba, the United States was in a position to preempt nearly 50% of the sugar entering into international trade.

All this has been changed by the Cuban Revolution. And it can be argued that Britain has now a better chance of securing Cuban sugar during a crisis, than it had in the past. If this is granted, then the case for special arrangements with Commonwealth countries becomes much weaker.

As far as Canada is concerned, one has to go even further back into history to unearth some of the motives which lay behind her interest in preferential trade with the West Indies. Canada has historically used her preferential policy towards the West Indies, as a means of promoting a policy of discriminatory trade with the Commonwealth as a whole. From the middle of the nineteenth century, Canadian policy makers were concerned about the growing influence of the United States over Canadian economic life. They wished therefore to have the British Empire, rather than the United States, as Canada’s main trading partner. Thus, the Canada-West Indies Agreements which preceded the Ottawa treaties, were seen essentially as first steps towards wider Empire arrangements. On the whole, from the mid-nineteenth century, the Canadians were very much in the forefront among advocates of closer economic ties between Empire countries.

More generally, the Canadians were interested in negotiating preferential arrangements with economies which they considered to be complementary to their own.

The advantages of West Indian complementarity were stressed on almost every occasion when tariff reciprocity between the two areas was discussed, as for instance at the Canada-West Indies Conference of 1925. In particular, the Canadians wished to promote an expansion of trade between the Maritime Provinces and the West Indies.

For several decades, the Maritime Provinces had been lagging behind the rest of the Canadian economy, and per capita incomes and employment in that region were well below the national average. Among the main exports of the Maritimes were fish (largely salted and pickled) and vegetables (potatoes and onions). The main market for these were in tropical, low-income countries, particularly in the Caribbean and Latin America. The Canadians were therefore interested in securing the West Indian market for these products.

Another element in Canada’s interest in preferential relations with the West Indies, relates to her trading position in Latin America. For the most part, Canada only showed interest in the West Indian market, when prospects for developing trade with other Caribbean and Latin American countries were not promising.

Up to 1890, an offer of preferential relations was never made to the British islands without simultaneous overtures being made to the rest of the Caribbean. Consider the offer of 1890 for instance: the idea of approaching the British islands arose from a suggestion by the Canadian High Commissioner in London that the time was ripe for resuming negotiations with Spain for tariff concessions in her Caribbean colonies. It was decided to couple the Spanish negotiations with an offer to the British West Indies. The latter was done partly as a hedge against the continued failure of negotiations with Spain.

In fact, the sustained interest which the Canadians showed in preferential ties with the British West Indies after 1898, can be associated with the American decision at that time to admit Cuban and Puerto Rican sugar on preferential terms. For the Canadians realised then that the American decision had deprived them of any chances which they had of forging preferential links with Cuba and Puerto Rico.

If these motives are placed against developments since the Second World War, it is easy to see why Canada’s interest in preferential ties with the West Indies has diminished. In the first place, some of the West Indian economies have become more competitive with the Canadian economy than they were before the war. Deliberate policies of import substitution, especially in Jamaica, has affected Canada’s exports to the area of foodstuffs such as potatoes, partly manufactured goods like lumber, and manufactured goods like cotton fabrics and boots and shoes. Secondly, economic growth in the area has changed patterns of consumption away from low-quality goods like salted fish. In recent years the rate of growth of imports of salted fish has declined, as a result of a fall in per capita imports.

Even more significant is the increasing importance of the United States and other Caribbean and Latin American countries as exports markets for Canada, while the markets of the United Kingdom and the rest of the Commonwealth have declined in importance. The United States has eclipsed Britain as the leading market for Canadian exports, taking currently some 60% of Canada’s exports as compared with a figure of 38% in 1938. In the case of the rest of the Caribbean and Latin America, whereas in 1938 Canada sold just over 1% of her total exports to them, at present her percentage sales are around 5%.

On the other hand, exports to Britain and the rest of the Commonwealth represent now less than one-half of the percentage figures which they accounted for in 1938. In that year Britain took some 40% of Canada’s exports. At present the annual percentage figure is less than 20%. As far as the rest of the Commonwealth is concerned, their purchases have fallen from 11% in 1938 to around 4% to 5%.

To make matters worse, Canada has lost serious ground in the West Indian market compared to the two other major trading partners of the West Indies, namely Britain and the United States. Canada’s percentage share of total West Indian imports had fallen in 1958 to almost one-half of what it was in 1938, and to less than one-half if one compares 1958 with 1948. On the other hand, Britain’s share has remained relatively constant over the three years being considered, while the share of the United States was the same in 1958 as it was in 1948, although in these two years it was three percentage points less than it was in 1938.

In general, the post-war decline in the American and Canadian shares of the West Indian import market can be largely attributed to the advances made by Western European countries, particularly in respect of imports of manufactured goods. However, the United States compensated partly for her losses by out-competing Canada in the West Indian trade in foodstuffs. This was especially evident in the case of wheat flour. In 1938, West Indian imports of wheat flour from the United States accounted for some 7% of the total value of their imports of that commodity; by 1958 the percentage share of the U.S.A. had increased to over 45%. A good proportion of this increase was achieved at the expense of Canada, since her percentage share fell by some 15 percentage points.

Wheat flour has been the major staple in Canadian exports to the West Indies, and from the turn of the century has accounted consistently for at least one-third of total West Indian imports from Canada. The erosion in Canada’s position has therefore created some disenchantment with the West Indies.

So much for the diminishing interest of Britain and Canada in a preferential policy. Let us turn now to consider the second dimension of the problem, namely, the possibilities of an intensification of international pressure against the preferential treatment of primary products by importing countries.