POLITICS AND ECONOMICS: THE CARIBBEAN FREE TRADE ASSOCIATION: THE WEST INDIES AT THE CROSSROADS

ENTER CARIFTA

The principal agreement for the establishment of the Caribbean Free Trade Association was signed at Dickenson Bay, Antigua, on December 15, 1965 between the governments of Antigua, Barbados and Guyana (then British Guiana). It contained thirty-seven Articles, five Annexes designated ‘A’ to ‘E’. and a Basic Materials List. Later, on December 10, 1966, a further three Articles were added, the principal one of which (Article 1,) offered protection to Guyanese petroleum products in the event that a Guyanese petroleum industry should subsequently be established. Still later, the agreement was consolidated to comprise thirty-nine Articles and six Annexes, designated ‘A’ to ‘F’. and including as Annex ‘A’ a Resolution adopted by the fourth Heads of Government Conference on regional integration, and envisaging the accession of other Caribbean territories to the agreement by May 1, 1968. Of the various additions and other amendments made to the original agreement a few were of outstanding importance.

First of all, there was Article 28 which was amended to establish the Caribbean Commonwealth Regional Secretariat as the principal administrative organ of the Association. Secondly, there was Article 39, which was to gain much approval for allegedly protecting the interests or the less-developed territories in so far as their prospects for industrial development was concerned. Article 39 must however be read to be believed. For what Article 39 does is to permit a less-developed territory embarking on a new industry to seek to establish protection for its infant industry against similar products already being produced by one or more of her more developed partners. But then it also permits the territory or territories with the already established industries to seek to close their markets to the products from the less-developed territory in order to protect their goods. So good and so good!

Thirdly, there was an Agricultural Marketing Protocol regulating the trade in agricultural commodities of area origin between the territories of the Caribbean Free Trade Area, and fourthly, there was the Sugar Marketing Protocol facilitating the quantitative restriction on the importation of sugar into any territory from any part of the Free Trade Area.

Articles 1-3 of the final agreement are preliminary. Article 4 and the Reserve List tell of the general conditions on which trade will be freed, and the remaining Articles are mainly regulatory of the Agreement. Article 6 deals with the deflection of trade which, roughly defined, is to be understood as changes in the pattern of trade brought about by operations not permissible within the terms of the Agreement. Article 19 recognises the possibility of restrictive business practices and empowers the Council to deal with these. Articles 21 and 22 deal with the restorative measures open to members finding themselves in balance of payments or other difficulties. A whole group of Articles deals with the limitations on the abuse of free trade is, for example, Article 7 prohibiting certain forms of revenue duties and internal taxation, Article 8 on export drawbacks, Article 9 on export duties, Article 17 on government aids, Article 18 on public undertakings and Article 23 on incentive legislation. Article 32 lays down the procedure for joining the Association and Article 33 the procedure for leaving it. They are both simple procedures. Article 34 provides for amendment.

THE MOVEMENT TO CARIFTA

The history of the Association so far is an interesting one. On May 1, Trinidad and Tobago alone of all the other West Indian territories joined Barbados, Antigua and Guyana as participants rn the Agreement. The Associated States and Jamaica refrained. the former taking the precaution of first establishing a common external tariff among themselves. On June 27. the Associated States were admitted to the Association by the Regional Council meeting for the first time in Georgetown, Guyana. At the time of writing Jamaica is still trying to decide whether or not to enter the Regional Development Bank which she had previously abandoned in a huff. Rumour has it that British Honduras and the Dominican Republic are anxious to join the Association. So that it can be conceded that, to all appearances, after a shaky beginning the Caribbean Free Trade Area has, in a formal sense, achieved a series of successes.

The arguments against CARIFTA however have depended for their validity neither on the number of countries participating in the Agreement nor on the rapidity or the reluctance with which they joined the Association. The formal successes of CARI FTA in this regard must be kept quite separate and distinct from its real achievements. If we keep this in mind it is possible to concede formal success and at the same time allege substantial failure. The argument is that even if every country of the Caribbean joined CARIFTA it would still be, conceived as it is, a woeful experiment.

THE ECONOMICS OF CARIFTA

Let us begin with some examination of the conception. The Caribbean Free Trade Agreement is not an ambitious document. There are those who will argue that it is a practical document, that it represents the maximum that can be achieved in the present state of chaos, confusion and disenchantment in the region. Be that as it may, CARIFTA represents the lowest possible form of economic association into which it is possible to enter. A free trade area aims merely at freeing from customs duties or other restrictions all or some selected goods traded between two or more given countries. There are other forms of association. A customs union, for example, does what a free trade area sets out to do but in addition adopts a common external tariff thereby ensuring that all goods imported into the area from without pay a similar rate of duty. The Leewards and Windwards with the exception of Antigua have, in fact, adopted such a device to protect themselves against the commodities of the other territories of the free trade area. A common market is yet another possibility, doing all that the customs union does and at the same time providing for freedom of movement, labour and capital. An economic union, the highest in the hierarchy of possibilities, is a common market which in addition provides for the harmonization of fiscal and industrial policies.

So that we begin at the bottom of the ladder. But even so we begin with certain substantial limitations. The Reserve List, the Annex ‘B’ of which we have already spoken, contains some forty items which will not become immediately available for free trade between the territories. Biscuits, sweetened or unsweetened; coir products, mats and matting; brushes made with plastic bristles, except brushes and artists brushes, will become fully available for free trade to the less developed countries only after a period of ten years. On May 1, 1973, the import duties currently imposed by those territories on those materials will be cut by half; on May 1, 1978 such duties will be completely removed.

The less-developed territories also have ten years on which to remove duties by the method outlined above on a wide range of goods including varieties of preserved fruits, unmanufactured tobacco, prepared paints, enamels, lacquer and varnishes, detergents. crates and wooden containers, radio and television sets, accumulators, wood furniture, metal furniture, mattresses, underwear knitted and unknitted, outerwear of nonknitted textile fabrics, slippers and house footwear wholly or mainly of leather and footwear wholly or mainly of leather. The developed territories free these items over a period of five years by removing twenty percent of the existing duties on May 1 of each of the years 1969 to 1973.

Compare this list with the Basic Materials List the purpose of which is to declare as local by proclamation about one hundred and more items which are, most of them, not normally produced within the area. Some of these include wheat, apples, grapes, silk, crude petroleum and aluminium and aluminium alloys unwrought. The latter is the crowning folly of the system we operate. Jamaica and Guyana export millions of tons of bauxite, the raw product from which aluminium is made. We should not have to be declaring aluminium a local product; we should be making it here.

More comparisons suggest themselves. Take rum, as indigenous as a product can get in the West Indies. Rum grew with the sugar industry in the West Indies and has been with us for hundreds of years. Rum is not to be traded freely until May 1, 1973 in the case of the developed territories and May 1, 1978 in the case of the less developed territories. It will be ten years before West Indians can resort to a wider sampling of West Indian rum to counteract, if that is possible their taste for Scotch whisky. Or take Annex ‘E’ The only commodities on which territories are allowed to place export duties before shipping to a member territory are, unavoidably perhaps, all indigenous to the area: copra, sugar, coconut oil, nutmegs and mace, cocoa, sweet potatoes, arrowroot, eddoes, peanuts and bauxite.

So the pattern is clear. West Indian governments can be induced to take only the most rudimentary steps in the direction of regional economic integration. Partly as a legacy of the disastrous failure at Federation they have set out with the objective of establishing only that measure of cooperation which will reward the participating territories with clear benefits while incurring no appreciable loss. They will collaborate only at such level and in such ways as are clearly compatible with the avoidance of serious political commitment. The West Indies it must be emphasised is an agricultural area. Yet the CARIFTA document makes only the most cursory reference to trade in agricultural commodities, and says virtually nothing about agricultural development. And even with respect to trade the vision is limited: The Chairman of the Trinidad and Tobago Central Marketing Agency, Mr. Ulric Lee, was unequivocal: “there would be no freedom of agricultural goods within CARIFTA countries”. If competition and efficiency are what CARIFTA is about is there a sphere in which competition and efficiency are more required than in the agricultural sectors of the West Indian islands?

The truth is that the ‘economic measure’ is the sole rule of action, that is to say, as was said in our New World Occasional Bulletin No. 3 on Devaluation, current schemes for collaboration among the West Indian territories continue to be judged solely in terms of clear, tangible benefits. West Indian governments are ‘playing for what they see’, no more, no less. In consequence, every scheme for West Indian collaboration is measured against the comparative advantage attainable from participation in other schemes of collaboration. This is why the failure of Jamaica to secure the site of the West Indian Development Bank gave rise to the fiction of a Western Caribbean grouping of States consisting of Jamaica, the Bahamas and British Honduras. Similarly, the prospects for a regional airline centering on B.W.I.A. have already spawned a Trans-Caribbean Airways based in Jamaica and a Trans-Sweden Airline based in Barbados. Today, rumours that B.W.I.A. has been planning the transfer of BWIA’s maintenance services to the United States are being stoutly denied, but reports to the effect that maintenance crew, as individuals, are being absorbed on permanent visas into the U.S.A. clearly indicate that the same effect is being achieved nonetheless: as usual, development in the metropolis, underdevelopment in the plantation. The absentee ethic flourishes. Those who are able leave as fast as they can driven away by the knowledge that whether it is a regional airline, a regional bank, West Indian products or West Indian men the native politicians and their policies stand ready to discriminate against them every time.

THE POLITICS OF CARIFTA

Whatever errors West Indian politicians commit today in the name of regional integration fall fully on their own heads. A clear alternative conception was put before them. Before the current exercise was embarked upon West Indian governments had before them THE DYNAMICS OF WEST INDIAN ECONOMIC INTEGRATION. a monumental study of the major issues involved in West Indian integration authored by Havelock Brewster and Clive Thomas, two University of the West Indies economists. This was the main study of a number of studies commissioned belatedly and under gentle pressure by the governments themselves on the subject of West Indian economic integration. One of the first things that study set out to do was to tackle the notion that free trade would work wonders for the Caribbean. The author wrote as follows:

“It is one of the ironical aspects of West Indian schemes of integration that most of the resources have been spent on formulating and qualifying devices to get around apparent conflicts of interests and on various points of procedure without having ever come to grips with the more substantive issues of assessing benefits and costs either on a regional or unit basis. Indeed, even when some time was devoted to this it was done in a purely static framework. Thus, the participants entered into Federation, as some now enter CARIFTA, with a logic which is not much more convincing than that of intuitive generalizations and dubious clich├ęs.

It is interesting to look back at some of these generalizations. They include the views that the gains from internal free trade would be significantly large; that a customs union would ensure the advance of industrialisation; that integration was concerned to a minor extent with agriculture; that collectively, the West Indian economies would secure very large economies of scale, that resources would be used more efficiently; that all territories would share in the total gains of integration.”

Then, after some interim discussion of the free trade idea and it proponents, they continue:

“It is appropriate to examine (the free trade) mechanism in a little more detail for it seems to have a greater attraction for West Indian governments, politicians and commercial organizations, than any other form of concerted regional action. Indeed, a free trade area has actually been formed by Guyana, Barbados and Antigua, and the Incorporated Chambers of Commerce have been active in promoting the idea throughout the region. The concrete reasons for this attraction probably lie m the unquestioned acceptance of an ancient notion that important gains can be made by all concerned through the operation of this simple device which least restricts the autonomy of the individual units and of private enterprise. (My emphasis) In this way, it may appear that not only will some tangible gains be forthcoming, but a concession will be made to the “enlightened’. political idea of regionalism without inextricable involvement. Also, in these days, free trade may have an enhanced allurement for Jamaica and Trinidad and Tobago in their search for export opportunities for industrial goods.

The rationale behind the freeing and expansion of trade is that it brings some gain to the constituent members of a group of countries practising such a policy. Whether the gain is likely to be small or large is a question of fact, in answer to which practical indicators may be used. Free trade, per se, only involves the abolition of barriers to trade (such as tariffs and quotas) by the countries entering such an arrangement. It is not linked with a common external tariff or with other common external restrictions, nor does it imply any co-ordination of production activities within the free trade region. As such therefore, it is a policy limited to securing the “gains from trade” in the way postulated by the traditional theory of trade.”

The importance of these two statements can hardly be over-estimated. In sum they constitute the clearest warning about the limitations of the free trade idea and register the profoundest intellectual reservations about the achievements to be gained from CARIFTA in advance of its implementation. The governments of the West Indian territories owe the region a similarly clear and reasoned explanation of the reasons why, of all the possibilities open to them, they chose CARIFTA as the vehicle of regional economic integration.