Nov. 20, 2006
 
COMMENTARY: A U.S.-Caribbean Free Trade Area?
 
By Sir Ronald Sanders
Special to Huntington News Network
 
Should Caribbean Community (CARICOM) countries enter a Free Trade Agreement (FTA) with the United States? A few readers interpreted an observation that I made in my commentary (US mid-term elections and the Caribbean) to mean that I was advocating such an agreement.
 
In fact, I was not.
 
All that I did was to point out that “the Caribbean is yet to negotiate a Free Trade Agreement with the US”; CARICOM “has not seriously focussed” on such an agreement; and “time may be running out to get negotiations for such an agreement firmly underway” with the present US administration since the authority that Congress gave President George W Bush to sign such agreements ends in July 2007.
 
The matter of whether CARICOM countries should enter an FTA with the US is complex.
 
What are the arguments for CARICOM countries entering an FTA with the US?
 
The main argument is that the US has entered FTA’s with other countries whose goods and services compete with CARICOM’s in the US market. Among these FTA’s is the agreement between the US, a number of Central American countries and the Dominican Republic.
 
When these FTA’s are up and running, the exports of these countries will adversely affect CARICOM products in the US market because they will enter the market on more advantageous terms.
 
CARICOM saw this happen when the North American Free Trade Agreement (NAFTA) was signed in 1994 by the US, Canada and Mexico.
 
Prior to NAFTA, certain goods from CARICOM countries enjoyed duty-free treatment in the US market under the Caribbean Basin Initiative introduced by the Reagan administration. Once NAFTA came into force, those goods could not compete with similar products from Mexico.
 
But, the fact that the US is concluding FTA’s with other countries and regions is not, by itself, sufficient reason for CARICOM countries to enter an agreement with the US.
 
The experience of Mexico with NAFTA clearly demonstrates that while there were benefits to Mexico in terms of lower tariffs on Mexican goods entering the US market, there was also a huge downside to the agreement.
 
For example, the US used non-tariff barriers to block Mexican products that began to give serious competition to US produced goods. At the same time, heavily subsidised US agricultural products, particularly corn, entered the Mexican market cheaper than Mexican farmers could produce them. This led to a displacement of Mexican farmers in their own domestic market.
 
Further, because Mexico had to drop its tariffs on goods imported from the US, the government’s tax revenues declined adversely affecting its public expenditure programme on education, housing and other social welfare programmes.
 
CARICOM countries would face similar problems unless the FTA was carefully negotiated.
 
In the cases of Antigua and Barbuda, and the Bahamas whose economies are almost entirely reliant on services, particularly tourism and financial services, they would hardly benefit from duty free entry to the US market for goods. Conversely, their governments would suffer a significant loss of revenue from lowering tariffs on imports from the US.
 
But, other CARICOM countries such as Belize, Jamaica, Guyana and Trinidad and Tobago, could find advantage in securing duty-free entry to the US market for certain commodities.
 
Having said that, the point should also be made that already, without an FTA, many small farmers in CARICOM countries have lost markets within their own countries because subsidised US farm products are delivered to Caribbean supermarkets and hotels at prices that make it very difficult for local farmers to compete. An FTA which requires CARICOM countries to lower tariffs on imports of US subsidised agricultural products would wipe out Caribbean small farmers altogether.
 
In all cases, CARICOM countries would want to set certain basic criteria for negotiations with the US. These would include: a means of imposing duties on products which the US subsidises; clear language to stop the US from using non-tariff barriers to prohibit exports into its market; non-reciprocity for the reduction of tariffs on certain goods for a defined period to allow Caribbean producers to develop the capacity to compete; the removal of restrictions on US imports of certain commodities such as sugar; and access to US capital as grants or as loans on soft terms to compensate for opening up Caribbean markets (aid for trade).
 
None of these criteria would be easy to achieve unless the US was genuinely concerned with helping CARICOM countries to develop and grow. If US negotiators view an FTA with CARICOM in the same way that they would regard an agreement with, say, the European Union or South East Asian nations, then CARICOM would do well to scrap the idea before it starts.
 
What has to be established firmly in advance of negotiations on a CARICOM-US free trade agreement is that it would be development oriented.
 
Of course, this is also the problem that the Caribbean faces in its current negotiations with the European Union (EU) for Economic Partnership Agreements (EPA’s). Caribbean countries, like their counterparts in Africa and the Pacific, feel that the EU is not taking sufficient account of the development dimension of the EPA’s.
 
And, at the even wider international level, the global negotiations on trade rules have stalled precisely because although developed countries promised at Doha in 2001 that these negotiations would focus on development, they have done nothing of the sort.
 
This is not to say that the US could not adopt a more enlightened and ambitious approach to the CARICOM countries. For, the Caribbean is a very close neighbour, and what happens in the Caribbean should matter to the US.
 
A genuine FTA with a strong development orientation would help the small and vulnerable countries of CARICOM enormously. Given the relatively small size both of the economies of CARICOM countries and their exports, the US would lose nothing by being generous and would gain much in terms of showing concern for its neighbours.