DP 25 Caribbean Integration Lessons for the Pacific

Caribbean integration – lessons for the

Pacific?

Bob Warner

Abstract

The 15 members of the Caribbean Community (CARICOM) are digesting a critical

review of the structure and performance of its Secretariat, which describes the

overall CARICOM integration initiative as being in crisis. This paper describes

elements of the CARICOM integration project, and draws lessons for the Pacific

Island Countries. It suggests that the CARICOM experience puts into question

elements of the logic and overall approach to integration being pursued in both

regions (and being urged by external partners).

Discussion Paper 25

NOVEMBER 2012

Caribbean integration – lessons for the Pacific?

Bob Warner

Bob Warner is Director of Pacific Research Partnerships at the

Crawford School of Public Policy, ANU.

Warner, B 2012 “Caribbean integration – lessons for the Pacific?”

Development Policy Centre Discussion Paper 25, Crawford School of

Public Policy, The Australian National University, Canberra.

The Development Policy Centre is a research centre at the

Crawford School of Public Policy, The Australian National

University. The discussion paper series is intended to facilitate

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Caribbean integration – lessons for the Pacific?

1. Introduction

The Pacific Islands Forum is currently considering a critical review of the structure and

performance of its Secretariat (Dornan 2012). In considering institutional structures,

the Forum is not alone: ASEAN Member States are also grappling with challenges

concerning the performance of their Secretariat.1 These review processes are part of a

broader rethinking of the overall direction and approach to be taken to regional

integration, a rethinking which must be factoring in the current crisis in Europe. This

discussion paper looks at what is happening in the regional integration project being

pursued by the members of the Caribbean Community (CARICOM), which for a variety

of reasons may be quite relevant to the Pacific Island States.

CARICOM comprises 12 island and three larger coastal states and territories that lie in

or border the Caribbean Sea. Although many CARICOM members share cultural and

historical similarities, there is considerable diversity among them, reflecting a range of

African, Asian, European, and native influences. There are also differences in population,

land area and levels of economic development. CARICOM includes high and middle

income countries with significant oil, gas and mineral resources or well developed

offshore banking sectors, as well as some of the poorest countries in the world, largely

dependent on subsistence farming. It also includes some continental countries with

relatively large land masses, as well as extremely small island states and territories.

(Table 1 gives a sense of the variation in size and wealth across CARICOM states and

territories. It also shows how important trade in goods and services is to the economies

of most CARICOM member states.)

The island members of CARICOM face some of the challenges usually associated with

smallness and physical separation from continental land masses. They are very open to

1 A recent draft report by the Asian Development Bank Institute argued that ‘in the absence of structural reforms that drastically bolster the Secretariat’s position, it is extremely difficult for ASEAN countries to conduct effective regional cooperation and integration (ADBI 2012).

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international trade and financial flows, and this openness makes them more exposed to

external shocks than larger economies, and limits the instruments available to deal with

these shocks. Small populations also increase the challenges of building and maintaining

institutions, particularly those whose functionality is predicated on independence. This

is an issue both in terms of the smaller pool of qualified personnel to run the full range

of institutions of a modern state, but also due to the greater difficulties encountered in

separating political, personal and institutional interests.

Table 1: CARICOM members – key indicators

Population

(2011) Area

Population

density

GDP

(2011)a

Per capita

GDP (2011) b

Trade

share of

GDP c

‘000 Sq Km No/Sq Km US$ m US$ m %

Antigua and Barbuda 89.0 442.6 201 1 187 18 200 115.7

Bahamas 316.1 13 880 23 8 074 31 400 113.4

Barbados 287.7 430 669 4 478 23 700 125.2

Belize 327.7 22 966 14 1 474 8 400 132.1

Dominica 73.1 751 97 489 14 000 103.9

Grenada 109.0 344 317 822 14 100 83.5

Guyana 741.9 214 969 3 2 480 7 600 170.7

Haiti 9 801.7 27 750 353 7 388 1 300 58.1

Jamaica 2 889.2 10 991 263 14 810 9 100 88.0

Montserrat 5.2 102 51 Na 8 500 na

St Kitts and Nevis 50.7 261 194 715 15 800 103.9

St Lucia 162.2 616 263 1 239 12 800 118.3

St. Vincent and the Grenadines 103.5 389 266 695 11 600 105.5

Suriname 560.2 163 820 3 3 790 9 600 76.3

Trinidad and Tobago 1 226.3 5 128 239 22 710 20 300 107.8

a Using official exchange rates b In purchasing power parity terms c Imports and exports of goods and non-factor services as a share of GDP, for the latest available year Source: CIA 2012, World Development Indicators, 2012

While trade is very important to CARICOM members, intra-regional trade is typically

not. Intra-regional commodity trade accounts for a fairly small share of the region’s

total trade (just over 16 and 13 per cent of total regional exports and imports in 2008),

and this is dominated by petroleum exports from Trinidad and Tobago, which

accounted for over 68 per cent of total regional trade in 2008 (CARICOM 2010). North

America (United States of America and Canada) and the European Union are the most

important trading partner regions for CARICOM, with North America accounting for

over a third of CARICOM’s imports and a half of its exports. These regions are also the

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main destinations for CARICOM members’ exports of tourism services, which are

significant sources of foreign exchange earnings for many: tourism exports account for

over 20 per cent of GDP for nine of the CARICOM members (Tsikata et al 2009).

As with other regions made up of relatively small national economies, external

migration has long been a feature of Caribbean demographic change, and there is a large

Caribbean diaspora. Remittances from this diaspora are significant sources of foreign

exchange for some Caribbean countries (estimated to account for 9 per cent of GDP for

Grenada, 14 per cent for Jamaica, 15 per cent for Haiti and 17 per cent for Guyana

(World Bank 2011).)

2. Regional integration

The pursuit of regional integration in the Caribbean predates independence. Initial

support for the short lived West Indies Federation promoted by the British authorities,

built on long standing ideas that the political and economic future of the territories

depended on forging a political union. These ideas could not withstand the pressure of

divergent interests and the absence of strong popular support, and the Federation was

dissolved not long after the Jamaican electorate voted to end participation (Caribbean

Education Online 2012).

Despite the failure of federation, an interest in economic integration persisted. Local

economists and political thinkers, including the Caribbean’s Nobel laureate in

Economics, Arthur Lewis, had long argued in favour of regional integration and

cooperation to address the constraints of small size on development, to share the costs

of common services and to pool bargaining power in international fora. In the early

1960s Caribbean states embarked on a series of integration initiatives of expanding

ambition and varying geographic coverage.

These initiatives started with the establishment of the Caribbean Free Trade Association

(CARIFTA) in 1965. This was followed by the decision to deepen economic integration

by creating a common market as an integral part of the Caribbean Community

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(CARICOM), which was established in 19732. In 2002, CARICOM members formally

embarked on the creation of an economic union with a commitment to establish the

Caribbean Single Market and Economy (CSME) under the Revised Treaty of

Chaguaramas, which came into force in 20063. The Revised Treaty envisaged the

creation of a common economic space, calling for a “fully market-oriented approach to

the regional economy, deeper macroeconomic policy coordination, increased

harmonisation of functional areas, the free movement of goods, services, investment

and labour, and eventually a currency union.” (Hornbeck 2008) Table 2 summarises the

main elements of these initiatives.

In parallel with, and in some case predating these formal integration initiatives,

Caribbean countries created a range of regional institutions, including: the University of

the West Indies; the Caribbean Court of Justice; the Caribbean Telecommunications

Union; and the Caribbean Regional organisation for Standards and Quality (Appendix

Table A.1 gives a larger but not exhaustive list of regional institutions).

Within the CARICOM grouping some countries have taken much deeper steps towards

integration. Eight of the nine members of the Organisation of Eastern Caribbean States

(OECS) (Anguilla, Antigua and Barbuda, Dominica, Grenada, St. Kitts and Nevis, St. Lucia,

Montserrat and St. Vincent and the Grenadines) share a common currency managed by

the Eastern Caribbean Central Bank, which also oversees financial and banking integrity

for the independent OECS states. Five of the OECS states have ratified a treaty to

establish an economic union, providing for free circulation of goods, services, capital

and labour, a regional Assembly of Parliamentarians and a common external tariff. The

OECS (established in 1981) is often identified as an exemplar of small island state

regional integration and cooperation. OECS members have been successful in

establishing a number of regional institutions, including the Eastern Caribbean Supreme

2 In practice, the Community and the common market were established as two separate legal and institutional entities: the Community which ‘comprises multiple functional relationships and institutions designed to integrate the region politically, economically and legally’ (Hornbeck 2008), and the common market focusing on trade and investment integration. 3 The original treaty of Chaguaramas, signed in 1973, established CARICOM.

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Court, the Eastern Caribbean Civil Aviation Authority, and the Eastern Caribbean

Telecommunications Authority.

Table 2: Caribbean regional economic integration initiatives

CARIFTA CARICOM CARICOM revised/CSME

Duration 1968-1973 1973-2006 Post-2006

Membership 12 Anglophone

Caribbean

countries a

13 Anglophone Caribbean

countries b

CARICOM 15 countries

CSME 12 countries c

Form Free Trade Area Customs Union/Common

Market

Economic Union

Scope Merchandise

trade

Merchandise trade

Minimal provision for services

and capital

Incentives policy harmonisation

Industrial allocation

Joint development of agriculture

and natural resources

Merchandise trade

Services

Capital

Skilled labour

Macroeconomic policy

harmonisation

Monetary union

Sectoral policy harmonisation

Complementary

Pillars

Common services Functional cooperation (mainly

social policy)

Foreign policy coordination

Functional cooperation (extended to

external trade)

Foreign policy coordination

a Antigua and Barbuda, Barbados, Belize, Dominica, Grenada, Guyana, Jamaica, Montserrat, St. Kitts and Nevis, St. Lucia, St. Vincent and the Grenadines, and Trinidad and Tobago. b The Bahamas became a member of the Community in 1983 (but not the Common Market) c Suriname and Haiti joined the Community (in 1995 and 2002 respectively): The Bahamas, Montserrat and Haiti do not participate in the CSME.

Source: Girvan, 2010

The CARICOM regional integration project has received strong in principle support from

the member states of the Community, and broad acceptance within the private sector

and academia. However, there is growing disenchantment with progress actually being

made. This comes on top of long-standing doubts about whether models of regional

integration that are centred on trade liberalisation can deliver much in the way of

development outcomes.4

4 In a chapter of a report commissioned by the Caribbean Development Bank, University of West Indies Professor Norman Girvan observed that “… economic integration is still a work in progress, and what has been accomplished so far has not impacted significantly on regional economic development. This could be due to faulty implementation of agreed integration schemes, or to inappropriate design of the schemes

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A World Bank/Organization of American States study published in 2009 argued that

implementation of the integration agenda had stalled, with the goal of establishing a

common market being far from met. In particular it pointed out that:

“Implementation of the common external tariff, a critical feature of the common

market has been marred by extensive derogations and the imposition of import

surcharges by some members. Average external tariffs range from 7.2 to 30.7 per

cent, and maximum tariffs range from 40 to 400 per cent, and a number of

members impose unauthorised non-tariff barriers to imports” (Tsikata et al

2009, p. ix)

CARICOM does not in effect have a common external trade policy, since the CARICOM

Treaty does not prohibit individual members from negotiating bilateral agreements

with third countries.

Significant impediments to the right of establishment and free movement of goods,

services, capital and labour remain to be addressed.5

Macroeconomic coordination and convergence are far from being achieved: there are no

rules for policy coordination and implementation, and the convergence criteria that had

been set for creation of the monetary union remain largely unmet.

Little has been achieved in the way of development of common or coordinated sectoral

policies.

The report also pointed to weaknesses in the institutional and governance structures

for CARICOM and the CSME. Decisions are taken by consensus and through inter-

themselves, or to inherent limits in the capacity of economic integration per se to drive development in these economies” (Girvan 2010). 5 CARICOM’s CSME Unit reports on a study indicating that across all five regimes CARICOM member states had implemented 64 per cent of the required measures. The highest level of compliance was for the movement of goods (80 per cent) and the lowest for the movement of services (37 per cent) (CSME Unit 2012).

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governmental cooperation and, with the exception of the Caribbean Court of Justice,

none of the agencies or bodies created to support the integration process have been

given supranational decision-making power. Additionally, CARICOM has not yet created

instruments to enable Community decisions to become law.

A recently mandated study by CARICOM Heads of Government to offer proposals for

restructuring the CARICOM Secretariat observed that CARICOM was in crisis (Stoneman

et al 2012). While this was seen as partially due to continuing economic retrenchment

in the region caused to some extent by the 2008 global financial crisis and the fallout

from the problems in Europe6, it was also due to long-standing frustration with the slow

rate of progress and a serious weakening of the structure and operations of the

Community. In turn, it linked the frustration back to the excessive ambition of the

CARICOM agenda in the light of exogenous and endogenous constraints, which included:

binding exogenous constraints due to geography (too many islands), market size

and the inherent complexity (especially of the single market and economy

agenda) of the integration project;

endogenous problems such as the over-expansion of mandates, lack of coherence

in the expansion of CARICOM institutions, and lack of functionality of many of

these institutions, managerial and administrative weaknesses, including within

the Secretariat; and

the perennial problem facing all regional initiatives: progress depends on

member state level implementation and enforcement, and the political,

legislative and administrative challenges of translating Community level

decisions into practice—this in turn is linked to the absence of prioritisation and

tendency to adopt too many mandates.

6 Many Caribbean states were badly affected by the GFC, especially those heavily dependent on tourism. But the region includes some of the most highly indebted economies in the world, and many governments are struggling to achieve fiscal sustainability and deal with economic downturn.

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3. Hemispheric integration

In parallel with the CSME agenda, CARICOM members have been pursuing integration

into the larger regional and hemispheric economy through agreements with other

partners. CARICOM has negotiated trade agreements with Colombia, Cuba, Costa Rica,

the Dominican Republic and Venezuela: but the most significant agreements have been

with the United States and the European Union.

Historically, Caribbean integration into the global economy has been driven by trade

preferences, which have had the effect of shoring up increasingly uncompetitive

primary production activities. The United States continues to provide unilateral, non-

reciprocal preferential access through the Caribbean Basin Economic Recovery Act and

the Caribbean Trade Partnership Act. However, the negotiation of an Economic

Partnership Agreement (EPA) between the EU, CARICOM and the Dominican Republic

that was concluded in 2007 signalled an eventual end to the provision of unilateral

preferential access to the EU market (especially significant for the region’s sugar and

banana industries). A range of new areas including customs and trade facilitation,

intellectual property rights, investment and competition policy were thus brought

under the discipline of a binding agreement. The EPA with the Caribbean grouping is the

only agreement to date that covers all target sectors to which all negotiating parties

have acceded (Rudloff & Weinhardt 2011).

The successful conclusion of the negotiations notwithstanding, some proponents of

Caribbean integration have argued that the negotiation of the EPA exposed the lack of a

regional governance settlement for the Caribbean, and the failure of leaders and

technocrats to seek buy in to the agreement (Bishop and Payne 2010). Others have

pointed out that the discussion within the Caribbean cast the agreement as a largely

technocratic issue, when in fact it went to the heart of the political economy of

integration for the region (Girvan 2009). In many areas the EPA has the capacity to

supercede the CSME as a driver of change for CARICOM members, and the institutional

arrangements set up to ensure progress and deal with disputes under the agreement

have been seen as supplanting the regional structures that the Caribbean has

endeavored to put in place. One commentator observed that

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“As a consequence the just concluded EPA has included in it administrative and

organisational arrangements, which give EPA institutions a greater degree of

“sovereignty” over the domestic economic affairs of CARICOM, than the Treaty

of Chaguaramas, which established the Secretariat and organs of CARICOM does.

Since EPA bodies are jointly controlled by the EC and CARIFORUM Member

States this is clearly unacceptable” (Thomas 2008, p. 24).

4. Lessons for the Pacific?

Are there lessons for the Pacific from the CARICOM experience with regional

integration, and the factors that led to the conclusion that it is in crisis?

There are many differences between the members of the CARICOM Community and the

Pacific Islands Countries (PICs), even though the two regions are often grouped together

in thinking by other parts of the world and the development community. CARICOM

members are physically much closer to the large markets with which they have long

standing commercial ties, and none are as geographically fragmented as some PICs. (It

is instructive to note that the greatest distance between the nine members of the OECS

is half the distance of that which lies between the islands that are furthest apart of just

one PIC, Solomon Islands.) Most CARICOM members are much better endowed with

skills than PICs, and have a much stronger entrepreneurial base (Worrell and Fairbairn,

1995). However, many countries in both regions face the challenges of size and

dependence on air and sea transport for internal links and physical interactions with

the rest of the world.

Importantly for the regional integration agenda, for both groups of countries the

potential gains from regional trade liberalisation are not large: the prospects of a

significant, growth enhancing expansion of inter-regional trade are limited. In 2001,

Delisle Worrell noted:

“… Perhaps the weakest area of integration within the Caribbean has been

trade … There are few complementarities that would make for intra-regional

trade … Intra-regional trade is unlikely to assume major proportions …

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Inevitably trade will be mainly with the rest of the world, its pattern of growth

determined by skills, investment and productivity and the rate at which the

Caribbean adopts new techniques, the critical factor in international

competitiveness” (Worrell 2001, quoted in Hosein 2010, p. 159).

Similar observations can be made about Pacific regional trade liberalisation (see, for

example, Warner 2008). For both regions a more logical approach is to liberalise trade

and investment with the rest of the world, or at the very least with the large markets

with which trade in goods and services are and will be important for member countries.

But as the Caribbean and Pacific experience with the EPA shows, how this integration is

approached is really critical. Unfortunately, the dynamic of trade agreements and how

they are negotiated often flies in the face of a sensible approach to reaping the gains

from liberalisation: they typically embody a mercantilist approach to trade and

prioritise institutional and policy changes that are not high order issues for both sides of

the table. While it is hard to see any case for Caribbean or Pacific economies to raise the

costs of international trade and investment through policy based impediments, most of

the benefits of reducing these impediments can be achieved through unilateral action.

For small states in the Caribbean and the Pacific, there ought to be larger gains from

regional institutional integration and development of shared institutions, especially

among the countries which share a common legal and institutional colonial legacy.

While this kind of integration has been part of the Caribbean regional agenda in the

past, and continues to be pursued in some areas, the reluctance of some governments to

cede sovereignty to regional institutions has constrained further progress. This

stumbling block also seems to impede the adoption of common sectoral policies and

regulatory systems that could lead towards the creation of a single economy. The clear

exception to this is the OECS, whose members are part of a monetary union and share a

number of institutions.

A key issue seems to be that where an institution directly or indirectly embodies or

influences a distribution of costs and benefits, the parties to the creation of that

institution have to be confident that its operation will lead to overall gains for the

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community. This probably becomes harder to ensure the larger and more disparate the

members of that community are, or where culture and behavioural norms differ

widely7.

Put together, these observations suggest that there is value in recalibrating approaches

to regional integration. Many regional integration projects around the world have been

strongly influenced by the European model, where integration of the regional market

was the critical entry point in building confidence that would allow progressively

deeper integration, including monetary and political union, with a significant allocation

of power to central institutions. At the same time, Europe has used trade agreements

with other countries and regions to pursue broader commercial interests and ensure

market access.

It is not clear that the logic of this approach is very compelling for the Caribbean or the

Pacific. For these regions, the gains from regional trade and investment liberalisation

are small, and regional agreements do not deliver enough benefits to build confidence

and support for a broader integration agenda. Collectively negotiating agreements with

external partners is unlikely to be a good pathway to either strengthening regional

coherence or reaping the gains from freer flows of trade and investment

This suggests that the case for regional policy cooperation and creation of shared

institutions has to be sold on its own merits, and pathways must be developed to deal

with the sovereignty issues. One lesson from the Caribbean is that subregional

groupings with stronger cultural and historic ties can progress where larger pan-

regional groupings struggle.

Another important lesson from the Caribbean lies in the challenge of matching the scope

and ambition of the integration agenda to political and capacity realities. CARICOM has

been strongly criticised for adopting mandates unmatched by implementation capacity.

7 It may be significant that the OECS monetary union and the Eastern Caribbean Central Bank that manages the union were created before independence, whereas the CSME objective of monetary union has to be agreed to by a collection of independent nations with clearer notions of separate national interests.

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Leaders of CARICOM countries have also admitted that much of the agenda has been

driven in a top-down fashion: despite strong pan-Caribbean sentiment it has proved

hard to convince citizens of member states of the merit of more intensive regionalism.8

This has made it hard to translate decisions made regionally into national level practice.

8 See the lecture given to the Library of Congress by the former Prime Minister of Barbados (Arthur, 2007)

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5. Annex: Caribbean regional institutions

Table 3 lists a selection of regional institutions operating in the Caribbean. Many have

been established under the aegis of CARICOM. There are also non-state regional

institutions, such as the Caribbean Labour Congress, the Caribbean Union of Teachers

and the Associated Chambers of Commerce.

Table 3: Selected Caribbean regional institutions

Assembly of Caribbean Community Parliamentarians Caribbean Court of Justice (CCJ)

Caribbean Agriculture Research and Development

Institute (CARDI)

Caribbean Food Corporation (CFC)

Caribbean Centre for Development Administration

(CARICAD)

Caribbean Examinations Council (CXC)

Caribbean Disaster Emergency Response Agency

(CDERA)

Caribbean Organisation of Tax Administrators (COTA)

Caribbean Environment Health Institute (CEHI) Caribbean Regional Fisheries Mechanism (CRFM

Caribbean Food and Nutrition Institute (CFNI) Caribbean Regional Information and Translation

Institute (CRITI)

Caribbean Meteorological Organisation (CMO) Caribbean Regional Organisation for Standards and

Quality (CROSQ)

Caribbean Aviation Safety and Securing Oversight

System (CASSOS)

Caribbean Telecommunications Union (CTU)

CARICOM Implementing Agency for Crime and

Security (IMPACS)

CARICOM Competition Commission

Caribbean Community Climate Change Centre

(CCCCC)

Council of Legal Education (CLE)

Caribbean Development Bank Caribbean Law Institute (CLI)

Caribbean Customs Law Enforcement Council

(CCLEC)

Caribbean Tourism Organisation (CTO)

Caribbean Centre for Money and Finance (CCMF) University of West Indies (UWI)

Source: CARICOM Secretariat 2012

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Bishop ML & Payne A 2012 “Caribbean Regional Governance and the Sovereignty Statehood Problem,” Caribbean Paper No. 8, The Centre for International Governance Innovation, Waterloo, Canada.

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