Island Economics: Free Trade in the Caribbean

By Francis, Khary | Harvard International Review, Fall 2006 | Go to article overview

Island Economics: Free Trade in the Caribbean


Francis, Khary, Harvard International Review


How should the Caribbean region foster economic development? The question has long been on the minds of Caribbean leaders. Their small island states face significant hindrances to development, including modest populations, limited expanses of viable land, and insufficient capital flow. Even worse, the global shift toward free trade has hit the Caribbean hard, removing market protections of major industries like bananas. Heads of state have turned to integration of the region's markets to increase investment and improve competitiveness. It is a smart strategy, largely because integration brings increased leverage in trade negotiations. Operating as an economic bloc, the Caribbean nations must compel WTO free-trade negotiators to approve concessions that will not force the Caribbean prematurely into global competition.

In July 2001, members of the Caribbean Community (CARICOM) prepared for an increasingly competitive global marketplace. They agreed to replace their Common Market agreement with the CARICOM Single Market and Economy (CSME). This replacement represents a shift from trade protectionism to trade liberalization vis-a-vis the rest of the world and to more extensive integration within the region. The earlier agreement sought to protect CARICOM markets from foreign goods and included such policy measures as a common external tariff. By contrast, the CSME has made way for the elimination of external tariffs, pushing for a common free-trade policy with the world. Internally, while the Common Market lowered barriers on the trade of goods produced among member countries, the CSME has also allowed the free trade of services and the free movement of certain skilled personnel.

The liberalization of trade in goods and services within the region will expand the resource base and increase the potential consumer market, making more businesses regionally sustainable. However, the liberalization of trade with the rest of the world has proven detrimental to Caribbean economies in the past. This is most noticeable in banana-producing countries. Since the Lome Convention of 1976, Caribbean banana producers enjoyed secure preferential markets for their produce. According to a 2003 Caribbean Banana Exporters Association report, bananas comprised about 33 percent of total exports from the Windward Islands of Dominica, St. Lucia, and Grenada. In 1999, however, the WTO condemned the European Union's preferential trade agreement as non-compliant with WTO free-trade rules. …

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