This Week in Europe, 18 February 2000
Executive Director of the Caribbean Council for Europe
Who benefits from the freeing of trade between nations? Does the removal of all barriers to commerce really result in increased growth and profit for all? Or is this apparently unstoppable process, in reality, a new kind of global war: one in which nobody dies, but the winners, national, corporate or individual, become wealthier, while a similar cast of losers in other locations descend slowly into poverty and crime?
The problem with these questions is that there are no clear answers. All developed and many developing countries and international institutions believe that trade liberalisation increases the velocity of development. However, it seems no one is very sure whether this requires a specific set of political and economic circumstances in the country or region concerned; whether such growth is sustainable in the longer term; or how the process can be managed to ensure greater equity between large and small nations. For instance, a recent study of trade liberalisation and poverty by the well-respected London-based Overseas Development Institute broadly endorses the idea that trade liberalisation can be poverty reducing, but suggests freer trade is only one component in achieving sustained high growth rates. However, the paper – available from publications@odi.org.uk – also notes that it is far from clear in the real world (its words, not mine) if the ideas its authors put forward can be held to be universal. This is because the data on the effects of trade liberalisation on income distribution is ‘not directly available, nor easily compiled’.
A practical example of the complexity of the issue is the likely effect of a new proposal from the Director General or the World Trade Organisation (WTO), Mike Moore. Speaking at a recent meeting of the UN Conference on Trade and Development in early February, he indicated that the world’s leading economies wished to remove barriers to trade with 48 of the Least Developed Countries (LDCs). The objective, it seems, is to sweeten the process of further global trade liberalisation after the collapse in Seattle of the WTO millennium round discussions.
Politics aside, this would appear to be good news for the nations concerned, but a paradox for regions like the Caribbean. It takes little imagination to recognise the likely negative impact such a decision may have on regions with nascent but vulnerable economies. Many of the 48 LDCs concerned produce the same goods as the Caribbean but at lower prices. If these countries can now access major markets such as the EU or US on the same terms, the marginal advantage that regions such as the Caribbean have will erode quickly and equivalent products from the region will be displaced, causing a decline in economic activity.
Much the most difficult debate in the recently ended post Lomé negotiations between the European Union (EU) and the 71 nation African Caribbean and Pacific grouping (ACP) centred on this issue. Relatively higher standards of living have been created in many ACP states through the preferential or privileged access granted them by the EU over the last 20 years. ACP negotiators knew this would be difficult to sustain. So they proceeded from recognition that such special treatment was finite and sought a reasonable transition period in which to adjust economies. They also did so by having the EU recognise in the text that the wider process of trade liberalisation may lead to deterioration in the relative competitive position of the ACP. After a hard fought battle, the EU conceded that it would establish a joint EU/ACP Trade Committee to make recommendations on any extension within the WTO of trade advantages offered by the EU to other developing nations. It was also agreed that the new body would consider what other measures might be taken to ensure that the ACP’s existing competitive position was not eroded.
What this means is that the negotiators have now done all they can to protect the present position of the Caribbean with Europe. They have achieved an eight year breathing space during which governments, enterprise and social partners will have to make and implement decisions informed by the outcome of further trade liberalisation agreements scheduled for the first five years of the new millennium. Most critically for the Caribbean, this will enable industries such as bananas, sugar, rum and manufacturing a period to prepare for the painful and inevitable transition out of protection and preference. It will be a time that will almost certainly involve rationalisation, unemployment and the need for the region to quickly bury traditional enmities.
Having achieved this the challenge will be to ensure that the negotiations that follow between roughly 2003 and 2006 establish a viable basis on which the Caribbean can move to something close to two-way free trade with Europe. But much more importantly, this so-called preparatory period will be the time to develop further the industries that take the region into the future.
This is a message that cannot be ignored. No one is going to give the Caribbean a second chance or reason for special pleading, having agreed a framework that establishes a commitment to move to free trade with Europe and by extension, with everywhere else, within a fixed period.
Essentially, the recently agreed post Lomé text, available soon, is defensive. It seeks to ensure the region and the ACP does not lose in the liberalisation process what it already has. This was fundamental.
However, it will not suffice for the future. The new arrangement says virtually nothing about the need to grow the types of service industries on which the region will have to rely. Language on tourism, for example, the largest industry in the region and the second largest in the world, was only with difficulty inserted into the final text at the very end of the negotiating process. Like the reference to information technology it is minimal in length and content.
That this should happen is a clear message for future negotiations. The traditional mindset of seeing the region as a producer of primary commodities requires radical adjustment. In the next set of negotiations with Europe, or for the General Agreement on Trade in Services at the WTO, industries like tourism, information technology or financial services, need to be at the heart of each Caribbean minister’s brief. If they are not, then the region can hold out little hope of making a successful transition to a world in which freer trade prevails no matter how uncertain its impact.