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Edward Seaga | Jamaica a misfit in CARICOM

Published:Sunday | July 10, 2016 | 7:00 AMEdward Seaga

The relationship of Jamaica with its Caribbean neighbours in a regional organisation was first publicly discussed at a conference in Montego Bay in 1947, called by the British secretary of state, Arthur Creech Jones, to discuss the question of political integration.

From this opening discussion, 11 years later, the West Indies Federation was born, comprising 10 English-speaking countries. All were seeking independence through the federal structure.

The federation was ill-fated from the start. It was based on the strength of a common heritage, from which was to be forged a common destiny of political, economic and social development, through integration. If the commonalities of the federation were its strength, its diversities were its weakness: population size, wide income spread and economic performance, differences and distances between political power centres, and, from Jamaica's point of view, lack of socialisation with the other member countries and their people.

The federal system was planned from the top down. The people were never consulted until the very end when a referendum was held in Jamaica on September 19, 1961 to determine its fate. That was the day that the West Indies Federation died. It was rejected by the people of Jamaica and, as so cogently phrased in the memorable words of Dr Eric Williams, premier of Trinidad and Tobago, "one from ten leaves nought". The federation was promptly dismembered and abandoned.

The demise of the federation put an end to political integration, but it did not destroy the concept of regional cooperation. The University College of the West Indies in 1948 was a successful cooperation in higher education and there are other areas which could be pursued.

The first step to further cooperation was the establishment, in 1965, of the Caribbean Free Trade Association (CARIFTA), an agreement among Caribbean member nations to advance trade by eliminating trade barriers to enhance regional trade with broad objectives to:

- Promote the expansion and diversification of regional trade, particularly by the removal of excessive and unnecessary tariffs.

- Ensure fair competition.

- Foster harmonious development and liberalisation of Caribbean trade.

- Encourage the progressive development of economies in the region.

CARICOM was seen as the logical extension of CARIFTA. But equally, it was the expression of an expectation that it would be a regional mechanism to enhance declining exports by facilitating economic expansion within the region.

CARICOM (Caribbean Common Market) was established under the Treaty of Chaguaramas in 1973. The common market would include eventual introduction of a Common External Tariff and free movement of labour and services, focusing first on professionals and university graduates, and a single market for economic cooperation.

 

COMMON MARKET

 

A common market is broader than a free trade association. It moves beyond free trade to facilitate economic and social development of Member States in an integrated region for:

- Coordination of foreign policies.

- Extending cooperation in common services and functional matters such as: health, education, justice, cultural communication and industrial relation.

- Economic cooperation.

Against this background of high expectation, the performance of CARICOM trade with Jamaica must be addressed to assess the impact on the Jamaican economy.

Regional trade with Jamaica over the years, since the inception of CARICOM in 1973, has persisted as a low-impact economic activity, particularly in exports. In 1973, exports from Jamaica to CARICOM were 6.3 per cent of Jamaica's total exports and 5.2 per cent of total imports. By 2001, Jamaican exports to the region declined to 4.1 per cent and imports from CARICOM were a substantial 12.7 per cent.

Further, between 1995 and 2010, a period fully covered by the CARICOM Single Market and Economy (CSME), Jamaica's trade balance with Trinidad deteriorated by 295 per cent while the balance between Trinidad and Jamaica increased by 268 per cent. The fact that Jamaica's decline was virtually Trinidad's gain is considered by many to be just cause to insist that something should be done to reduce the imbalance.

Indeed, during my term in office as prime minister in the 1980s when the shoe was on the other foot and Trinidad was in deficit with Jamaica, I was approached by that country's financial secretary while we were both at a conference in Barbados to determine whether Jamaica could ease the pressure on Trinidad.

Realising that Trinidad was a valuable importer of Jamaican exports and supplier of oil, I responded positively to improve the balance. There is a justifiable feeling that Trinidad should make a similar concession, perhaps by a special agreement on a discounted price for oil which could be passed through to exporters as an export rebate until the energy problem in Jamaica was overcome. After all, without a Jamaican market, Trinidad's CARICOM trade would be reduced to virtually nil. This is a trump card that Bustamante would have played! It would so shake up the CARICOM system that we would stop talking the talk and walk the walk.

This, however, would only amount to temporary assistance. There must be a deeper probe to determine why this anaemic performance in exports occurs.

Over the 30 years of CARICOM trade, Jamaica has moved from being a net exporter in CARICOM to a net importer.

This weak export performance is at the heart of queries now being raised as to whether Jamaica can overcome its weak export record and, if not, whether there is any purpose in extending its CARICOM involvement in the CSME.

The reason for this listless performance is not to be found in any lack of product acceptance by consumers. In a region where the producing countries carry much the same lines of production, preference is largely driven by competitive pricing.

Studies have found that the main contributors to the lack of price competitiveness in Jamaican exports are low productivity arising largely out of:

- Inadequate skills; and

- Macroeconomic instability.

 

JAMAICA'S DISADVANTAGE

 

One of the principal reasons for the negative movement of Jamaican productivity was that over the period 1973-2007, labour productivity or output per Jamaican worker declined at an average annual rate of 1.3 per cent. Hence, Jamaica lags behind other countries.

Jamaica is at a grave disadvantage in the regional setting. The education system is not geared to lifting productivity and improving competitiveness in the marketing of Jamaican goods and services and, from the lack of priority the sector is receiving, this condition will likely continue to prevail.

To facilitate trade and investment in the CSME, it is proposed that a Caribbean Monetary Union (CMU) be established within the framework of the CSME. The CMU would be regulated by a Caribbean Monetary Authority (CMA).

 

CMU PARTICIPATION

 

Central to the concept of a CMU is the creation of a single Caribbean currency to replace regional currencies.

The criteria framed for participation in the CMU require member countries to maintain a minimum of:

1. Three months import cover in foreign-exchange reserves for at least 12 months.

2. A stable exchange rate against the US dollar for 36 months.

3. An external debt-service ratio of no more than 15 per cent of the value of exports.

A number of the proposed participating countries in the CMU, including Jamaica, could not meet all these criteria.

A second reason for a CMU is that the CMA would be introduced as a regional monetary institution to administer a fixed exchange rate regime with a single currency. This would enable monetary and fiscal stability to be established for the region. But with the exception of Jamaica, Guyana, Haiti and Suriname (and possibly Trinidad), this macro-stability already exists, based on the fixed exchange rate of the OECS countries and the pegged currencies of Barbados, Bahamas and Belize. What incentive would exist then for these stable economies to be involved in a CMU that offers nothing better than what they have already achieved? Worse yet, the distinct possibility of weakening their own macro-credibility, by involvement with the instability of Jamaica, Guyana, Haiti and Suriname, would be a great threat.

Jamaica, as a misfit, has no role to play and, accordingly, should play a selected role like The Bahamas in CARICOM.

- Edward Seaga is a former prime minister.

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