Edward Seaga
THE LAUNCHING of the Caribbean Single Market and Economy (CSME) has been postponed until June. This is not surprising. It was to be signed on February 19 by Jamaica, Barbados and Guyana on the new opening of the CARICOM Secretariat building in Guyana.
The Privy Council decision
of February 3, declaring the Caribbean Court of Justice (CCJ) to be unconstitutional disrupted the plans for consolidating the machinery of the CARICOM integration movement, of which the CSME is the centre piece. The principal casualty of the Privy Council ruling on the CCJ has been the CSME itself.
The CSME is to a large extent, the trade and investment arm of the CARICOM structure. As such, it is envisaged that trade disputes which will arise will require judicial machinery to settle trade conflicts and the interpretation of the Treaty of Chaguaramas on which CARICOM is founded.
The CCJ was structured to have an original jurisdiction to deal with trade matters and the interpretation of the treaty. It was also designed to serve as the final court of appeal for Jamaica and other regional countries. It is this latter function that has been the subject of the Privy Council prohibition ruling.
DEALING WITH TRADE DISPUTES
But the CCJ can still proceed with its first function as a court with original jurisdiction in dealing with trade disputes and conflicts in the interpretation of the treaty.
This is not as logical as it may seem. There is a serious problem which could make it unlikely that the CCJ could be made to serve the purpose of settling trade and treaty matters only. Six judges have already been appointed to the CCJ. They are highly paid. This presents a scenario of highly paid judges dealing with matters that do not require their level of legal skills. Nor would it require the original level of costs to deal with trade and treaty disputes only. The original level of costs of the CCJ would then have to be scaled down to avoid public criticism. Bear in mind that US$100 million is required to be borrowed to set up a fund to finance the court in its original design.
With Trinidad and Tobago facing its own constitutional hurdles, deciding to support the CCJ only in its original jurisdiction, Dominica, and Belize doing likewise, Antigua having strong reservations, the Bahamas not participating, and Jamaica having no access to the CCJ in its appellate function based on the Privy Council ruling, very few countries will be left to foot the top-heavy bill of the elaborately structured CCJ. This could cause the CCJ in its original design to be severely downscaled or replaced by a new and lesser entity. The CSME would as a consequence have to operate with a dispute mechanism of a lesser order.
ESTABLISHING A CARIBBEAN MONETARY UNION
The problems of the CCJ do not end there. Part of the framework of the CARICOM structure is the establishment of a Caribbean Monetary Union (CMU) regulated by a Caribbean Monetary Authority (CMA) to issue a single Caribbean currency to replace all the domestic currencies of the CARICOM countries involved in the CSME. This single currency is the lubricant required to smooth the flow of finance and trade transactions. It is well argued that the CSME cannot operate successfully without a single Caribbean currency.
In addressing this matter in the last budget debate in which prospects of the CSME were fully discussed by me, I said: "Several problems surround the concept of a CMU and a single currency. Basically, it is misconceived. The replacement of all regional coinage with a single currency is intended to facilitate regional trade in the CSME. But the level of intra-regional trade in this market is so small that
the creation of a currency to facilitate a relatively miserly volume of intra regional trade is ridiculous."
Trade performance data of all CARICOM countries, as a percentage of GDP, show that exports are at the low level of 10 per cent in four countries and others are far less significant, some below one per cent. Jamaica's exports to CARICOM are embarrassingly low. In regard to imports, the performance ranges from 15 per cent of GDP to mostly less than 10 per cent. Overall, this unimpressive level of regional trade cannot be the basis for replacing all regional currencies which have substantially higher levels of trade outside the region. Trade with United States, for instance, is dominant by far, based on the direction of trade.
A more important assessment is based on the criteria required for participation in the CMU, which requires a minimum of:
(1) Three months of import cover in foreign exchange reserves for at least 12 months;
(2) A stable exchange rate against the U.S. 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, have not met these criteria.
SUBSTANTIAL COSTS
A further reason for the establishment of a Caribbean Monetary Union is that the Caribbean Monetary Authority, as the regional monetary institution, would administer a fixed exchange rate among the member-countries to enable monetary and fiscal stability to be established in the region. But with the exception of Jamaica, Guyana, Haiti and Suriname, this stability already exists among the other countries. What incentive then would exist for these stable economies to be involved in a CMU which offers nothing better than what has already been achieved? Worse yet, these countries risk the real threat of weakening their own macro-credibility by involvement with the instability of Jamaica, Guyana, Haiti and Suriname.
The prospects for establishing a Caribbean Monetary Union on which the CSME will depend, is, for these reasons, marginal.
The CSME, therefore, faces the prospect of operating with a much curtailed judicial system in its framework and, even moreso, without the single Caribbean currency which is required to lubricate and facilitate the movement of money for trade and finance.
Many countries will no doubt conclude that with these shortcoming which will impede its most important functions, the CSME will be only a shadow of its original structure and may very well not be a worthwhile strategy for development.
Perhaps the final position will be reached on this when the participating governments sit to assess the substantial cost of operating the CSME as now envisaged and the budgetary implications of including additional taxation for each country to support a trade and finance regime which accounts for less than 10 per cent of their overall operations.
The CSME, by this account, could be in for more serious problems than now publicly envisaged and the postponement until June is a timely period for reconsideration of its practicability, viability and sustainability.
If the CSME cannot fulfil its original purpose, what then would be the consequence? The regional trade arrangements currently in place would not fall apart. They would continue with accommodation for such improvements as are practical and desirable without the CSME super structure which has produced a heavy framework likely to topple. Arrangements for the freedom of movement of skills could also continue. The region could then turn its attention fully to negotiations on the Free Trade Association of the Americas to determine the best prospects for the region and individual countries as, reportedly, Trinidad and Tobago has already done. This area by virtue of its larger scope and potential is worthy of much of the attention now being given to the small scale operation of the CSME.
* Edward Seaga is a former Prime Minister. He is now a distinguished fellow at the University of the West Indies.
