Alicia Nicholls

This week, two noted International Monetary Fund (IMF) economists in a blog post entitled “Pandemic Persistence Clouds Latin America and Caribbean Recovery” aptly likened the economic fall-out emanating from the novel coronavirus disease (COVID-19) outbreak to a ‘cardiac arrest’ in Caribbean economies. This IMF post is one of several analytical pieces published by international institutions over the past months examining the pernicious economic impact of the crisis on Caribbean countries, whose mainly tourism-dependent economies have been significantly hit.

The COVID-19 pandemic reiterates yet again the exigency of reconsidering and reconfiguring Caribbean Community (CARICOM) Members States’ integration into the global trading system. Indeed, many structural issues have long clogged the arteries of Caribbean economies, serving as risk factors for repeated economic cardiac events. Our countries generally have high merchandise trade deficits, and while we enjoy services surpluses, that services trade is predominantly tourism. In addition to the highly concentrated nature of our exports, similar concentration can be observed in our trading partners. Most of our trade occurs with the United States (US), the European Union (EU), Canada, the United Kingdom (UK) and increasingly, China. However, as a World Bank study argued, there is untapped potential for greater trade with the wider Caribbean.

This article suggests that deepening trade and tourism with the wider Caribbean could be an aspirin to help CARICOM countries deal with the COVID-19 ‘heart attack’.

What is the wider Caribbean?

The term ‘Caribbean’ means varying things to different people. For us in the English-speaking Caribbean, the term ‘Caribbean’ usually connotes those countries which comprise the 15-member Caribbean Community (CARICOM), which also includes two non-anglophone Member States – Haiti and Suriname. Nonetheless, for those outside the region, the term ‘Caribbean’ is all-encompassing to include those non-CARICOM independent countries and dependent territories, such as Cuba, the Dominican Republic, the Turks & Caicos to the north and as south as the ‘ABC’ islands – Aruba, Bonaire and Curacao. One can go wider still and refer to the Caribbean Basin – all countries with a coastline which touches the Caribbean Sea, such as Colombia, Venezuela and several Central American States.  

Deepening relations with the wider Caribbean is not a new concept or aspiration. CARICOM itself has adopted an approach of ‘open regionalism’ as codified in the Revised Treaty of Chaguaramas at Article 3(2).  CARICOM has five Associate Members, all from the wider Caribbean, namely, Anguilla, Bermuda, the British Virgin Islands (BVI), Cayman Islands and Turks & Caicos. and observer members from the non-English speaking Caribbean. Besides the Dominican Republic-CARICOM FTA, CARICOM also has trade agreements (mainly partial scope agreements) with some Caribbean Basin countries, such as Venezuela, Costa Rica, Colombia, while some individual CARICOM Member States have their own partial scope agreements, such as Belize with Guatemala and Guyana with Brazil.

In addition, the Jamaica government has indicated its intention to deepen its trade links with the Northern Caribbean, as seen in the Golding Report and a 2018 report prepared by ECLAC on this topic at the request of the Jamaican Government. Martinique and Guadeloupe are associate members of the Organisation of Eastern Caribbean States (OECS) and Martinique is one of St. Lucia’s main tourism source markets. It should also be remembered that CARICOM countries had been among the participants of the now defunct negotiations on a Free Trade Area of the Americas (FTAA), which would have created an FTA among all countries of the Americas, except for Cuba and Venezuela for political reasons.

Barriers impacting wider Caribbean trade

Intra-CARICOM trade only accounts for a small percentage of CARICOM’s total trade compared with trade with external partners. While it is unknown the exact percentage of CARICOM’s total trade with the wider Caribbean, it is also likely small.

Several reasons account for why CARICOM’s trade with the wider Caribbean remains limited. One of them is historical factors which account for the linguistic heterogeneity within the countries and territories of the region. International business scholarship shows generally that firms trade more easily with those in countries with which they share linguistic and cultural affinity, often referred to in the literature as ‘psychic distance’. Therefore, while there may be geographic proximity within the Caribbean, there is notable ‘psychic distance’ due to linguistic and cultural differences. Such differences are not non-negligible as they often make firms’ task of conducting market research on potential markets more difficult.

A second factor to consider, also linked to historical factors, is that while there are excellent transportation links between Caribbean countries and the more traditional markets (US, UK and Europe), intra-Caribbean transportation links often leave much to be desired. It is often easier to send a package to Miami than it is to send one from Barbados to Trinidad, or even more so, from Barbados to Belize. This lack of good intra-regional transportation makes trade more expensive. Moreover, travel within the Caribbean, such as from Barbados to the Bahamas, requires passing through Miami as the easiest route.  Again, this increases the costs of plane tickets and serves as a disincentive for intra-regional trade and travel.

A third, but no less important factor to consider, is the lack of convertibility among the region’s currencies. To complete cross-border payments, US dollars must be used which means our regional banks must use correspondent banks in order to process payments across the region. This, naturally, incurs fees. One group, the Caribbean Settlement Network is trying to fix this problem by proposing the creation of a blockchain-enabled Caribbean settlement system.

A fourth issue is that there remain non-tariff barriers to trade, as well as other administrative barriers which often differ among countries, making it difficult for the private sector to access markets, especially if another language is involved.

Opportunities for trade with the wider Caribbean

Without doubt, opportunities abound for promoting greater trade within the wider Caribbean. However, as it is often said or not always remembered, it is firms which trade, not States. As such, firms will need an enabling environment if they are to find the wider Caribbean an attractive market.

On this note, however, it is worthwhile to highlight that the Caribbean Chamber of Commerce (CARICHAM) and the Caribbean Chamber of Commerce in Europe (CCCE) include members not just from the Anglophone Caribbean but non-anglophone countries as well. This shows that there is at least some pan-Caribbean private sector interest in not just sharing ideas and collaborating but also possibly increasing trade with the wider Caribbean.

E-commerce presents a perfect opportunity to promote greater intra-regional trade, particularly services trade. Things such as telemedicine, management consulting and other professional services can be offered online. Educational services are a big opportunity, particularly the e-teaching of foreign languages since there is demand by those countries to learn English and for our countries to learn Spanish, French and Dutch, for example. Another related opportunity relates to translation and interpretation services which can be delivered online.

An excuse often made is that Caribbean countries’ similar export profiles means there is not much which we could trade with each other. This argument is misguided. Instead of relying so heavily on extra-regional food imports, there are opportunities for greater sourcing of food products from the wider region, such as fresh fruits and vegetables which might not be available in all islands due to costs of production or climatic factors. Jamaica, for instance, grows oranges.

Greater air connectivity will incentivize greater intra-regional trade. However, governments must create an enabling environment for intra-regional trade. This means seriously considering the removal of the high taxes, fees and other charges they impose, which significantly adds to the cost of purchasing tickets. There is little incentive for Caribbean persons to travel within the region for leisure, unless to visit family and friends, if the cost of a ticket to Miami is much cheaper than a ticket from Trinidad & Tobago to the Turks & Caicos.  

According to the IMF blog post previously mentioned, “Caribbean countries are dependent on tourism for anywhere between 20 to 90 per cent of GDP and employment”. With the spike in COVID-19 cases in the US and Europe, now is the time that our tourist boards should be pushing more heavily towards promoting intra-regional tourism. CARICOM currently has a travel bubble whereby persons travelling within the bubble are treated as low risk and are exempt from COVID-19 tests and mandatory quarantine.

Intra-regional travel could help shore up our economies which are struggling to cope with the precipitous drop in arrivals and tourist spend from our main source markets due to the COVID-19 epidemic. Whether it is the Bahamas’ famous Blue Hole, Barbados’ Harrison’s Cave, Jamaica’s Dunn’s River Falls , Martinique’s Mont Pelee or St. Lucia’s signature Pitons, each Caribbean island has its own unique marvels which make it attractive not just to extra-regional tourists, but those from the region as well who would prefer to travel closer to home and to a less risky jurisdiction. As such, deeper intra-regional tourism is an opportunity well-worth exploring.

Negotiating trade agreements would help to eliminate the tariff and non-tariff barriers which currently exist as barriers to trade with non-CARICOM Caribbean countries. A World Bank study entitled “Trade Matters: New Opportunities for the Caribbean” found that implementation of a common market would lead to significant gains for the region, and that those countries such as St. Lucia and Barbados that already have a significant portion of their exports going intra-regionally stand to benefit the most. However, it found that greater trade integration with North America or Latin America would be even greater and could be achieved by joining the NAFTA (now the USMCA). A cautionary note is that CARICOM’s trade agreements remain under-utilised as a study by McClean for ECLAC in 2015 showed. As such, it should be determined whether there is sufficient private sector interest in wider Caribbean markets to justify spending limited negotiating capital on yet another trade agreement.

Just like heart attack patients are counselled to change their lifestyles and adopt healthier eating habits, so too must CARICOM Member States address the risk factors which increase their susceptibility to economic cardiac events. Diversifying their trade and tourism source markets by deepening such links with the wider Caribbean would be one such ‘lifestyle change’.

Alicia Nicholls, B.Sc., M.Sc., LL.B. is a trade and development consultant with a keen interest in sustainable development, international law and trade. All views herein expressed are her personal views and should not be attributed to any institution with which she may from time to time be affiliated. You can read more of her commentaries and follow her on Twitter @LicyLaw.