Modest, But Encouraging, Performance

The basic rule which underpins trade cooperation among the Member States of the Community is the grant of unrestricted access to each other's market for goods which meet the Community Rules of Origin criteria. Under such an arrangement it might be reasonably expected that intra-regional trade performance among Member States of the Community would be relatively robust. The reality, however, is that the overall performance of Intra-regional trade has, over the years, been quite moderate.

According to the Caribbean Trade and Investment Report 2000, data for the period 1990-1998 reveal that intra-regional imports as a percentage of the Region's total imports accounted for between 8 and 10 per cent. While intra-regional exports accounted for between 12 and 23 per cent of the Region's total exports over the same period. Despite this modest intra-regional performance, however, it should be noted that, intra-regional exports, feared better than extra-regional exports. The data reveal that, since 1990, the value of intra-regional exports has grown by 8.5 per cent a year on average, compared to -1.1 per cent for extra-regional exports. On the other hand intra-regional imports expanded by an average of 5.6 per cent a year between 1990 and 1998, while imports from extra-regional sources grew at just about the same rate, at 5.7 per cent per year.

It is noteworthy that between 1990 and 1998, the Region's total exports expanded by 4 per cent compared to total imports which grew by 55 per cent over the same period. This large difference in the growth of the Region's overall exports and imports points to the significant imbalance in the growth of trade with the Region's extra-regional markets, with imports from non-CARICOM sources expanding much faster than exports to those destinations.

For the LDCs, The Intra-regional Market Continues to be a more Important Destination for Exports than for the MDC Grouping

While the performance of CARICOM's intra-regional trade, relative to its total trade, has been moderate over the years, its importance in the trade of many Member States is not insignificant. The data reveal that between 1990 and1998, the regional market as a destination for exports was in fact quite significant for some Member States, even though it has been quite negligible for others. In the case of Barbados and St. Vincent and the Grenadines for example, intra-regional exports as a per cent of total exports has always been in excess of 30 per cent during 1990-1998. In Dominica it has always been significant, with intra-regional exports as a percentage of total exports ranging from 25 per cent in 1990 to 78 per cent in 1998; and in the case of Grenada it ranged from the mid-twenties to the mid-thirties over the period. (See Table 1).

Even though the MDCs, as a group, experienced a steady increase in their intra-regional exports during 1990-1998, largely accounted for by intra-regional exports from Barbados and Trinidad and Tobago, the share as a percentage of total exports remained relatively low, accounting for 11 per cent in 1990, climbing to 22 per cent by 1998. The intra-regional market is therefore of limited significance as a destination for exports from the MDCs.

On the other hand, however, intra-regional exports as a share of total exports, in the case of the LDCs as a group, has been always significant, and continued to rise during the period. In 1990 its share was approximately 20 per cent, climbing to approximately 25 per cent by 1998. The importance to Member States of the intra-regional market as a destination for exports is presented in the attached Table.

Three Countries Account for the Bulk of Intra-regional Imports and Exports

During the early 1990s, the three leading importers of Community goods were Barbados, Jamaica and Trinidad and Tobago, respectively accounting for 22, 18 and 16 per cent of total intra-regional imports. By 1998 (based on available data) Jamaica occupied the position of top importer of regional goods, absorbing 40 per cent of regional exports. Barbados and Trinidad and Tobago occupied the second and third spots as importers of regional goods, absorbing approximately 21 and 14 per cent respectively, of regional exports.

On the export side, the three leading exporters of goods to regional destinations in 1990 were Trinidad and Tobago, Jamaica and Barbados with 52, 14 and 13 per cent respectively of total intra-regional exports. Trinidad and Tobago continuously increased its share throughout the 1990's, accounting for 75 per cent of regional exports by1998 (based on available data). Barbados and Jamaica, unlike Trinidad and Tobago, both experienced steady declines in their share of exports to other Member States, falling to 11 and 4.4 per cent respectively. Trinidad and Tobago's position as the leading intra-regional exporter is on account of its exports of petroleum products and manufactured goods.

Petroleum and Light Manufacturing Goods are the Principal Intra-regional Exports

Petroleum, which accounted for 33 per cent of the value of intra-regional domestic exports in 1998, occupied the top position among export products within the Community. Apart from petroleum, other important groups of products, in nominal value terms, which featured prominently in intra-regional exports were paper and packaging material, beverages(aerated and non-alcoholic) and waters, edible products and preparations (such as soya sauce, tomato ketchup, pepper sauce), washing and cleansing preparations (including washing liquids, bleach and detergents), building cement and iron and steel. The not insignificant range of products holds out promise for the development of a regional industrial capability.

INTRA-REGIONAL EXPORTS AS A PERCENTAGE OF TOTAL EXPORTS BY COUNTRY: 1990-1998
(Percent)
CARICOM COUNTRIES	1990	1991	1992	1993	1994	1995	1996	1997	1998
CARICOM	12.4	12.1	12.8	15.9	14.8	16.5	17.1	17.3	22.9
MDCs	11.4	11.1	12.1	15.7	14.4	16.3	17.1	17.0	22.8
Barbados	30.7	32.7	34.3	38.8	35.5	37.4	35.8	35.4	43.3
Guyana	7.3	...	...	...	6.3	...	...	...	...
Jamaica	6.1	5.5	5.7	5.6	4.8	4.1	3.8	3.3	3.3
Suriname						2.5	5.1	5.5	...
Trinidad & Tobago	12.7	12.0	13.4	19.8	19.5	23.8	24.4	25.4	31.5
LDCs	19.8	20.0	17.7	17.3	19.4	19.1	17.0	20.1	24.6
Belize	6.6	6.0	4.5	3.8	3.5	3.4	3.0	4.2	7.1
OECS	24.6	25.2	22.7	22.2	28.9	29.2	25.5	32.4	37.6
Antigua & Barbuda	38.4	26.6	14.3	6.0	...	...	...	...	...
Dominica	25.3	26.0	29.6	30.6	36.9	42.3	46.7	51.1	78.3
Grenada	26.4	35.8	28.8	31.4	26.6	29.2	29.1	34.3	25.1
Montserrat	33.8	39.2	54.4	36.4	20.7	5.7	2.2	...	...
St. Kitts & Nevis	13.0	12.4	11.8	12.2	13.0	11.5	4.2	3.4	3.3
Saint Lucia	17.1	17.5	12.6	17.4	15.4	16.0	13.4	16.1	19.5
St. Vincent & Gr'dines	34.3	37.4	41.1	46.2	55.3	62.3	49.6	57.8	49.1

Source: Caribbean Trade and Investment Report, 2000
Notes: Suriname became a member of the Caribbean Community and Common Market in July 1995.
Means data not available


CHANGING DYNAMICS OF INTRA-HEMISPHERIC TRADE

Deepening and Widening of Hemispheric Trade: Resulting Rise in Intra-hemispheric Exports and Imports as a Percentage of Americas World Trade

Within the last decade, intra-hemispheric trade, as a proportion of the Americas total trade with the world has increased significantly. This implies that, although world trade has been growing very rapidly (even faster than world GDP) transactions between hemispheric countries are even more dynamic in nature. Intra-hemispheric exports, as a percentage of those countries exports to the world as a whole, increased steadily over the last decade, rising from 46.7 per cent in 1990 to 58.3 per cent in 1998. For imports, the corresponding figures were 40.5 per cent in 1990 and 45.6 per cent in 1998

Bulk of CARICOM's World Trade is with the Hemisphere

The Caribbean Trade and Investment Report 2000, revealed that intra-CARICOM exports as a percentage of their total global trade rose from 7.9 in 1990 to 15.5 in 1998, that is, virtually doubled. As expected, intra-CARICOM exports as a percentage of their total hemispheric trade also increased considerably during the period. The intra-CARICOM share increased from 17.8 per cent in 1990 to 29.5 per cent in 1998, a slightly lower increase for intra-hemispheric trade compared with global trade. This somewhat lower increase should be cause for concern about the export capability of the CARICOM region in manufacturing, since a large proportion of commodity trade is with the other major trading partner, the European Union (EU).

There is a slight increase in the propensity of CARICOM countries to procure imports from fellow hemispheric partners, rather than the outside world, the share having risen from 71.3 per cent in 1990 to 72.2 per cent in 1998. This import propensity translates into a relatively high absolute level of imports. When this is combined with the chronically weak export performance, the result is a very significant CARICOM trading deficit (exacerbated by tied aid) with the rest of the hemisphere for every year of the last decade. The CARICOM deficit obtains with respect to virtually every one of its trading partners, with the Dominican Republic being a notable exception. The trading deficit with the hemisphere seems to be increasing, but the coverage of the data is probably not sufficiently good to be able to determine whether there is a definitive trend.

As has been often mentioned, the supply capability of the Caribbean needs to be greatly strengthened. In this regard, marketing savvy should not be neglected since penetration of the USA market, which accounts for half of that of the hemisphere (with trade with the hemisphere accounting for over 70 per cent of CARICOM's global exports and imports - Table 1) requires the ability to both exploit niche opportunities and adhere to various technical standards and specifications.

Table 1
Shares of CARICOM Hemispheric Export Trade 1998

EXPORTS OF CARICOM	PERCENTAGE
1.  Intra-CARICOM as % of their World Trade	23
2.  Intra-CARICOM as % of their Hemispheric Trade	30
3.  CARICOM's Hemispheric Trade as % of their World Trade	76

Decline in CARICOM's Share of Hemispheric Trade with the USA

The share of hemispheric trade with the largest partner, the USA, fell from 59.4 per cent in 1990 to 46.2 per cent in 1998. While a fall in the share over time would be expected, given the CARICOM strategy of widening of trade relations to include more partners and the diversifying of export outlets, it is however disconcerting that the absolute value of CARICOM exports to the USA has hardly increased during the period. Only in two years, 1995 and 1996, was the value attained in 1990 actually surpassed. Mexico's participation in NAFTA, with its lower costs of production and less restrictive rules of origin, has had a very adverse effect on exports of Jamaica and other CARICOM countries to the USA market. In the 1990-1994 pre NAFTA period, CARICOM manufacturing exports to the USA had risen sharply from US$283.8m to US$508.6m. In 1995 there was an increase to $531m and, thereafter, there was a fall every year reaching US$422m in 1998. Similarly, in the case of the much less important destination, Canada, the value of CARICOM exports remained almost the same during the period, except for a significant jump in 1994. However, the data are not complete for certain CARICOM countries.

The poor export performance to the USA and Canadian markets is all the more disappointing in view of the preferential access that the CARICOM countries have to these two markets. Since 1984, the US Caribbean Basin Initiative (CBI) has benefited 27 Caribbean and Cental American countries. There was CBI enhancement on 18 May 2000 via the passing in the US Congress of the "United States - Caribbean Basin Trade Partnership Act" (CBTPA). Preferential treatment was extended to textiles and certain rum based beverages for the first time with a stipulated duration of 1 October 2000 to 30 September 2008, which coincides with both the end of the transitional period of the ACP-EU Cotonou Agreement and the expected coming into being of the FTAA Agreement, when WTO compatibility and non-preferential trade are expected to become the norm.

The Caribbean-Canada (CARIBCAN) arrangement has been in existence since 1986 and grants special duty-free entry for 18 CARICOM and other English-speaking (Commonwealth) countries, based on 60 per cent local content. Product exceptions were textiles, apparel, footwear, handbags, other leather garments, lubricating oils and methanol. In 1998, Canada expanded duty-free coverage to include methanol, lubricating oils, basket-work and wicker-work, and travel goods and handbags. As in the case of the USA export market, CARICOM countries seem to have made little use of the preferential access opportunities in the Canadian market, with Jamaica and Guyana (sugar and gold in the case of the latter) accounting for the bulk of the exports.

CARICOM's Trade with non-North American Partners Remains Very Small

With the USA and Canadian markets accounting for roughly one-half of CARICOM exports and CARICOM Member States nearly one-third, the remaining trading partners represent approximately one-sixth. With respect to two other countries that granted preferential access, the export performance is as weak as was mentioned in the case of the USA and Canada. One-way free trade for five years with Venezuela came into force in 1993 and with Colombia in 1995. Conversion to reciprocal trade with Venezuela is awaiting the forging of an agreement with the entire Andean Pact of which Venezuela is a part. In the case of Colombia, there is now an asymmetrical type of reciprocal trading relationship involving a limited "positive list" of products with certain concessions made to the CARICOM MDCs and even more to the LDCs; Venezuela is demanding a similar arrangement. Although there was recovery in the trade with Venezuela from the extremely low level of 1993, the absolute level of exports in 1998 was never significantly higher than it was in 1990, except for 1996 and 1997. In the case of the Colombian market, the absolute level of CARICOM exports actually peaked in the year before the preferential market access arrangement came into being and, thereafter, there has been a dramatic decline.

In the case of the Dominican Republic, Mexico, Panama and the CACM, there appears to be an upward trend in the absolute level of CARICOM exports, but for Cuba and MERCOSUR the 1990-98 period is characterised by rather erratic movements. All these countries and groupings, continue to account for a very small share of CARICOM's exports to the hemisphere, in spite of the Region's stated diversification objectives.

Evolving CARICOM Hemispheric Insertion Strategies

CARICOM's relations with third countries, and the insertion of the Region into the hemispheric economic integration process, seem to be undergoing change. Originally, the Region presented a monolithic face to the world in terms of its trading relations, ever since a customs union was negotiated in 1973. In recent years, however, the trading system seems to be making allowance for not only regionally negotiated agreements with third parties but, also, for individual CARICOM countries to negotiate arrangements with other third parties. This has implications for the cohesiveness, and possibly integrity, of the process of development towards a Single Market and Economy.

Article 34 of CARICOM's Treaty of Chaguaramas requires members to seek "progressive coordination" with other members regarding their trade policies with the rest of the world. CARICOM Members were allowed to pursue independent trade policy initiatives with non-member entities provided they submitted any such new agreement to the CARICOM Secretariat for information. This was probably seen as a transitional arrangement and, in any event, involving activities that would not threaten the fundamental tenets of the Common Market and its evolution into a Single Market.

Accordingly, preferential arrangements were negotiated in the mid-1970s with the EU by the Caribbean acting as a single Region (within the framework of the ACP). Similarly, the CBI and CARIBCAN were negotiated in the early and mid-1980s with the USA and Canada by the Caribbean acting as one bloc. Later on, in 1990, CARICOM, as a Region, negotiated a trade cooperation agreement with Mexico, as a follow-up to two Joint Commission Meetings that were held in 1974 and 1988. Also, ACS and the Group of Three (G-3) regionally negotiated trade promotion arrangements, which were not designed to eventually become free trade agreements, came into existence. (Under discussion in the ACS is a preferential tariff scheme, with membership divided into three groups: The CARICOM LDCs, an intermediate group of countries and the G-3). In addition, in the mid-1990s regionally negotiated preferential trade agreements with Venezuela and Colombia came into force and, in April 2000, the Region concluded its first truly reciprocal trade negotiations with the Dominican Republic. In all of these cases, the Region acted as a single negotiating partner.

However, this unified approach has been modified ostensibly to allow for a greater degree of flexibility in the liberalisation process. Accordingly, since 1997, countries that have achieved a greater degree of competitive readiness could seek the approval of the Council for Trade and Economic Development (COTED) under Protocol IV on Trade Policy to go ahead and form trading agreements with certain third parties, even before the other member countries are ready to do so. The expectation is that the others will eventually catch-up and, in time, the single party agreement will evolve into a regional instrument. (In fact, in the long-run, for the countries of the Americas, all aspects of the hemispheric liberalisation process should eventually converge).

It is in this context that Trinidad and Tobago has initiated trade negotiations with Mexico and Costa Rica. Panama is targeted as the next country with which to start negotiations. (See Table 2). These initiatives are a testament to the dynamic nature of the economy of Trinidad and Tobago and the eagerness of the policymakers and businessmen to develop and diversify their export outlets.

Table 2
Trade Agreements in the Americas Hemisphere
Involving CARICOM Participation

Status Partner	Already Negotiated	Negotiations in Progress/or Agreements Proposed
CARICOM Region	1. Caribbean Community 2. CARICOM-USA (CBI) 3. CARICOM-Canada (CARIBCAN) 4. CARICOM-Venezuela 5. CARICOM-Colombia 6. CARICOM-CUBA	1. Free Trade Area of the Americas 2. CARICOM-Andean Community 3. CARICOM-Chile 4. Association of Caribbean States (ACS Preferential Tariff Scheme only) 5.  CARICOM-Central America
CARICOM Member State		1. Trinidad and Tobago-Costa Rica 2. Trinidad and Tobago -Mexico 3. Trinidad and Tobago-Panama 4. Guyana-Brazil

Source: Caribbean Trade and Investment Report, 2000


Trinidad and Tobago is Emerging as a CARICOM Hub and Export Engine

The issue of the optimum strategy for insertion into the hemispheric integration process and the merits of the regional grouping versus bilateral (or a combination of the two) approaches has only arisen because of the relatively strong growth in the industrial capability of Trinidad and Tobago. Trinidad and Tobago accounts for over one-third of the GDP of the CARICOM Region. Its economy has also been growing very rapidly in the 1990s, partly because of the relatively high rate of FDI inflows in the petrochemical and manufacturing sectors. This foreign investment, coupled with buoyant joint venture and other domestic investment, has given rise to a rapid increase in exports, both intra-regionally and extra-regionally. In 1998, Trinidad and Tobago's US$793.6mn exports to the CARICOM region accounted for 28.7 per cent of the US$2,574.4mn intra-CARICOM exports; but the US$107.0mn worth of imports accounted for only 5.2 per cent of the US$2,065.4mn intra-CARICOM imports.

Trinidad and Tobago has been running a huge trading surplus with the CARICOM region as a whole and a significant surplus with every CARICOM country. For the last available year, 1998, the percentage discrepancy between exports and imports varies between CARICOM countries but, as would be expected, given their GDP weightings, Jamaica with 35.0 per cent, Barbados with 16.7 per cent, Guyana with 11.9 per cent and Suriname with 11.2 per cent account for the bulk of Trinidad and Tobago's trading surplus.

The Trinidad and Tobago's surplus with its CARICOM trading partners is not solely due to its petroleum exporting capability. There is a trading surplus in manufacturing products, narrowly defined, with every CARICOM country and the same obtains when manufacturing goods are more broadly defined. This indicates that Trinidad and Tobago is becoming an export dynamo, at least as far as the CARICOM region is concerned.

However, Trinidad and Tobago's export capability is not entirely limited to the CARICOM market. (See Figure 1). The country has an overwhelming trade surplus with the Dominican Republic with exports of US$62.5mn and imports of US$6.1mn in 1998, even though petroleum products probably account for a very sizeable proportion of the surplus. In the case of Costa Rica, except for two years, 1998 and 1996, Trinidad and Tobago achieved a trading surplus during the period 1988-1998. In most years the percentage surplus was very high, although the value of the trade with Costa Rica remained very low, with exports never exceeding 0.5 per cent of Trinidad and Tobago's exports to the world as a whole. Nevertheless, the export performance is not insignificant, since the products are not restricted to the petroleum and petrochemical category. For example, in 1998 steel exports (bars and rods, hot rolled in irregularly wound coils, of non-alloy steel) amounted to US$1.1mn or 21.8 per cent of the country's exports to Costa Rica in that year.

Source: Caribbean Trade and Investment Report, 2000

+ Balance of trade outcomes for 1998
** Although a trade deficit occurred with Mexico in 1989, for virtually the entire decade Trinidad and Tobago enjoyed a surplus with that country

In the case of Mexico, Trinidad and Tobago has also been running a trading surplus for most of the 11-year 1988-98 period, except for 1988, 1989, 1991 and 1998. The value of trade with Mexico is much more significant than in the case of Costa Rica but, at the same time, exports never exceeded 1.9 per cent of Trinidad and Tobago's total exports to all destinations. Nevertheless, it represents a burgeoning Trinidad and Tobago manufacturing capability, with steel products, valued at US$22.1m in 1998, accounting for 52.3 per cent of that country's exports to Mexico. Steel exports would probably have been greater were it not for antidumping fears.

Trinidad and Tobago's favourable trade surplus with many of the countries of the Hemisphere would have been more than offset by the very sizeable trade deficit with the USA. In 1998, exports to that market (mainly petroleum and petrochemicals) amounted to $1.9 billion while imports were as high as $3.2 billion.

Trinidad and Tobago seems to be emerging as a sort of CARICOM "hub", given the way the integration process is articulating itself. Its exporting capability, based less on a currency depreciation in the mid-1990s and more on cheap energy, certain technical skills, entrepreneurship, retooling and energetic marketing (along with a home market that acts as a sizable pedestal) may very well attract capital and labour from other CARICOM countries. But Trinidad and Tobago has also been exporting capital (primarily via acquisitions in financial and manufacturing enterprises) to certain parts of the CARICOM region. Over time, this productive capability may lead to the development of significant regional sourcing, networking and integrated production, but non-complementarity of the CARICOM economies and their relatively low stage of development may delay this process for a while.

TRADE WITH THE EUROPEAN UNION

The New Cotonou Agreement Constitutes an Important Challenge

The new partnership Agreement that was signed on 23 June 2000, in Cotonou, as a successor to Lomé IV constitutes a unique challenge. The Cotonou Partnership Agreement's provisions relating to trade and economic development outlines its objectives as the gradual and full integration of the ACP States into the world economy by enhancing their production, supply and trading capacity as well as their capacity to attract investment. The objectives are underlined by certain principles and objectives such as WTO conformity; building on regional integration initiatives; and progressive removal of trade barriers between the EU and ACP.

Together the provisions of the new agreement pave the way for fundamental changes in the ACP, and by extension CARICOM, relationship with the EU. The reciprocity and WTO conformity principles are expected to significantly altar the way of doing business with the EU after the preparatory period. This preparatory period will expire on December 31, 2007, by which time reciprocal arrangements will have been negotiated. However, during the transitional period non-reciprocity will prevail and the commodity protocol arrangements as amended will continue.

The financial envelope of the new agreement is set at EURO 15.2 billion for the period up to February 2005. An additional amount of EURO 9 billion of un-disbursed resources from previous European Development Funds (EDFs) will be added to extend the financing period to cover 2000-2007.

The Caribbean Trade and Development Report (CTIR) 2000 has argued that while the new agreement may not be on the surface radically different from its predecessors in substance, some underlying principles have changed and the proposed introduction of reciprocity post-2007 will constitute a totally new reality. Soon after CTIR was completed and four months after the signing of the Cotonou Agreement, the European Commission's Trade Directorate proposed that the Least and Less Developed countries of the world should have almost immediate quota and duty free access to the EU market. While this proposal is laudatory, it constitutes an imminent threat to the commodity producers of the Caribbean. The less than favourable findings of the CTIR are therefore all the more relevant.

Imports from the European Remain a Significant Proportion of Total CARICOM Trade

It has been shown, repeatedly, that CARICOM's trade with the European Union has occupied a position of prominence in the Region's external trade from colonial times. Those production structures and trade patterns inherited at independence continue virtually unchanged to the present time.

The data analysed in the CTIR indicates that, while the EU ranks second to the USA in importance as a source of CARICOM's imports, its relative position has also remained virtually unchanged. In 1980, 15.8 per cent of CARICOM's imports were sourced from the EU, and after eighteen years, that figure was roughly 13.7 per cent. The most important EU trading partner in that regard remains the United Kingdom.

CARICOM's imports from the EU in 1998 has been estimated at US$1.6 billion with eleven countries reporting. The more developed countries (MDCs) of CARICOM - Barbados, Guyana, Jamaica, Suriname and Trinidad and Tobago- accounted for 82.8 per cent of imports from the EU. At the commodity level, CARICOM's imports from the EU are somewhat diversified with some forty six items accounting for 77 per cent of the value of imports. All of the items identified are in the intermediate or final goods stage reflecting the dependence of CARICOM on external sources, in this case the EU, for machinery, transport equipment and other industrial goods, chemical products and even food products.

Increasing Concentration Within Commodity Exports to the EU

As on the imports side, the EU is ranked second to the USA as a destination of CARICOM's export commodities. Between 1980 and 1998, the EU has been the destination of 17 per cent of the Region's exports or US$1.7 billion in 1998 with only eleven countries reporting. Excluding the countries with unavailable data during the period, it has been estimated that CARICOM's exports to the EU grew at an annualised rate of 3.2 per cent in nominal terms over the period 1980-1998. Again the MDCs are significant beneficiaries, accounting for some 82 per cent of CARICOM's exports to the EU in 1998.

At the commodity level, a high degree of concentration was evident. The concentration ratio for the largest four export items (C4) to the EU was calculated at 0.829 in 1997 indicating that the largest four items accounted for 83 per cent of CARICOM's exports to the EU during that year. The comparable ratio for the largest eight items was 0.910, indicating that the fifth to eighth largest items (C8)only added another eight percentage points to the C4 ratio. Comparable C4 and C8 ratios for 1991 were 0.682 and 0.835, respectively. These figures indicate increasing concentration over the period 1991-1997 and do not augur well for the diversification efforts of the Region in terms of its exports to the EU. It has been argued that the price concessions and guaranteed access for many ACP exports to the EU has encouraged many ACP states to remain heavily dependent on a few traditional primary products that are hardly competitive in the global market place.

As might be expected, the largest four items have been aluminum ores and concentrates, sugar, bananas and methanol. These four items together are of significant importance to ten CARICOM Member States. To these could be added rum and tafia, which are of importance to Barbados, Guyana, Jamaica and Trinidad and Tobago, and rice, which is of importance to Guyana. That these items account far in excess of 80 per cent of CARICOM's exports to the EU is testimony to the importance of both the items and the EU as a market for regional products.

Non-Commodity Exports to the EU of Marginal Significance

The literature surveyed in the CTIR indicates that, whilst the Region took appropriate advantage of the provisions of the commodity-protocols of Lomé IV, this was not the case in other non-traditional areas. Assessments of the trade regime under Lomé indicate that the Caribbean enjoyed a preferential tariff margin, over the MFN and GSP tariffs of some 3.9 per cent and that without tariff preferences more than 30 per cent of exports would be subject to duties on entry to the EU market. Notwithstanding this, it has been found that when the items traded under the commodity protocols are excluded, there had been only a slight increase in exports from the Caribbean to the EU during the period 1988-97. Hence it may be concluded that beyond the commodity protocols, Lomé preferences were no incentive to develop new production capacity or diversify exports in CARICOM.

Tourism and Other Services Exports Remain Important

Data suggests that tourism services have in general continued to be the main services export of the Region. In this regard the European market plays a significant role. In 1997 approximately one in every four visitors to CARICOM countries originated in Europe, with some CARICOM countries having a higher degree of dependence on European visitors than others. Between 1993 and 1997 the number of European visitors to the Region increased from 736,000 to 870,000, representing an average annual growth rate of 4.3 per cent.

The data on services trade also indicates that CARICOM exports approximately one quarter, by value, of its services to Europe. In 1996, CARICOM's services exports to all destinations totalled US$6.5 billion of which US$1.5 billion or 23.3 per cent was destined for Europe. This represents a 4.6 per cent annual growth rate from 1990 when the value of services exports to the EU from CARICOM was US$1.2 billion.

This suggests that services trade is generally important, currently making substantial contributions to export earnings and holds the promise for further development. Current liberalisation in the area of services within CARICOM, if managed efficiently, could strengthen the position of the Region. The scenario envisaged by the implementation of Protocol II Amending the Treaty Establishing the Caribbean Community could provide the basis for service-sector integration in CARICOM thereby providing the scale and enhanced competitiveness required to survive in the global market.

Qualitative Leap Required in Caribbean Business Organisation and Efficiency

The countries of the Caribbean Community face an interesting scenario in the new millennium in respect of relations with the European Union. On the one hand, there is the prospect of re-negotiated commodity arrangements, albeit with a reduced level of preferences to retain WTO compliance, and, on the other hand, the necessity of reciprocity in a prospective free trade area with the EU. There is also the more imminent prospect of having to compete during the 2000-2007 preferential access transitional period with the world's Least and Less Developed countries.

The challenge facing the Region remains the imperative of implementing programmes to make its productive sectors, both in goods and services, internationally competitive. This requires fundamental paradigm shifts in the modes of business organisation. The trends in CARICOM's trade withe the EU is indicative of the stagnant or declining relative position of the Region in the EU market both in terms of growth and importance. No single CARICOM country has the resources - human, technological, financial or otherwise - to effectively respond. The hope lies in taking advantage of the opportunities that present themselves as a result of regional approaches to development such as the CARICOM Single Market and Economy (CSME). Production integration within CARICOM could be construed as the regional version of global organisation of production (globalisation) and should be adopted as the priority model for regional production. This would lead to changes in productive structures and make possible at the regional level what was not possible at the national level. The onus therefore lies on the owners of private capital to optimise the use of their resources by investing and organising in an enhanced fashion at the regional level. This could foster the repositioning that is so necessary for the Region to advance its interests in its trade-relations with the EU.

CARICOM'S SHARE OF INWARD INVESTMENT

Foreign Direct Investment Inflows to CARICOM have more than tripled between 1990-1999

In 1999, foreign direct investment (FDI) inflows to the Member States of the Caribbean Community (CARICOM) amounted to US$1.6 billion. The figure is equivalent to a more than tripling over the last ten years and representative of an increase of 3.5 per cent over 1998. This level of inflows compares well with those recorded worldwide where, by 1999, global investment inflows had tripled to over US$640 billion within the last ten years. However, CARICOM's share of global inflows continued to amount to just over 0.2 per cent.

The major recipients of foreign investment flows in CARICOM were Trinidad and Tobago and Jamaica followed by the Organisation of Eastern Caribbean States as a group (see Table below). However, for many countries, foreign investment inflows do not exhibit a smooth upward trend. This trend is particularly erratic for natural-resource rich countries like Guyana and Trinidad and Tobago. This may be due to the tendency for investment in such projects to be fairly large and lumpy in nature with lulls between expansion phases.

Country	1990	1991	1992	1993	1994	1995	1996	1997	1998	1999
The Bahamas Barbados Belize Guyana Jamaica OECS* Suriname** Trinidad and Tobago	(17) 11 17 8 138 182 .. 109	n.a. 7 15 13 133 166 .. 169	7 14 18 146 142 136 .. 178	27 9 9 70 78 127 .. 379	23 13 15 107 130 161 .. 516	107 12 21 74 147 186 .. 299	88 13 17 92 184 113 7 320	210 15 12 52 203 182 12 1,000	147 16 18 47 369 232 10 732	145 15 3 48 520 257 5 633
CARICOM	448	503	495	699	965	846	834	1,686	1,571	1,626

Source: Caribbean Trade and Investment Report, 2000.
* All (Antigua and Barbuda, Dominica, Grenada, St Kitts and Nevis, St Lucia, St Vincent and the Grenadines) except Montserrat.
** Included only from year of accession to CARICOM

Relatively Good Performance Compared with other Developing Countries

CARICOM's performance in attracting FDI inflows can be considered to be well above average, given its relatively small population and national income, with several States being ranked worldwide between 5 and 21 for FDI flows per US$1000 of Gross Domestic Product (GDP) and between 10-29 for FDI flows per capita. In addition, there has been significant growth in FDI inflows as a percentage of GDP and gross domestic capital formation (GDCP) considerably exceeded that achieved by other developing countries in the hemisphere and the world as a whole. These indicators highlight the dependence on external resources to finance and sustain growth and development in the Region. Such dependence should be carefully managed to prevent short-term fluctuations based on extra-regional economic developments from derailing the development process in Member States.

Diversified Sources and Sectoral Distribution of FDI in CARICOM

The Caribbean Trade and Investment Report 2000 indicates that most of the FDI inflows to CARICOM States within the last decade have been in the form of equity capital, although reinvested earnings are becoming a not insignificant source for the Region. To a certain extent, an increasing rate of re-investment could be indicative not only of the prospects for the future, but, also the degree of satisfaction of investors with the local business environment and the effectiveness of the investment promotion authorities.

FDI inflows to CARICOM States while still concentrated in the traditional primary and tertiary sectors namely, mining, energy, agriculture, forestry and tourism services, began to diversify into mainly labour intensive, medium to low-technology manufacturing such as garments and data processing activities. Moreover, there has been a resurgence of inflows into the petroleum and natural gas sector in Trinidad and Tobago. The sectoral distribution of FDI inflows has, however, now begun to reflect the international trend with a concentration in the services sector, and, primarily financial services.

The geographical sources of FDI in CARICOM States has also begun to reflect some degree of diversification as well. While the United Kingdom, USA, Canada and the Netherlands continue to be major sources of FDI inflows, several Member States have received investments originating from European countries (mainly France, Germany and Spain), Asia (in particular, India) and South Africa.

CARICOM States Ranked amongst Top Developing Economy Exporters

Notwithstanding the relatively small size of the manufacturing sector in the Community, exports of manufactures are beginning to grow in significance. For example, in 1997, Trinidad and Tobago was ranked as number 22 among the top 25 developing economy exporters of medium technology manufactures and at 23 among the top developing country exporters of resource-based manufactures. The rankings for other Member States with respect to per capita exports of high/medium/low technology and resource-based manufactures are shown below.

Rank of CARICOM Member States among Top 25 Developing Economy Exporters Ranked by Per Capita Exports - 1997

	Rank	Medium Technology	Rank	Low Technology	Rank
St Kitts & Nevis Barbados Saint Lucia Trinidad & Tobago	9 11 22 25	Trinidad & Tobago Barbados	5 14	Trinidad & Tobago Barbados Jamaica Saint Lucia Belize	12 17 20 22 23
Resource-based		Total Manufactures		Total Merchandise Exports
Trinidad & Tobago Barbados Belize St Vincent	3 10 12 21	Trinidad & Tobago Barbados St Kitts & Nevis	10 16 23	Suriname Trinidad & Tobago St Kitts & Nevis Barbados Belize	7 12 20 22 24

Source: Caribbean Trade and Investment Report, 2000.

Growing Importance of FDI for Capital Formation and Development

Productive activities in CARICOM also reflect the changing mode of doing business in a globalized world with Trinidad and Tobago, Jamaica,The Bahamas and Barbados being ranked at 1, 11, 23 and 24 respectively with regard to the "transnationality index" of developing economy host territories for the year 1996. The transnationality index is based on the average of the share of FDI inflows as a percentage of gross fixed capital formation for the last three years; FDI inward stock as a percentage of GDP; value added of foreign affiliates as a percentage of GDP; and employment of foreign affiliates as a percentage of total employment. According to the World Investment Report 2000 (p.25) the rankings of the abovementioned four countries in 1997 were 1, 15, 20 and 24, respectively.

Increasing Investor Friendly Framework has Stimulated FDI

Within the last decade or so CARICOM Member States have made considerable policy changes to create a conducive and enabling environment for FDI inflows. In this regard, Member States have not only implemented many policy reforms but have also reframed incentives regimes as well as established several mechanisms which are expected to maximize capital inflows. These mechanisms have included streamlining the process for investment approvals, establishing export processing zones, and entering into bilateral investment and double taxation agreements with third countries as well as intra-regionally in order to strengthen the guarantees given to investors regarding the security of their investments.

Improved Investment Prospects would Require Member States to be More Pro-Active

Maintaining the trend of increasing FDI inflows to the Community is of critical importance given the need to sustain growth with equity in light of the rising expectations of CARICOM nationals. The process, however, must be carefully managed so that FDI could contribute more fully to the development of an appropriate regional production structure capable of generating economic activity in accord with the needs of the Community. Given the Community's high propensity to import, it is important that FDI activities do not exacerbate this characteristic, but as far as possible, lead to the fostering of backward linkages with the domestic economy. In so targeting high valued added activities, Member States need to take fully into account their respective physical and human resource endowments. Finally, with liberalisation of investment regimes now a universal phenomenon, CARICOM countries (already suffering from the disadvantage of a small market ) are required to be much more competitive in sourcing foreign capital in order to merely retain their existing market share.

INTRA-CARICOM INVESTMENT

Growing Phenomenon

The Caribbean Trade and Development Report, 2000 has found that a number of CARICOM firms in the light manufacturing, distribution and financial services sector are participating in the cross-border investment process. The upsurge in intra- CARICOM investment has coincided with a period of relatively sustained boom in most of the Caribbean economies and an increasingly liberalised business environment.

Emerging Conglomerate Forms of Business Organisation

By going abroad, Caribbean firms are attempting to escape the extreme restrictions of small local market size and the limited scope for business opportunities. Cross-border investment activity also results in the spreading of risks. Accordingly, a greater number of firms are evolving into conglomerates, aided by the increasing relaxation of cross-border restrictions and the inspiring notion of an emerging Single Market and Economy in the Caribbean region. Some distribution firms have graduated into manufacturing (and vice versa) and certain firms with real sector core activities have entered the financial services sector as a result of the more permissive business environment. While such diversification can confer important advantages for the firm concerned, it can also stretch to the limit, inherent corporate, managerial and accounting capabilities. The CARICOM Secretariat recently undertook a survey of 39 companies that were known to have some degree of cross-border activity. Goddards Enterprise of Barbados is the most prolific firm, with 18 cross-border operations, most of which are in the CARICOM region, but a few are further afield. Just as prolific are Neal and Massey, Colombian Emerald and Royal Bank of Trinidad and Tobago with 14, 13 and 10 cross-border operations, respectively.

The top ten firms in the sample, in terms of the number of cross-border operations, are as set out in Table 1.

Table 1
Top Ten Caribbean Firms with Cross-Border Operations

Rank	Firm	Number of Locations
1	Goddard Enterprises	18
2	Neal and Massey	14
3	Colombian Emerald	13
4	Royal Bank of Trinidad and Tobago	10
5	Caribbean Publishing	9
6	C.L. Financial	9
7	Life of Barbados	9
8	CIBC West Indies	7
9	Ansa Mc Al	5
10	A..S. Bryden	5

Source : Caribbean Trade and Development Report, 2000

The emerging trend suggests the development of an increasing entrepreneurial capability by investors from the Region. The extent of the operations of some firms would indicate that they can be truly considered Caribbean "transnational corporations".

Trinidad and Tobago and Barbados are the Dominant Sources of Regional Investor Capital

Of the 39 companies with cross border operations studied, thirty three had their head office in the MDCs. The firms from Trinidad and Tobago (which number 23 of the sample of 39) appear to have the most aggressive cross-border location strategy (mainly in manufacturing, and banking and other financial services). Six of the top ten firms are headquartered in Trinidad and Tobago, while the other four are based in Barbados.

A Significant Proportion of Foreign Investment in the OECS is from CARICOM Member States

In 1995, intra regional investment in the OECS was EC$114.6Mn and by 1998, it had reached EC$187.1 Mn (see table 2), which is substantial when compared with FDI from all sources, since the shares in 1995, 1997 and 1998 were 23 per cent, 37 per cent and 30 per cent respectively.

In 1995 the bulk of Caribbean investment in the OECS went to Dominica which received 94.95 per cent of reported flows with the remainder going to St Kitts and Nevis and Antigua and Barbuda. In 1997 the distribution of the intra regional investment in the OECS was less skewed, with 39 per cent of the flows going to Saint Lucia, 25 per cent to Grenada, 18 per cent to Dominica, 12 per cent to Antigua and Barbuda and 6 per cent to St. Kitts and Nevis. By 1998, Caribbean investment in the OECS again became skewed, with 96 per cent being made in Grenada and Saint Lucia while the tiny remainder was divided among Antigua and Barbuda, Dominica and St. Kitts and Nevis.

Caribbean Investment in Receiving Country	Value EC$'000
Year	1995	1997	1998
Antigua and Barbuda	290	22,491	1,500
Dominica	108,787	34,248	1990
Grenada	00	46,180	60,000
St Kitts & Nevis	5,500	11,220	5,900
St Lucia	00	71,561	117,700
Total	114,577	185,700	187,090

Source : Caribbean Trade and Development Report , 2000

The CARICOM investor preference for locating in the OECS is most likely due to these countries having a somewhat lower level of technological endowment and entrepreneurial and capability than the other countries in the Region, while at the same time possessing medium level per capita incomes. Besides steady economic progress, the OECS countries have also exhibited a reasonable amount of political stability. Particularly in the area of financial services, the OECS has been found to be an attractive area for expansion. The Royal Bank of Trinidad and Tobago and the Republic Bank (also of Trinidad and Tobago) have between them strategic operations in five countries in the sub-region (as, also, in other non-CARICOM countries).

Mergers and Acquisitions are a Frequent Form of Cross-Border Entry

One of the factors encouraging the cross-border movement of firms is the opportunity to make acquisitions of existing assets at fairly attractive prices. Such a means of cross-border penetration avoids the hassle and start-up costs of a greenfield venture, and eliminates potential competition in the process.

The Caribbean firm engaged in cross border operations, seems to prefer the acquisition route to that of a true merger, since the latter would require the sharing of company names, brand names and senior executive positions, and the compromising of corporate strategies.

Acquisitions are occurring in both the banking and non banking sectors by some particularly aggressive companies, including Royal Bank of Trinidad and Tobago, Republic Bank of Trinidad and Tobago, Ansa McAL and Trinidad Cement Limited, all of which are headquartered in Trinidad and Tobago.

Even though acquisitions do not immediately result in an increase in capital formation in the host countries, there may be some capital formation in future years from investment for expansion and/or modernisation of operations. In any event, because of the traditional small size of Caribbean firms, the mergers and acquisitions may give them a critical mass required for surviving in an increasingly competitive global environment.

A reasonable assumption is that the creation of the Single Market and Economy would enhance the attractiveness of investing in the Region as a whole by creating a single economic space, thus generally contributing to improved efficiency and higher output levels.

Portfolio Flows

Intra-regional portfolio investment (defined as less than ten per cent shareholding) has not been substantial and a number of reasons can be offered for the lack thereof. One of the most important seems to be the fear associated with investing in weak inconvertible currencies, especially in relation to the floating exchange rate regimes. Another is the limited range of finance instruments. Although cross-border trading started as far back as 1991, there were only eight firms cross-listed on regional stock exchanges in the year 2000, with three, three, and two of these headquartered in Barbados, Trinidad and Tobago and Jamaica, respectively. Recently, the Region has seen signs of a bond market emerging, with a number of institutions and countries taking part in its developments.