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Caribbean can look beyond UK market

FUTURE TRADE RELATIONS: Prime Minister Theresa May meeting with South African President Cyril Ramaphosa last month as part of a trade mission. Her determination to do more trade with the continent could see the Caribbean become less important to the UK

IN MY article Will Brexit be good for the Caribbean? (The Voice, August 9), I explored the impact of Britain’s EU withdrawal on trade.

With the direction of British trade policy and engagement with the “Global South” (a term often used by economists to describe developing countries, less developed countries, and less developed regions) currently not being inclusive of much of the English-speaking Caribbean, I called for the region to re-evaluate its position on trade with the developed world.

Last month, prime minister Theresa May arrived in South Africa as part of a multi-day initiative to build trade and investment opportunities between the UK and parts of the African continent.

At present, much of the Caribbean’s future on trade with the EU and the UK is ambiguous and it stands to reason that policy-makers in the region may not be able to afford to take “a wait and see” approach to the unfolding events.

While the case for Britain building future trade relations with countries in the Global South is still tenuous, there will be some countries that will forge agreements with the UK.

Kenya’s President Uhuru Kenyatta has pledged to continue to increase trade and investment between the two countries and many more developing countries are likely to follow regardless of whether it makes up for any losses in trade and investment that the UK had within the EU.

FLEETING
As far as the UK is concerned, it would appear the Caribbean is of little importance as partners in trade and investment for the time being.

So the region must collectively seek opportunities beyond the fragile, fleeting and fickle relationship under the EU or with the UK. But what are the options if trade with Britain and the EU is compromised postBrexit? Perhaps the current circumstances in the Caribbean will force policy-makers to consider the approach of developing its South-South trade linkages.


POLICYMAKERS: Caribbean leaders at the 39th Regular Meeting of the Conference of Heads of Government of CARICOM, Montego Bay, Jamaica (photo: Caricom Secretariat)

THE CASE FOR SOUTH-SOUTH TRADE
The concept of South-South trade is not new, and refers to trade, investment and cooperation between developing countries, which has been increasing steadily since the 1990s. The case for developing countries to increase their participation in South-South trade is strong.

According to the director of the Development Division of the World Trade Organisation, Shishir Priyadarshi, left, SouthSouth trade accounted for more than US $5 trillion (£3.68 trillion) in 2013 – a quarter of all global trade.

The United Nations Conference on Trade and Development, in its 2005 report, argued that increased South-South trade could help developing countries such as the those in the Caribbean shield against a decline in demand from developed countries for primary commodity exports such as agricultural products, minerals or oil.

This is especially relevant at a time when Brexit threatens the future of Caribbean exports to Britain and the EU. Proponents favouring SouthSouth trade argue that countries in the Global South often have a high dependence on capital and high-tech goods that traps them in a cycle of dependency.

This, they argue, is because manufacturers in the developed north can mass-produce goods at a lower cost owing to a huge global market existing due to their counterparts in the Global South not producing them.

Consequently, producers and manufacturers in the Global South find it difficult to enter the same markets because of the higher costs and high prices that cannot be sustained with low levels of production relative to the prices of the same products produced in the developed north.

As I mentioned in the Brexit article, the Caribbean has been plagued with economic dependence created in part by a series of policies that isolated it from foreign markets.

Additionally, a lack of investment in technology to increase efficiency in production in sectors such as agriculture hurt the ability of many countries in the region to lower the cost of production and increase the amount for export.

This process would also affect the ability of industrialisation to fully take hold in the region in the 19th and early 20th centuries.

In theory, South-South trade and investment should break this cycle and allow for Caribbean states to realise their potential.


PREPARATION: CARICOM needs to do more to cushion the shock that the economies of the region will face once Brexit happens next year

WHAT DOES THE CARIBBEAN HAVE TO OFFER THE WORLD?
With the potential that increasing South-South trade presents the Caribbean, it stands to reason that it is worth exploring the potential of the region to harness this trade in its favour.

As such, the region itself has a number of advantages that could be leveraged in order to meet these goals.

One of the most important features that the Caribbean has in its favour is that it has a highly educated multilingual labour force, making it an easy part of the world to do business in.

Most countries in the Caribbean rank relatively well in the Ease of Doing Business Index set by the World Bank.

In 2018 the most notable countries in the region that scored relatively well on the index were Jamaica, St Lucia, Dominica, the Dominican Republic and Trinidad and Tobago.

A strong history of institutional development has led to sophisticated financial institutions that make most countries in the region a secure place to do business in.

And then there’s the region’s proximity to large markets such as Mexico and the US.

Proximity to larger economies has greatly assisted in the development of countries such as Switzerland and Singapore.

In the Caribbean context there is some potential to access these markets, but perhaps even greater potential to store and refine products going in to the Mexican and US markets.

This is already happening with some products destined for the US market, since many Caribbean countries benefit from duty free access in certain products such as biofuels.

Under the US-created Caribbean Basin Initiative, countries such as Jamaica and Trinidad and Tobago enjoy duty free access for the export of biofuels.

Other countries such as Brazil have recognised this preferential system and have begun exporting their own biofuels to Caribbean countries to be refined and exported through the region duty free. There is much potential to take advantage of the region’s proximity to larger markets.

DISADVANTAGES OF SOUTH-SOUTH TRADE
Despite all of the promise that South-South trade holds for Caribbean states, there are a number of factors in place that work against it fully taking hold across the Caribbean.

The main argument against South-South trade is that its benefits are overstated. While it is accepted that the proportion of South-South trade has increased steadily, the majority of this increase can only be attributed to a few countries in the Global South: Brazil, South Korea, Hong Kong, Singapore, most of South East Asia, India and China.

The Caribbean, by comparison, is still bound and tied to trade with the developed north and has yet to fully develop its South-South trade network.

For CARICOM member states, the main trading partners are the United States (accounting for 36.9 per cent of exports) and EU (17.3 per cent), with the CARICOM Single Market (CSME) accounting for 19.6 per cent.

It is positive that the CSME reflects a significant proportion of trade, demonstrating that at a regional level South-South trade is occurring. However, with the stagnation of CARICOM and the CSME more needs to be done in order to cushion the shock to the economies of the region if Brexit compromises the current arrangement that Caribbean states have with the EU.

WHAT OTHER OPTIONS DOES THE CARIBBEAN HAVE?
While increasing South-South trade is not completely unrealistic, it could be argued that the conundrum of increasing South-South trade in the Caribbean is that it is a viable long-term trade solution that cannot be pushed to solve a medium-term trade problem.

The region does have many untapped advantages that will take time to develop but these are not currently in place to address the issues in trade that have been created by Brexit.

With that said, there are still a number of options available for the region to act on.

In the next part of the series I will explore the possibility of CARICOM member states forging a new economic relationship with the UK and the EU, and the risks and opportunities that could result from this.

In addition to this, it is important to consider the role and influence of the United States and the increasing presence of China in the region.

Some observers feel that either country could present a stronger alternative to the UK or the EU – whereas others say their influence may undermine the long-term economic development of the Caribbean.

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