The region's dependence on foreign capital remains high and has grown steadily over the past decade, as seen in Figure 3. The top three investors are the United States, Europe, and Canada. It provided duty-free preferences, import licensing, quotas and set prices for sugar, bananas, and rum that supported a vibrant trade for Caribbean industries that otherwise would have struggled to be internationally competitive. The WTO eventually ruled against the EU in , and three years later a new banana agreement was signed by all parties.
In response, the two parties formalized a compromise in the Cotonou Agreement of It is a comprehensive trade and development arrangement designed to be in place for 20 years. To meet WTO demands to transition toward nondiscriminatory trade, however, the Cotonou Agreement extended trade preferences only until January 1, , at which point it was to be replaced with a WTO-compatible arrangement — the EPA.
The importance of the EPA for the Caribbean countries cannot be overstated. The protected banana, sugar, and rum trade has been the economic lifeblood for many of them. For example, the price paid for sugar in the EU has often been triple the world market price. Given the Caribbean's relatively high production costs, the treatment of these key traded goods in the EPA will likely determine the extent to which they will remain significant contributors to the CARICOM economies.
Among the strict WTO requirements, the agreement forbids increasing overall protection and requires liberalization of "substantially all trade. In addition, the EU will also provide aid for business and export capacity development. The EPA must be applied provisionally by April 15, and each country's legislature is required to ratify the agreement. The ratification process could prove controversial given some industries, such as banana production, have expressed dissatisfaction with the accord.
In , it was the 23 rd largest export market for U. Major U. As shown in Figure 4 , over the past decade, U. The aggregate figures, however, disguise the skewed nature of U. Source: U. Department of Commerce as presented in the World Trade Atlas. Figure 4 also points to uneven growth in U. As with the export data, the sudden rise in U. The significance of this effect may be seen by comparing growth in total U. The lackluster growth of non-energy goods points of the dominance of energy goods in the aggregate U.
These trends have important implications for U. Second, U. This point reflects not only the stagnant growth in non-energy U. Source : U. Department of Commerce. Stock of direct investment on a historical cost basis. Trends in U. The stock of U. Interestingly, the United States has bilateral investment treaties only with Grenada, Haiti, and Jamaica.
The key U. Currently, the trade relationship is covered by two U. Both U. The end to periodic congressional reauthorization of unilateral programs eliminates a major uncertainty for foreign investors. Second, the trade benefits tend to apply to a broader range of goods under FTAs than under unilateral preference arrangements. Third, for many countries, guaranteed U.
The larger countries with significant merchandise exports tend to support the idea, whereas the smaller service-based economies remain highly skeptical. Another policy question concerns the issue of special and differential treatment. CARICOM strongly advocates that some type of development component be included in an FTA with the United States, including lengthy tariff phase-out periods for sensitive products and financial assistance for trade adjustment and export capacity building.
In particular, CARICOM countries worry about the cost and their ability to comply with sanitary standards, intellectual property rights, government procurement, and investment provisions. Many CARICOM countries do not consider the overall tradeoff to be to their advantage at this point, and prefer to initiate discussion over extending and expanding unilateral preferences.
Others note that the transition to a fully open economy is a core element of the CSME development strategy and that a bilateral FTA may be one way to proceed. A second major issue has been the trade dispute between the United States and Antigua and Barbuda over cross-border Internet gambling services. It considered these laws to be in violation of U. A protracted dispute settlement process ensued in which the WTO ruled against U.
The United States eventually acquiesced to comply with an April appellate body ruling, but in subsequently failing to do so, found itself subject to an adverse WTO compliance review panel ruling in March It also found that because Antigua and Barbuda's economy is so small and dependent on U. Hence the WTO also allowed for Antigua and Barbuda to be compensated by suspending intellectual property rights commitments. The final award ruling is controversial for many reasons. First, the dispute settlement body expressed a distinct lack of confidence in the methodology used to determine the level of potential financial loss nullification or impairment of benefits and thereby the amount of compensation.
Second, Antigua and Barbuda argued that the dollar figure was extremely low, letting the United States off lightly and raising broader questions about smaller countries' ability to obtain equal recourse as larger ones under the WTO. Third, the United States argued that suspending TRIPS obligations is a poor cross-retaliation precedent, particularly given WTO efforts to reinforce intellectual property rights in multilateral agreements. Because both parties view suspending TRIPS obligations as sub-optimal, they continue to negotiate to find a bilateral solution that likely will effectively render the WTO ruling moot.
These involve finding a favorable balance with respect to agricultural and non-agricultural market access, providing flexibility for small countries on services commitments, and most importantly, ensuring there is adequate special and differential treatment for developing countries in terms of scope, depth, and timing of commitments.
CARICOM also has very specific preferences within the developing country groups based on perceptions that their "small vulnerable" economies warrant different treatment than that afforded larger developing countries. In particular, CARICOM argues that its members face two unique hurdles in the global trading system: far more difficulty in adjusting to trade liberalization and a less than equal voice in the negotiating process.
Brazil and India, for example, have emerged as leading voices in the Doha Round, yet because of huge differences in market size and diversity with smaller developing countries, their priorities can often diverge from those of CARICOM and others. They are ultimately seeking differentiated provisions that will lengthen their adjustment time to reducing trade barriers, while ensuring their key exports are given the greatest flexibility in retaining preferences.
All are limited in scope and many are still in preliminary stages of negotiation. None are comprehensive in the sense of the bilateral FTAs undertaken by the United States, again reflecting CARICOM's concerns over its members' abilities to meet obligations of highly complex comprehensive agreements.
The framework entails specific lists of products for which each country is willing to reduce tariffs and other barriers to trade. It provides a mechanism to increase market access on an incremental basis, but does not move significantly beyond the limited products list approach.
Efforts have been made to expand the agreement, but fundamental differences have kept negotiators from reaching an understanding over deeper commitments. A similar agreement was signed with Colombia in July that has allowed for incremental growth in market access commitments on a product-by-product basis. The CSME would would integrate all member-states into a single economic unit. The goal is allow for free movement of capital, services, technology and skilled professionals within the region.
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