In a recent report on trade initiatives and foreign direct investment (FDI), the CARICOM Secretariat has set out an elaborately reasoned position on the appropriate path for future trade policy initiatives (CARICOM Secretariat 2000). The substance of this position is that FDI, now universally sought after, can make an important contribution to export development and product differentiation through the provision of capital, management, technology, and marketing know-how by transnational corporations (TNCs). However, in their negotiations with other countries and group of countries, Caribbean nations should not assume that there exists any ﾓideal development strategy that uses FDIﾔ (CARICOM Secretariat 2000: 259).
The Secretariat locates the logic of todayﾒs proactive policy towards FDI in a context of globalisation and in the fact that increasingly fierce competition for opportunity may be explained by the high degree of dependence on foreign investment. This is accentuated by: (1) persistently low levels of savings; (2) the unattractiveness of Caribbean small island economies to international private bank loans and portfolio investment flows; and, (3) the significant decline in overseas development assistance (ODA). To pursue this strategy successfully, it is recommended that Caribbean nations: (1) develop and sustain an enabling environment; and (2) harmonise FDI-related measures in the context of a regional single market and economy, and evolving extra-regional, hemispherical, and multilateral (global) free trade arrangements.
Vital gains from the specific recommendations are that ﾓthey are a source of information for prospective investors and a means of signalling that the Caribbean region remains open for businessﾔ, and that ﾓsuch stability in the macroeconomic regime gives comfort to businessmen engaged in long-term investmentﾔ (CARICOM Secretariat 2000: 282). Furthermore, the Secretariat argues that a regional investment code could thus be a useful instrument for stimulating intra-CARICOM flows and attracting inward flows from the rest of the world. In this regard, the Secretariat perceives significant potential for FDI to flow from the proposed FTAA (CARICOM Secretariat 2000: 272).
However, one caution expressed by the CARICOM Secretariat concerns the dangers of portfolio investment, given its volatility. Combined with free transfer of dividends and repatriation of capital and profits, portfolio FDI can destabilise the regional financial markets (CARICOM Secretariat 2000: 279). In addition, the Secretariat urges that, given the problem of small size and associated vulnerability, there is therefore need for special assistance to be provided to small countries. The general thrust of the Secretariatﾒs argument is that countries in the region need to win preferential treatment on many fronts (CARICOM Secretariat 2000: 280).
Among the specific issues considered by the Secretariat are those related to the relevance of GATS, TRIPS and TRIMS, all arising under the umbrella of the WTO. The positions adopted on these issues by countries in the region are likely to have significant implications for foreign investment strategy in the services sector where it is envisaged that the bulk of the development efforts will have to be concentrated in the future.
In a similar vein, the Regional Negotiating Machinery (RNM) advocates the need to be ﾓsensitive to the peculiarities of sizeﾔ (Caribbean RNM 2000: 3). In the context of the need to diversify, the RNM seems to promote focus on services. Indeed, the RNM advocates concentration on services and related areas rather than securing preferences for trade in goods (Caribbean RNM 2000: 4). This view, together with the significant share of services in employment, makes all new trade policy initiatives under GATS, TRIPS and TRIMS important to the Caribbean. In this light, it is proposed that these agreements should be closely scrutinised by Caribbean nations.
However, the growth in dominance, interests and ambitions of TNCs pose a significant threat for Caribbean countries. To achieve their own objectives, transnationals can switch investment and production, or threaten to do so, whenever conditions in any country appear disadvantageous. Consequently, communities in the Caribbean can suffer from the unrestricted activities of TNCs. Without intervention, local societies can be involved in a negative-sum game. For this important, and other reasons, Caribbean states need national strategic planning systems within which to approach and position TNCs and foreign investments, and alter policy in their national interest. Otherwise, TNCsﾒ strategies will inevitably become the national strategies of Caribbean territories, and this may have little correspondence to what is best for local communities.
In the Caribbean context, the fundamental implication of the new trade initiatives is that Caribbean countries must compete actively for economic and social opportunity in the modern world. However, the truth about the regionﾒs challenges to build competitiveness is more complicated than has been portrayed by the WTO. Four hundred and fifty years of failure to change its structure, mainly due to the effect of exogenous initiatives, is an important indication that the Caribbean markets do not work according to the price adjustment process and the associated substitution principle implied by the WTOﾒs analysis. Under the stabilisation and trade liberalisation components – advocated by the WTO, IMF and World Bank- the focus has been on reducing the budgetary commitments of governments, ﾓgetting the prices rightﾔ, restoring balance on both the internal and external accounts, and ultimately inducing further adjustments in the structure of production while engendering export-led growth.
Nevertheless, Caribbean countries can only deal adequately with structural and development-related problems through a supply-side response of dynamic firms and Developmental State action while involving the whole creative and strategic apparatus of the society. Indeed, the long-term solution is local production development, restructuring, rejuvenation and repositioning through capital accumulation, technological development and innovation, knowledge, skill formation and institution building, supported by suitable institutional and political initiatives and based on a long-term vision of development.
The failure to thoroughly identify and aggressively pursue the key development policy and trade requirements of endogenous competency in Caribbean economies is perhaps the most important deficiency of the analyses and proposals guiding the WTO, and those of the CARICOM Secretariat, the RNM, as well as many governments in the region. With a local capacity to create domestic capital (which is broadened here to include investment in the production of knowledge, technological development and institutions for productive purposes) Caribbean firms can create increasing returns, engineer product differentiation, and systematically and continuously deploy such initiatives to penetrate markets using strategic supply-side policies, no matter what the wind of change may be in the centuries-old international debate about free trade.
Four hundred and fifty years of failure to change its structure is an important indication of the Caribbean technological dependence in established production systems, in a world economy driven by fierce competition through rapid technological change. Consequently, a major lesson of Caribbean history is that competing in the international arena requires integration into the world economy on different terms – economically, institutionally and politically- than those offered by metropolitan centres, transnational corporations and foreign investors of various types. In fact, Caribbean economies may have to integrate up to the point where it is useful for them to do so, for promoting self-reliant technological initiatives, endogenous competency, diversification and product differentiation. This may well require relatively less, not more, integration into the world capitalist system. Should Caribbean governments choose to seek ﾓcloseﾔ or ﾓstrategicﾔ integration with the world economy seems to be an interesting question, which may result in a serious policy dilemma.
Finally, a key question for the countries of the Caribbean is whether economic integration leads to the reduction of regional income inequalities and other regional disparities. The political drive to unite this area has taken insufficient account of the problems posed by regional disparity, and efforts to encourage ﾓconvergenceﾔ are in effect attempts to impose the removal of trade distortions. To hold the whole Western Hemisphere together, economic gains must be widely distributed; but, in the long run, problems of political will are also very important. Designing actions and policies that will at the same time reduce spatial disparities within the entire region and be politically acceptable will, indeed, be very difficult (Karagiannis 2002: 148).
Sources:
CARICOM Secretariat (2000), Caribbean Trade and Investment Report 2000: Dynamic Interface of Regionalism and Globalisation.
Caribbean Regional Negotiating Machinery (2000), ﾓReport of the Reflections Group on Tradeﾔ, Montego Bay, Jamaica, 25-26 September.
Karagiannis N. (2002), Developmental Policy and the State: The European Union, East Asia and the Caribbean.
Editorial from The Bahama Journal
