MGMT2011 CARIBBEAN BUSINESS ENVIRONMENT COURSEWORK PROJECT

FUNCTIONAL AND ECONOMIC COOPERATION IN TOURISM TRANSPORTATION AND NATIONAL SECURITY ON THE PATH TOWARDS ECONOMIC INTEGRATION FOR CARICOM

PART I
BACKGROUND

Introduction The winds of free trade are once more blowing as it has done through intermittent periods for centuries. While there have been varying degrees of progress there have been many set backs precipitated by world events such as World Wars I & II. However in recent years a storm called Globalisation has set the world on a course towards one single integrated economy. On the other hand, forces created by the formation of mega-regional trading blocs appear set to tear it apart. However some theorists posit that mega-regional trading blocs are just a logical step towards global integration.

Ending Discrimination Balassa in Theory of Integration believes that integration is the removal of all forms of discrimination which do not allow for the linking of economies and which prevent market forces from determining the allocation and distribution of resources between countries (1961, cited in Persad and Bobb 2009). Balassa also views integration as a process as well as a state of affairs. As a process there are various measures that are established to eliminate discrimination while as a state of affairs it is the stage a country attains on its way to full economic integration. While there are variations posited by various theorists, integration may be achieved by going through the following stages: Preferential Trade Agreements (PTA), Free Trade Area (FTA), Customs Union, Common Market, Economic Union and Total Economic Integration.

Preferential Trade Agreement (PTA) This is the weakest form of integration and is usually the first step. In PTAs, countries would offer tariff reductions on some products or services to agreement members while all other tariffs remain at higher levels (Suranovic 1998, online). Countries that are members of the WTO may not enter into such agreements as they may not discriminate against their members.

Free Trade Area (FTA) This is when a group of countries usually within a geographic region agree to eliminate tariffs between themselves. Tariffs would remain for all non-member countries. Some popular examples are NAFTA, EFTA and CARIFTA.

Customs Union Customs Unions go a bit further towards integration as the members agree to eliminate tariffs between each other as in the case of FTAs but also set common external tariffs on imports from the rest of the world (Suranovic 1998, online). Customs Unions do not have the problems of rules of origin that are associated with FTAs but they are challenged with difficulties of policy formulation. Common Market Common markets improve on the previous stages of integration by allowing free movement of capital and labour. This is the stage that some CARICOM states have achieved with the CSM.

Economic Union An Economic Union in addition to all of the above would have a body established that would regulate fiscal spending. An example of this level of integration is the European Unions Common Agricultural Policy (CAP). Total Economic Integration The ultimate level of integration is at this stage whereby various bodies are set up which makes binding decisions for all members. The European Community has the European Court of Justice while the OECS has the Eastern Caribbean Supreme Court. These bodies are the supreme authority in their respective blocs charged with the interpretation and application of their laws. The OECS has other such bodies such as the Eastern Caribbean Central Bank and the Eastern Caribbean Civil Aviation Authority.

Functional Integration and Economic Cooperation Brewster and Thomas while not totally disagreeing with Balassas prescription for integration are of the view that his plan may not be applicable to small developing states. They are of the opinion that integration alone may not be enough to reap economic benefits. They are of the

view that linkages have to be forged in order to capitalise on the benefits of integration. Brewster and Thomas further disagree with the omission of the role of governments from Balassas plan. The Caribbean has had its share of integration initiatives. These include the West Indies Federation, CAFIFTA, CARICOM and the CSME.

The West Indies Federation which was basically and attempt by Britain to offer independence to its former colonies failed after four years (1958-62). A major cause of this failure was the fact that it was an attempt at political union with no provision for economic integration. CARIFTA while not producing the expected economic results was not classified as a failure but gave way to the next stage of integration which was CARICOM. That is the Caribbean Community and Common Market which has survived up to today. It has experienced many challenges in the

aspect of implementation but continues to carryon. CARICOM is evolving further towards total economic integration with the establishment of the CSM by some members and later the CSME. Already some of the challenges that the Federation faced have begun to pop up such as insularity. However CARICOM must continue to persevere as the only true failure is doing nothing.

References The Treaty of Basseterre & OECS Economic Union www.sice.oas.org/ctyindex/OECS/Treaty_e.pdf International Trade Theory and Policy: Economic Integration an overview http://internationalecon.com/Trade/Tch110/T110-2.php

Michelle Persad and Dr. Elton Bobb (2009). Caribbean Business Environment. UWI Press, Barbados

Ramesh Ramsaran. Trade Policy and Regional Trading Arrangements (RTAs): Reflections on Caribbean Integration. www.eclac.cl/portofspain/noticias/noticias/8/14868/Ramsarantrd.pdf

Signature: David Ladoo. Date: October 1st, 2010.