Final Draft 16/8/00 Confidential

COSTS AND BENEFITS OF REGIONAL NEGOTIATING MACHINERY STRATEGIES IN THE CARIBBEAN

David Greenaway Professor of Economics and Pro-Vice Chancellor, University of Nottingham

Chris Milner Professor of International Economics and Head of School, University of Nottingham COSTS AND BENEFITS OF REGIONAL NEGOTIATING MACHINERY STRATEGIES IN THE CARIBBEAN

CONTENTS

Acknowledgements

Glossary of Acronyms and Abbreviations

Introduction

1 Contextual Issues 1.1 Introduction 1.2 Globalisation Trends 1.3 Drivers of Globalisation 1.4 WTO and the Regulation of International Trade 1.5 Special and Differential Treatment 1.6 Regional Dimensions 1.7 Preferences and the European Market 1.8 Trade Barriers in the OECD

2 Conceptual Framework 2.1 Introduction 2.2 Economic Aspects of Small Island Developing States 2.3 Adjustment and Small States 2.4 Economic Aspects of Regional Trading Arrangements 2.5 Regionalism and Multilateralism 2.6 Natural Barriers to Diversification 2.7 Interface Between Border and Non-Border Policies

3 Empirical Assessment of the Costs and Benefits of Reciprocity with the EU 3.1 Introduction 3.2 Discrimination Policy and Reciprocity: Trade and Source Substitution Effects 3.3 Partial Equilibrium Estimation Methodology 3.4 Estimated Impact of EU Reciprocity 3.5 Estimated Fiscal Impact of EU reciprocity 3.6 Net Welfare and Distributional Effects of EU Reciprocity 3.7 Adjustment Impact of EU Reciprocity on Production and Employment 3.8 Conclusions

4 Alternative Trade Policy Scenarios: Estimates of Relative Costs and Benefits 4.1 Introduction 4.2 Expected Effects of Alternative Policy Experiments 4.3 Comparison of Estimated Trade Effects of Alternative Policy Experiments 4.4 Comparison of Estimated Fiscal Effects of Alternative Policy Experiments

I 4.5 Comparison of Estimated Net Welfare Effects of Alternative Policy Experiments 4.6 Conclusions

5 Extending the Assessment of Costs and Benefits of Alternative Scenarios 5.1 Introduction 5.2 General Equilibrium Analysis: A Case Study of Jamaica 5.3 General Equilibrium Analysis of Alternatives to EU Reciprocity 5.4 Dynamic Issues 5.5 Qualitative Analysis of Export Effects 5.6 Conclusions

6 Implementation Issues 6.1 Introduction 6.2 Migration and Policy Consistency 6.3 Capacity Building and Adjustment Assistance 6.4 Key Adjustment Issues for the Caribbean 6.5 Conclusions

7 Emerging Policy Issues 7.1 Introduction 7.2 Developing Countries and the Millennium Round 7.3 New Issues and the EU 7.4 Minilateral and Multilateral Negotiating Strategies 7.5 Conclusions

8 Conclusions

Appendices Appendix 1: Modelling Framework and Detailed Results Appendix 2: A CGE Model for Jamaica (prepared and written by M. Bussolo) Appendix 3: RTA’s and WTO Approval Appendix 4: Evidence on Developing Country Experience with Reciprocity

References

Executive Summary

II Acknowledgements

In undertaking the research for this Report the authors consulted with a great many individuals, both in the UK and in fieldwork in the Caribbean. We would like to record our gratitude to the following for their assistance, without associating any with the final analysis or conclusions :

Ms. Olayinka Ayoade, Emerging Market Economics Ltd

Mr. Cletus Bannis, Statistician, Organisation of East Caribbean States, Castries, St. Lucia

Ms. Monica Barclay, Director, External Trade Division, Statistical Institute of Jamaica, Kingston, Jamaica

Mrs. Elizabeth Barnard, Director, Surveys Division, Statistical Institute of Jamaica, Kingston, Jamaica

Dr. Richard Bernal, Jamaican Ambassador to the United States

Dr. Maurizio Bussolo, OECD Development Centre, Paris

Mr Philip Colthrust, Economist, Res earch Department, Central Bank of Trinidad and Tobago, Port of Spain, Trinidad

Mr. Winston Connell, Adviser to Minister, Ministry of Trade and Industry and Consumer Affairs, Port of Spain, Trinidad

Mr. Philip Dalsou, Deputy Director of Resource Development and Planning, Ministry of Finance, Castries, St. Lucia

Mr. Charles Danvers, Director, Field Services Division, Statistical Institute of Jamaica, Kingston, Jamaica

Mrs. Carol Falby, Research Officer, Customs Directorate, Port of Spain, Trinidad

Dr. Penelope Forde, Manager, Research Department, Central Bank of Trinidad and Tobago, Port of Spain, Trinidad

Mr. Henry Gill, Team Leader, CARICOM Trade Project, Christ Church, Barbados

Dr. Peter-John Gordon, Senior Policy Analyst, Planning Institute of Jamaica, Kingston, Jamaica

Dr. Marshall Hall, Group Managing Director, Jamaica Producer's Group, Kingston, Jamaica

Mr. Michael Henry, Department of Economics, University of the West Indies, St. Augustine, Trinidad Ms. Zenith James, Director of Finance, Ministry of Finance, Castries, St. Lucia

Mr. Calixte Leon, Director of Resource Development Planning and Development, Ministry of Finance, Castries, St. Lucia

III Ms. Michele Lowe, Research Associate, Caribbean Regional Negotiating Machinery, Kingston, Jamaica

Mr. Everton McFarlane, Manager, Economic Modelling and research Unit, Planning Institute of Jamaica, Kingston, Jamaica

Sir Alister Mclntyre, Chief technical Advisor, Caribbean Regional Negotiating Machinery, Kingston, Jamaica

Dr. Amold Mclntyre, CARICOM Secretariat, Christ Church, Barbados

Mrs. Judith McWhinney, Director, Economic Planning and Research Division, Planning Institute of Jamaica, Kingston, Jamaica

Mrs. Valerie Nam, Director, Census Division, Statistical Institute of Jamaica, Kingston, Jamaica

Ms. Dolores Nelson, Director, International Trade and Negotiations, Planning Institute of Jamaica, Kingston, Jamaica

Mr. Ralph Newton, Deputy Comptroller of Customs, Port of Spain, Trinidad

Dr. Shelton Nicholls, Department of Economics, University of the West Indies, St. Augustine, Trinidad

Mr. Peter Pariag, Senior Statistician, Central Statistical Office, Port of Spain, Trinidad

Ms. Virginia Paul, Common Market Affairs Officer, Organisation of East Caribbean States, Castries, St. Lucia

Dr. Ronald Ramkissoon, Manager, Economics Intelligence Unit, Republic Bank, Port of Spain, Trinidad

Sir Sonny Ramphal, Caribbean Regional Negotiating Machinery

Mr. Cosmos Richardson, Permanent secretary, Ministry of Commerce, Industry and Consumer Affairs, Castries, St. Lucia

Mr. Robert Robinson, Director, Business Services Division, Statistical Institute of Jamaica, Kingston, Jamaica

Mr. Charles Ross, Executive Director, Private Sector Organisation of Jamaica, Kingston, Jamaica Dr. Felix Russell, Director General, Statistical Institute of Jamaica, Kingston, Jamaica

Mr. Bernard Sylvester, Economist, Ministry of Trade and Industry and Consumer Affairs, Port of Spain, Trinidad

Mr. Marius St. Rose, Managing Director, National Commercial Bank, Castries, St. Lucia

Mr. James Stewart, Analyst, Planning Institute of Jamaica, Kingston.

Mr. Christian Sumai, Research Officer, Customs Directorate, Port of Spain, Trinidad

IV Mr. Garnet Symonds, Economist, Research Department, Central Bank of Trinidad and Tobago, Port of Spain, Trinidad

Dr. Karl Theodore, Department of Economics, University of the West Indies, St. Augustine, Trinidad

Ms. Margaret Thompson, Director, Legal Affairs Division, Statistical Institute of Jamaica, Kingston, Jamaica

Mr. Leonard Watty, Project Leader, Customs Directorate, Port of Spain, Trinidad

Mr. Donald Wilson, Analyst, Planning Institute of Jamaica, Kingston, Jamaica

V Glossary of Acronyms and Abbreviations

AFTA ASEAN Free Trade Area APEC Asia Pacific Economic Cooperation ASEAN Association of South East Asian Nations CACM Central American Common Market CARICOM Caribbean Community and Common Market CARIFTA Caribbean Free Trade Association CEPT Common External Preferential Tariff CGE Computable General Equilibrium CMEA Council for Mutual Economic Assistance CP Contracting Party CUSTA Canada/United States Trade Agreement CVDs Countervailing Duties DMEs Developed Market Economies EEA European Economic Area EEC European Economic Community EU European Union FOGS Functioning of the GATT System GATT General Agreement on Tariffs and Trade IMF International Monetary Fund LDCs Less Developed Countries MFA Multi Fibre Arrangement MFN Most Favoured Nation MTNs Multilateral Trade Negotiations NAFTA North American Free Trade Association NECs Newly Exporting Countries NICs Newly Industrialising Countries OECD Organisation for Economic Cooperation and Development OECS Organisation of Eastern Caribbean States PAFTA Pacific Free Trade Area PECC Pacific Economic Cooperation Council RTA Regional Trading Arrangement SAARC South Asian Association for Regional Cooperation SAPTA South Asian Preferential Trade Arrangement SMP Single Market Programme SPARTECA South Pacific Regional Trade and Cooperation Agreement TPRM Trade Policy Review Mechanism USTR United States Special Trade Representative VER Voluntary Export Restraint WTO World Trade Organisation

VI