Implementation of the Caribbean Single Market and Economy

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C ARIBBEAN GROUP FOR COOPERATION IN ECONOMIC DEVELOPMENT

IMPLEMENTATION OF THE CARIBBEAN SINGLE MARKET AND ECONOMY

WORK IN PROGRES

Prepared by: Havelock R Brewster, Consultant Thomas Dolan, Consultant Taimoon Stewart, Consultant

IMPLEMENTATION OF THE CARIBBEAN SINGLE MARKET AND ECONOMY

Prepared by: Havelock R Brewster, Thomas Dolan and Taimoon Stewart

June 2002

Caribbean Country Management Unit Latin America and the Caribbean Region The World Bank Implementation of the Caribbean Single Market and Economy

WORK IN PROGRESS

TABLE OF CONTENTS

Page No.

From Community to Single Market and Economy ...... 1

National Sovereignty and Implementation of the CSME ...... 2

The Issue of Priorities...... 5

Brief Notes on the CSME Progress and Assessment of Needs...... 9

Institutional and Legal Framework – The Caribbean Court of Justice...... 9

Competition Policy ...... 10

Intellectual Property Rights...... 12

Government Procurement...... 13

Standards and Technical Regulations ...... 14

Harmonization of Legislation – Financial Sector Services ...... 15

Customs...... 15

Harmonization of Legislation – General Issues ...... 16

Dispute Settlement...... 17

The Macroeconomic Framework ...... 18

Fiscal Policy Harmonization...... 18

Monetary Policy/Monetary Union...... 20

From Community to Single Market and Economy

The project reported on here originated from requests by the CARICOM Secretariat (CCS) to a number of bilateral, regional and multilateral donors for assistance in implementing the Caribbean Single Market and Economy (CSME). Following the conclusion of the donors group that an independent assessment of the current situation and priorities for the future would be a useful base for determining the nature and level of their support, the Caribbean Development Bank and the UK Department for International Development together proposed short term technical assistance to the CCS to help in carrying forward that assessment.

The provisions of the CSME were originally inscribed in nine Protocols (1989/1992) to the Treaty of Chaguaramas Establishing the Caribbean Community (1973). That Treaty has since been revised to incorporate those Protocols. The areas covered are: establishment, services and capital; industrial policy; trade policy; agricultural policy; transport policy; disadvantaged countries, regions and sectors; competition policy and consumer protection, dumping and subsidies; disputes settlement. In addition, macroeconomic policy convergence, fiscal harmonization, monetary union/single currency, as well as the Caribbean Court of Justice, the subject of Community agreement outside the Protocols, are taken as part of the mandate for implementing the CSME.

In broader terms, the mandate may be broken down into the following four areas: the institutional and legal framework; market access; the macroeconomic framework; and sectoral policies. In effect, the CSME is an attempt to create a larger, unified economic space within which greater productive efficiency and competitiveness could be achieved and regional economic growth accelerated, particularly through the expansion of exports to increasingly liberalized hemispheric and world markets

This work- in-progress report, firstly, will highlight two of the most salient issues arising in the implementation of the CSME- national sovereignty, and the issue of priorities. Following this, summary notes of the work available to date on CSME progress, including assessment of needs will be presented. The aim is to complete the report by the end of June 2002.

National Sovereignty and Implementation of the CSME

The Treaty of Chaguaramas, including the revised version providing for the CSME, aims to establish the CSME within a framework and under procedures in which there is no commitment to any form of Caribbean union. This is entirely different from the Treaty of Rome establishing the European Community where there is explicit recognition of the aim of “ever closer union”. There is in the Revised Treaty of Chaguaramas, unlike the Single European Act (1986), no concept of the total removal of frontiers- physical, technical or fiscal. In fact, to the contrary, the CSME implicitly rests on the maintenance of frontiers, within which, it is the aim to liberalize access conditions and harmonize selective legislation. The modalities through which the CSME instruments, institutional, legal and economic, are constructed are based simply on inter-governmental cooperation.

This was characteristic of an earlier phase of European integration in which, according to the European Parliament, “stagnation…was largely attributed to the choice of detailed legislative harmonization as the method of removing obstacles of national technical regulations, when harmonization was in fact extremely difficult to achieve.” The Single European Act was therefore incorporated into the Treaty of Rome to provide for “an area without frontiers in which free movement of goods, persons, services and capital is ensured”. It provided for decisions to be made by qualified majority voting for most subjects concerned. The decisions so adopted become European Directives, automatically have the force of European Community law, and are obliged to be transposed into national law. Prosecution for infringement (delay in transposing Directives, transposing them incorrectly, and implementing them badly) is provided for in the Treaty. The attempt at systematic harmonization of national laws was thus abandoned, except for essential national requirements, such as security and health.

The Treaty incorporating the CSME is thus very different from the Single European Act. In fact, the CSME is a peculiar construct that has no precedent in the world. It is an attempt on the part of the political directorate to create a single Caribbean economy simply by intergovernmental cooperation / harmonization of a kind tha t avoids any infringement of national sovereignty. However, the essential question that now arises

is: can such an approach be successfully implemented? As noted above, it is an approach that failed in the European Community.

The institutional and legal framework of the CSME includes the establishment of a Caribbean Court of Justice (CCJ), a Competition Commission, a Regional Intellectual Property Rights Office, a Standards Organization, and a Conciliation Commission, as well as the harmonization of legislation in such areas as companies, the financial services sector (banking, insurance and securities), and customs. (Certain other areas of legislation essential to a single economic space, such as labor law, property law, and the transnational enterprise, are not included in the CSME). Progress in respect of the implementation of the agreed instruments ultimately has to be measured by their actual application and enforcement. However, even by the standard of signature/ratification of instruments little progress has been made.

The working assumption is that the legal function, as the guarantor of certainty, stability and justice, without which business and the proper conduct of the macroeconomy would be seriously impaired, should drive the CSME process, and that the institutional and legal framework can be established and function effectively through the existing mode of intergovernmental cooperation and the harmonization of legislation.

Yet, inevitably, national sovereignty increasingly will be drawn into q uestion, as has been the experience in the European Community, if a single market and economy is to realize its potential. The Caribbean Court of Justice (CCJ) raises issues of this kind, as will the operation of such other institutions as a regional compe tition commission, a regional intellectual property rights office, and a regional standards body. Regional sectoral policy likewise will give rise to questions of supranationality. Already encroachments on the principle of national sovereignty are observable in respect of such sectoral policy areas as offshore financial services and regional security (illicit drugs, arms trafficking, money laundering). The dilemma will become most apparent in respect of macroeconomic and monetary policy coordination. For it is recognized on the one hand, to quote from the conclusion of the Fifth Meeting of the Council for Finance and Planning (COFAP), that “uncoordinated macroeconomic policies could result in severe disintegrative effects, which, at worse, can destabilize the integration

movement”, while, on the other, noting the implications of the EC experience that “the CARICOM countries must be prepared to cede some degree of sovereignty in economic policy formulation to the regional level.”

The CCJ will be critical to preserving an environment of certainty and justice conducive to the growth of business. Indeed, especially in its original jurisdiction in interpreting and applying the Revised Treaty of Chaguaramas, the CCJ becomes a necessity. For in its absence the municipal courts of all member States would be competent to interpret and apply the Revised Treaty, with the possible consequence that their decisions may not be consistent. The creation of this institution would thus insert an important aspect of supranationality into an otherwise intergovernmental mode of cooperation.

The CCJ also confronts the supranational issue in respect of its financing. Presently there are well over a dozen regional intergovernmental institutions that are separately financed, by annual national appropriations. Ensuring the independence of the Court’s judges and a reliable source of emoluments has led to extraordinary funding proposals that are intended to get around political distrust, while avoiding the infringement of national sove reignty that an independent source of finance would entail. This is so notwithstanding the fact that the CCJ will be endowed with certain judicial powers that supersede national sovereignty.

The CSME will result in the creation of yet more regional institutions, such as a standards organization, a competition commission, a conciliation commission, a regional securities body, a regional intellectual property rights office, among others, that, in the absence of an independent source of income for the Community institutions, will require annual national appropriations, in an environment that is increasingly testy and financial distressed over commitments to a plethora of regional institutions. Moreover, these Community instruments and institutions are premised on the establishment of parallel national arrangements (presently not existing in most member States) that will certainly further exacerbate the problem, even to the point where possible defection from the regime cannot be dismissed.

This issue was also one that the European Community confronted, leading to a decision in 1970 on “own resources” for the Community. In fact this was originally provided for under the Treaty of Rome, which stipulated that the EEC was to be financed by national contributions for a transitional period before changing to a system of own resources. Own resources have been found in a mixture of “natural” own resources, which are revenue collected by virtue of Community policies, such as customs duties, agricultural levies; VAT own resources, and GNP based balancing resources. From this year there is a new own resource system for the European Community based on a ceiling of 1.27 percent of the Union’s GNP, with a maximum call-in rate of VAT starting from 0.75 percent and declining. The European Court is of course financed out of own resources.

By way of comparison, and to illustrate the exiguous resource constraints under which the CCS operates, 1.0 percent of the total GNP of the CARICOM States would now amount to US$300 million a year. The CCS annual budget is now US$10 million a year, plus donor resources of about US$4.0 million a year. A fully operational CCJ is expected to need annually about US$4.0 million.

The Issue of Priorities

Governments have mandated the implementation of the CSME between 2002 and 2005. This raises issues not only of political will to implement but also of the sheer availability and adequacy of human resources. Even with donor support there is likely to be a sizeable deficit. There is no prospect of the CSME being wholly implemented- in the sense of all legal and economic instruments and institutions actually being operationally applied and enforced, as distinct from the mere adoption of decisions - by the time foreseen. Even in the EU – where the Single European Act has been in existence for sixteen years- despite the resources at its command, the automatic legal force of its Directives, and prosecution for infringement, significant aspects remain unimplemented.

Under the best of circumstances, bureaucracies find it difficult to handle the question of priorities. The interconnectedness of issues is always a good rationale for avoiding the vexing problem of the redeployment of human and financial resources. Guidance

on institutional priorities therefore usually has to come from the political directorate. CARICOM is not without these problems. They are manifest in the proliferation of technical assistance projects addressed to a variety of donors, with little or no justification of their priority status. Increasingly therefore, donors are demanding “reality checks”, coordinating their assistance programs, and insisting that the use of their resources should be guided by some rationalization of priorities and prospect of positive outcomes. But how should the question of priorities be addressed? In CARICOM no diagnostics of issues or impact (marginal benefit/cost) assessments exist. Some of the most basic questions (e.g. the true incidence of free trade and of common external protection) therefore cannot be answered in quantitative terms. By contrast, the EC has engaged in extensive impact studies, such as the detailed estimates prepared for what was called “the cost of non-Europe”.

In the final analysis, the aim is to create a larger, more diversified, globally competitive structure of production of goods and services destined largely for world markets. The most nearly perfect CSME, of and by itself, will not achieve that. The regional market cannot be the dynamic source of growth of the Caribbean Community. After 30 years of the Community’s existence, in nominal terms, intra- regional imports are only 11 percent of total imports and intra-regional exports only 18 percent of total regional exports. The comparable figures for 1990 are 9.5 percent and 11.5 percent. In domestic value-added terms intra-regional trade probably would be less than one –half of its nominal value. Moreover, the moderate increase that took place over the last decade in respect of both imports and exports is almost wholly attributable to Trinidad and Tobago. There has been some increase in Barbados, but this has been offset by complete stagnation in the Eastern Caribbean States and a substantial decline in Jamaica’s intra-regional exports and imports.

If then transformation of the productive sector (goods and services), the attainment of global competitiveness and effective integration into the world economy are the essential requirements for dynamic Caribbean growth it should be possible to identify and justify, at least in qualitative te rms, the broad priority areas, and suggest an orientation for external assistance that meets the needs of both recipients and donors for positive outcomes and cost- effectiveness.

Firstly, the CSME effort would have to be driven by the essential pre-conditions that the legal infrastructure provides. Participation in the on-going process of external negotiations – the FTAA, the WTO, and the ACP-EU- already imposes certain requirements within a pre-determined and imminent time- frame. This suggests a high pr iority for the legislation and instruments relating to competition policy and consumer protection, commercial arbitration, intellectual property rights, standards and government procurement.

Equally high on the implementation agenda must be those other aspects of the legal and institutional framework that are essential to the efficient, stable, and honest operation of business. The priority here must be the establishment of the CCJ, with emphasis on its original jurisdiction. Moreover, prospective members of the FTAA would be committed to a Court of Appeal for disputes arising in respect of competition. Included in this agenda, though within a longer time-frame, must be the reform and upgrading of the national justice systems, for it will be difficult for a modern Community legal infrastructure to function within systems that in most of the member States are antiquated, inefficient, and in some respects corrupt.

Secondly, for the private sector engine of growth to operate efficiently in this facilitating institutional and legal environment it will need support. Urgent attention would have to be given to strengthening this sector, nationally and regionally, through institutional capacity building, stimulating new entrepreneurship, and putting in place appropr iate regional regimes for investment and industrial incentives. Private sector development has been largely neglected, even though all CARICOM States now acknowledge it as the engine of growth. Furthermore, contemporary trade and economic treaties are providing for the direct involvement of the private sector, and governments expect its representatives to be effective interlocutors in policy-making and negotiations.

Thirdly, the prospects for accelerated and sustained growth in the Caribbean are generally acknowledged to be linked to the transformation of the productive structure, although its quantification with satisfactory accuracy is virtually impossible. Structural transformation would require the elaboration of regional sectoral policy planning frameworks. These would have to be developed over longer time- frames

than the preceding priorities. They would have to be constructed sector by sector, initial priorities being agriculture (sugar, rice, bananas, citrus, domestic food, and meat), transport (marit ime and air), and services (tourism, financial services, and information technology), and would necessitate putting in place the requirements for geographical and industrial rationalization, for ensuring competitiveness, the use of resources according to comparative advantage, and optimal use of the internal market. They would call for Community institutional decision- making arrangements and authority that certainly would have supranational implications, as has been the case in the EU.

Other aspects of the macroeconomic framework, such as fiscal harmonization and monetary integration would advance the aims of the CSME and of sectoral development in particular. Indeed, as noted above, CARICOM has recognized the danger that uncoordinated macroeconomic policies could vitiate the CSME objective, and jeopardize the gains expected from integration. However, by general consensus they are viewed as long-term aims, beyond the immediate priorities, language that basically reflects reluctance to come to terms with the issue of ceding some degree of national sovereignty.

Sectoral policy planning for structural transformation would be facilitated by access to adjustment finance. Adjusting to competition in world markets and to reciprocity in trade relations, together with the rationalization that sectoral development would entail are bound to lead to short-to-medium asymmetries in net benefits among the member States. Adjustment finance would provide transitional assistance to States so affected and would help to smooth the way for the difficult decisions that inevitably would have to be made. This proposal is less far-reaching than the EU’s Structural Funds (SFs) that are aimed more broadly at supporting development programs in disadvantaged regions. The SFs’ resources come from the own resources of the EU budget and their importance is indicated by the fact that they take up one -third of the EU’s total budget.

Fourthly, an effective marketing program, for the public in general and the private sector in particular, must be included among the top priorities. Without this, the CSME is unlikely to go far, and will provoke, as it does now, a good deal of negative

commentary that is often based on misinformation. The lack of knowledge of regional affairs throughout the region is alarming. The bulk of the population knows little about CARICOM, let alone understands what the CSME entails. Regionalism has largely been an elitist occupation.

Finally, there remains completion of the common market in respect of the free movement of trade in goods and services, labor, and capital, and the institution of a common external protection regime. Neither in principle nor in practice have these markets been fully liberalized, while the degree to which free movement has been achieved in these product and factor markets varies widely, though quantitatively undetermined. Common external protection, account taken of variations in tariffs actually applied, non-tariff measures, fiscal practices, derogations from the regime and inter-country differences in domestic value-added, is very imperfect, though again to what degree is unknown. Further intra-regionally generated benefits would be secured by perfecting these market liberalization regimes, and they would also facilitate realizing the potentially much larger gains to be secured from integration into the world market. However, intra-regional market liberalization cannot of itself be a sufficient condition for securing those larger gains from extra-regional integration.

Brief Notes on CSME Progre ss and Assessment of Needs

Institutional and Legal Framework The Caribbean Court of Justice The CCJ is absolutely essential to the proper functioning of the CSME. Essentially the CCJ will act like the European Court of Justice and as a stabilizing force in the Community. Member States are expected to sign up to both the original and appellate jurisdictions of the CCJ. However, provision is made for reservations to be entered in the case of the appellate jurisdiction. Two countries that will enter reservations are Suriname (because of its Civil Code) and Monserrat (because it is a British overseas territory).

To operationalize the CCJ the following would need to be done:

- Have three countries ratify the agreement. - Provide adequate and reliable funding. The CDB is tasked to come up with proposals. - Provide a Building - which has been done by Trinidad and Tobago. - Recruit Judges –a matter under consideration.

To ratify the agreement, with the exception of two countries that have to hold referenda, all other countries can make provision for the CCJ through the passing of legislation through their national Parliaments. However, special procedures will have to be observed and these include delaying provisions.

Although not mentioned anywhere, some countries may feel obliged to entrench the CCJ as the final Court of Appeal in the individual State constitutions. Because of this, there may be additional delays. However, there may be no other political option for certain States, such as Jamaica.

The most important activity that is being currently undertaken in respect to the CCJ is the public awareness campaign. There is no easy way to assess the work of the preparatory unit in charge of this function which is located in the CCS without carrying out an external audit if its work to date, and an opinion survey, at least in some of the critical countries. The material produced to date by this unit appears to be excessively legalistic, and of doubtful utility to ordinary citizens, especially as a source of information for the purpose of voting in a referendum.

Competition Policy

In this area (as well as in respect of intellectual property and government procurement) there are already consultants in the field examining implementation and related problems. A comprehensive report is due shortly on consumer protection and thus this area is not included in the present survey. The primary focus in these three areas therefore is on consistency between the CARICOM regime and external commitments.

Implementation of Chapter 8 (Competition Policy and Consumer Protection) of the Revised Treaty of Chaguaramas still has to be undertaken in all member States. Jamaica and St. Vincent and the Grenadines have to revise their laws, and all other members have to legislate. A model law has been produced and is currently being examined by member States.

There is need to examine closely implementation of the institutional requirement in order to ensure that it conforms with the obligations already agreed to in the FTAA on the scope and powers of the Commission. The proposed Commission included in Chapter 8 may be deemed to have insufficient power because it cannot initiate a full investigation on its own, and has to rely on agreement by the affected Member or COTED. Further, there must be a Court of Appeal, so the existence of the CCJ is essential to meet this provision in the FTAA.

There is need to determine the position of each member in respect of Merger Control Regulation (MCR). Chapter 8 does not have provision for MCR, but the model law contains provisions in this regard, while the FTAA draft Chapter includes a bracketed text on merger control. Many CARICOM member States were against having MCR during the negotiation of the original Protocol VIII on this subject. This should be borne in mind lest those countries find themselves having to introduce MCR by default, because of an external obligation.

Participating States need to produce by February 2004 an inventory of existing legislation, agreements and administrative practices that are inconsistent with Chapter 8. No member has started this task, and none has the skills to do it, with the possible exception of Jamaica.

Exclusions and exemptions can be granted by COTED. But this requires empirical analysis to determine which sectors and industries should be exempted. Nothing has been done so far to address this task. There is a need to understand the meaning of non-discrimination when applied to Competition Policy in the context of a trade agreement, to deal with the interface with a possible WTO Agreement on Competition, and in the FTAA.

Our assessment suggests the need for the following: -Training in drafting skills, and of lawyers, economists, trade specialists, judges and magistrates, the media, consumers and other stakeholders in Competition Law and its application.

-Determination of member States’ intentions with respect to MCR.

-Revisiting the provisions in Chapter 8 with respect to the investigative power of the Regional Commission, to ensure that there is consistency with the FTAA obligations.

-Preparation of an inventory of legislation, agreements and administrative practices that are inconsistent with Chapter 8. This must be ready by end of January 2004 and is a major task.

-Study to determine sector and industry specific exclusions and exemptions that may be required, particularly in the context of market access available through the FTAA.

-A study on the meaning and practical application of non-discrimination in the national legislation when applied in an FTAA or WTO framework.

Intellectual Property Rights

The provisions in the Treaty essentially require TRIPS compliance, the establishment of a regional IP office, mechanisms for protection of indigenous culture, expressions of folklore and traditional knowledge, and increased dissemination and use of patent documentation as a source of technological knowledge.

The experts currently in the field will gather most of the information required for evaluating implementation of these provisions. However, it is proposed here that implementation of protection of plant variety has special difficulties and that pro- active measures are required at the regional level to meet those challenges.

The needs foreseen are as follows:

-Training and assistance in setting up a testing facility. A possible location for a regional service is in the Faculty of Agriculture at UWI. A source of assistance is the UPOV Secretariat.

-Training of farmers to produce varieties to meet the criteria for grant of protection.

-An educative process for accessing patent documentation from WIPOs Website as a source of technology knowledge.

-Training of experts to actively participate in the process underway at WIPO towards developing a regime for the protection of indigenous knowledge and folklore.

Government Procurement

The EU's experience in developing and operating a procurement regime can be of assistance to CARICOM in avoiding pit falls in this field. Based on this experience, the following would be needed:

-Production of a single, coherent procurement document, rather than separate directives for the various categories.

-Setting up systems for data collection.

-Issue of all calls for tender simultaneously in all the languages used in the CSME to ensure equal opportunity.

-Training government technocrats to administer the regime, and giving them the tools to do so.

-Preparation of model legislation for the CSME.

-Establishment of an independent body to receive and deal with complains, and organization of a regular forum for discuss ion by all the parties involved.

Standards and Technical Regulations

The Caribbean Regional Organization for Standards and Quality (CROSQ) has now been established. It will be funded using the same formula as that applied to the Secretariat. Barbados will host the headquarters. The main costs will be staff salaries for one Executive Secretary and three support staff.

A new budget is being prepared. But even this will not give the full picture as the Executive Secretary has six months in which to prepare a Strategic Plan, which presumably will outline its future activities. It is anticipated that the work program will be funded partially by donors and partially from funds the organization will generate from services provided, e.g. training, book sales and sale of the CARICOM Mark.

CROSQ as an organization is needed to meet WTO obligations. In the development of standards and in meeting the requirements of the FTAA, CROSQ is already prepared to do what will be required of it, i.e. developing regional standards that are based on International Standards.

Two areas seem to need support. -A study regarding the capacity of the member States to perform their Inspectorate function.

- A comprehensive survey of packaging in all members States so as to prepare manufacturers to meet FTAA requirements.

Harmonization of Legislation Financial Services Sector

The harmonization of financial services sector legislation covers banking, insurance and securities. The main legislative provisions as outlined at a Round Table on the development and harmonization of the financial services sector policy have been tabulated. The principal tool being used to harmonize policy in this area is collation with the provisions of International Agreements, e.g. The Basle 25 Core Principles of Effective Banking Supervision and the International Association Of Insurance Supervisors Best Practices. These clearly are not sufficient, nor are they sufficiently localized. But they are a good starting point.

The CARICOM Secretariat has engaged a consultant lawyer to look at the legislation in all three areas in all the jurisdictions and to come with a list of similarities and dissimilarities in the existing legislation.

Following this initial identification exercise, legal expertise will be needed in each of the three areas to prepare the proposed harmonized legislation.

Customs

Draft legislation has been in existence for some years but only one Customs Administration, i.e. Antigua and Barbuda has passed the model law and notified CARICOM. Belize reportedly has done so, but the CCS could not confirm this at the time.

The Customs Authorities complained about both the content and the drafting of the draft legislation. In most cases, the Customs Authorities have made their comments known to the Attorneys General – but the legislation has not moved from their offices, in part, apparently, because of the nature of the comments made by the Customs Authorities. In fact, the legislation has long been abandoned by the OECS who have devised their own law. It is not known how consistent this OECS law is with the CARICOM draft. In Jamaica, a review of the legislation is now being actively undertaken. Aside from the comments made above, it has been found to be in conflict

with the general law, and possibly also with the constitution.

The general message here then is that there is a need for a full- scale review of the customs legislation. Since the draft legislation was prepared there have been international developments, not least the de velopment of the Amended Kyoto Convention (sometimes called Kyoto 2000), which uses information technology more intensively, and creates additional pressures to reduce technical barriers to trade, such as restrictive customs procedures.

CARICOM is not a signatory to the Convention. However that does not prevent it from using the provisions, or at least the main provisions of this amended Convention. In short, the proper preparation by international experts, working in conjunction with the CARICOM Customs Authorities and the CCS, in particular the office of the General Counsel, of a new modern draft model law, might go a long way to solving the existing impasse. This would need sanction from the Legal Affairs Committee.

Harmonization of Legislation – General Issues

Both the old approach to developing legislation e.g. Customs Law and the new approach, as exemplified by the approach being taken in respect of financial services, do not make for the proper development of legislation. In the case of the customs legislation the mistakes were the result of ignorance. Their repetition should be avoided. While appreciating the need of policy developers to move ahead rapidly, taking shortcuts with the drafting of legislation is likely to lengthen the road.

There is a dearth of drafters both in the Secretariat and in the national administrations. It is both a structural and budgetary problem. While there is an abundance of law graduates, especially in the larger member States, there are staff shortages of lawyers in the specialized fields most needed at both levels. The only way around this is to recruit more personnel and organize the required training.

The CCS has two proposals: - one for the creation of a Regional Drafting Facility and one for the engagement of additional lawyers to cover functional areas. Regional drafting would strengthen facilities at both the CCS and the OECS Secretariat. But

there would have to be an agreement on its functioning. The recruitment of additional lawyers is well justified - the question is how many and for how long? An integrated approach would have to be worked out. Provision of lawyers and drafters at the CCS and/or at OECS Secretariat, would reduce the workload for the individual countries. But this emphasis is on reduction and not substituting for additional resources to be allocated at national level.

In order to assess the needs of both the CCS and the national administrations in any meaningful way, a proper situation analysis and/or diagnostic study would have to be carried out. This would have to be prepared with the complete support of the Attorneys General and coordinated in conjunction with the Chief Parliamentary Counsels. Most AGs interviewed seemed open to this idea.

While looking at needs in the light only of the CSME, it is impossible to ignore the fact that additional demands are constantly been made on lawyers and drafters in both the Secretariats and the national administrations. These demands range from the requirements for compliance with international conventions, terrorism and banking related legislation, and the normal domestic legislative programs.

Dispute Settlement

This area involves several treaty commitments- the Revised Caribbean Community Treaty, the WTO, the FTAA, and the ACP-EU Cotonou Agree ment. The Revised Treaty further complicates the situation in that it provides for several different ways of resolving a dispute. Also, there is a complete absence of Commercial Arbitration in the region, although most countries do have Arbitration Laws, designed mainly for labor disputes, that date back to the 1930s and the 1950s. Assessment of the situation and needs in respect of this area is in progress.

Market Access (For goods and services, labor and capital) Work in progress

Sectoral Policies (For Industry, Agriculture, Services, Tourism, Transport, Environment, Research and Development) Work in Progress

The Macroeconomic Framework Macroeconomic Policy Coordination

Articles 44 and 70 of the Revised Treaty contain the Community commitments in respect of macroeconomic coordination. They provide (in Article 44) for the adoption of appropriate measures for macroeconomic coordination, the harmonization of monetary and fiscal policies, and (in Article 70) for promoting a sound macroeconomic environment in the member States. Evidently, they are insubstantial commitments.

The Fifth Meeting of the Council for Finance and Planning (COFAP) (2001) explicitly recognized that the lack of macroeconomic coordination could result in severe disintegrative effects, that the institutional arrangements for policy coordination have been largely inadequate, and that countries must be prepared to cede some degree of sovereignty in economic policy formulation to the regional level. It agreed that the rules and procedures for policy coordination and implementation, when formulated, should be translated into instruments such as Protocols that would be binding on member States. The task was assigned to the Technical Team on Policy Coordination. The main needs at the present time would be for economic technical assistance in elaborating proposals for rules and procedures and implementing mechanisms for policy coordination. The experience of the EU would be the most relevant to this exercise.

Fiscal Policy Harmonization

The CCS has done useful diagnostic work on this. It indicates that tax structures in Community States are already fairly convergent, thereby facilitating the attainment of harmonization. Based on EU experience, it also points to the importance of an organizational structure to administer and enforce tax harmonization. Further, it is recognized that tax harmonization policy must go beyond harmonization. It must

rationalize tax systems while narrowing distortions that may impede free market access.

COFAP agreed that a Tax Harmonization Policy Framework should be developed for its consideration; Tax Harmonization Guidelines should be drafted for its consideration; rules and procedures for the COFAP to direct and oversee the process of tax harmonization and coordination within the Community should be developed; that these rules and procedures should encourage coordination, exchange of information and tax harmony; and that a Working Group on Fiscal Policy should be established.

Toward these ends the responsible department in the CCS has prepared and submitted for donor support a project proposal that focuses mainly on developing a policy framework, and elaborating on the legislative and institutional requirements. Additionally assistance is being sought for a study on the impact of tariff reductions on government revenue, an issue that is crucial to any attempts at harmonization and rationalization of tax structures.

Clearly, substantial technical assistance is needed to get these initiatives off the ground. In particular, they are areas in which the EC institutions could provide valuable support, especially in respect of elucidating its conceptual approaches, the lessons to be drawn from the harmonization measures it employs, and possible options for the way forwa rd of the Caribbean Community. For example, in regard to the tasks of developing a Framework and Guidelines, little has been said about conceptual approaches and options, aspects of the issue on which donor technical assistance would be helpful. While the salience of fiscal harmonization to the success of economic integration and the objectives of the CSME are fully acknowledged, COFAP’s commitment to date is that the Framework and Guidelines should be “developed for consideration”.

Related regional tax initiatives include a Double Taxation Agreement among CARICOM States, a Protocol on the Harmonization of Corporate Structure, and a CARICOM Investment Code. With respect to the CARICOM Double Taxation Agreement work has been completed and it is effective among seven member States

(Suriname and Montserrat are not participants). Further work now has to be done to resolve the objections of those States that have not yet put it into effect. It would also be useful to assess whether and how efficiently it is being administered in practice among those States that have adopted the agreement.

A Legal Draft of proposed Articles for a Protocol on a Harmonized Corporation Tax Structure for Members of the Caribbean Community has been prepared. Consultations are ongoing with the national administrations with a view to reaching agreement on the proposals, following which they would be submitted to COFAP for consideration, with a view to a decision. Actually the instrument does not aim at rationalizing corporate tax rates, but rather at harmonizing definitions of terms used in determining corporate tax liability.

As regards the CARICOM Investment Code a Special Technical Team on Investment Policy has been constituted and the Inter-American Development Bank is providing technical assistance in developing a regionally harmonized “best practice” regime. This is expected to be completed later this year and is intended to facilitate the work of the Special Technical Team in the formulation of the CARICOM Investment Code.

Monetary Policy / Monetary Union

Monetary union / common currency is not explicitly provided for in the Revised Treaty or in any Protocol, though it is an agreed aim of the Community, and a core feature of any single economic space. The approach to this issue so far has been to monitor set macroeconomic parameters against pre-determined targets, so as to gauge the extent of macroeconomic convergence, the accepted pre-condition for moving to a single currency. Not only has attainment of the target generally been below expectation in respect of all parameters, but also there are no sanctions for poor performance, other than “noting” the facts.

In considering the issue of monetary union, COFAP at its fifth meeting, accepted the recommendation of the Committee of Central Bank Governors that a monetary union involving all CARICOM member States is not achievable at this point in time, but

should remain a long-term goal. In the interim, the focus should be on increasing public awareness and support of monetary unio n, and “establishing a greater demonstration of political commitment”.

The second best course to monetary union, that is currency convertibility, is itself stymied by differences in exchange rate regimes (with Guyana, Jamaica and Trinidad and Tobago operating floating exchange rates, and Barbados, Belize and the OECS fixed exchange rates). Only those currencies with fixed exchange rates are currently convertible because of the exchange rate risk with floating currencies.

The political will to implement a common currency is clearly absent. The objective technical conditions justifying monetary union among the CARICOM States also do not seem to be persuasive. The investment of donor resources in an issue of such doubtful outcome could not be a technical assistance priority. The Central Banks have the capacity to pursue the tasks mandated by COFAP, especially if approached in collaboration with the academic research institutions, drawing on the extensive literature available on monetary integration.