Emilio Pantojas-Garcia, “Islands Apart: The Caribbean struggles to keep pace with free trade,” Hemisphere: A Magazine of the Americas; Fall98, Vol. 8 Issue 3, p20.

Abstract: Focuses on the implications of the Santiago Summit in Chile for the economic policies for insular Caribbean. Introduction of the Caribbean Trade Security Act for trade parity; Impact of the pseudo-neoliberal policies on trade industry; Importance of the interaction among private, public and social sectors to produce viable economic enterprises.

ISLANDS APART

Since the early 1980s, neoliberal views on economic policy have acquired increasing prominence throughout the world. The notion of the superior efficiency, rationality and dynamism of the private entrepreneur and the marketplace has become the dominant weltanschauung among economic development experts and policy makers. This shift in the development paradigm has resulted in the adoption of regional, subregional and

supraregional policies aimed at trade liberalization, the impact of which is highly debated. Most recently, the second Summit of the Americas in Santiago, Chile brought together hemispheric leaders to discuss the potential consequences of these policies. The following is an attempt to examine some of the implications for the future development of the insular Caribbean.

The signing of the North American Free Trade Agreement (Nafta) was received by Caribbean political and economic leaders with a forceful request for trade parity. This request resulted in the introduction of a bill in the US Congress known as the Caribbean Trade Security Act. It and other initiatives have sought the liberalization of regional trade to pave the way for accession to Nafta or full participation in a Free Trade Area of the Americas (FTAA). The creation of the Group of Three (Mexico, Colombia and Venezuela); the reactivation of the Central American Common Market; the creation of the Association of Caribbean States; and a proposal for a Caribbean Community single market are examples of the scramble for position by Caribbean Basin leaders.

THE CARIBBEAN PATH TO FREE TRADE

In the 1980s, Caribbean policy makers and entrepreneurs embraced a set of pseudo-neoliberal policies effecting a shift from state-directed to market-centered development strategies. The new policies were not anchored on the principles of free trade, but on preferential treatment of Caribbean commodities by developed countries. The tandem of preferential regimes that served as the framework for this creole neoliberalism started with the launching of the Caribbean Basin Initiative (CBI) in August 1983, followed by other similar programs. Despite the free trade rhetoric that surrounded them, these measures constituted a neoprotectionist package that fostered a process of economic restructuring centered around labor- and import-intensive export processing industries, known as maquiladoras. Maquila-type operations with limited backward production linkages to the domestic economy multiplied in newly established free trade zones (FTZs) in the Caribbean. Among the products that benefitted most from the CBI and the new offshore sourcing arrangements were light manufactures and agroindustrial products.

The apparel industry, the category of light manufacturing that grew fastest, was not even covered by the CBI. The rapid growth in apparel assembly was fueled by another special preference program known as GAL (Guaranteed Access Level program, or "807a" for its section in the US Customs Code), which ensured unrestricted access to the US market for apparel assembled in the Caribbean Basin from fabric made and cut in the US. Under this program, exports of assembled apparel from the Caribbean to the US more than doubled in only four years, from approximately $1.1 billion in 1987 to $2.5 billion in 1991. By 1995, 807a exports to the US had risen to $5.5 billion.

Yet, in spite of growth in particular industries, the early impact of these preferential regimes on export production was disappointing to US and Caribbean policy makers. Between 1984 and 1988, US Department of Commerce figures showed that overall exports from CBI countries to the US declined from $8.9 to $6.2 billion. Exports rose to $8.4 billion in 1991, but this was partly due to the addition of Guyana to the list of CBI countries in 1988. In the short run, CBI-induced exports did not compensate for the decline in traditional exports. Although by 1994 Caribbean Basin exports to the US had reached $12.2 billion, assembled apparel accounted for $4.6 billion--more than one-third--of this amount. The value added by assembled products was, on average, a meager 25% or less, resulting in an estimated foreign exchange earning capacity less than that of traditional agricultural exports.

US manufacturers have traditionally considered Caribbean countries--with the exceptions of Haiti and the Dominican Republic--to be relatively high-cost producers, due to comparatively high wages and levels of unionization. Trade preferences were designed so that Caribbean-based US and local manufacturers could establish operations able to compete in the US market with Asian- and Mexican-based manufacturers. But the

CBI/GAL regime was too short-lived to allow the Caribbean islands to become important competitive export platforms for assembly manufacturing. The enactment of Nafta just 10 years after the CBI reestablished the comparative disadvantages of Caribbean countries as maquila-type export platforms vis-a-vis Mexico.

In the short run, Mexico's low wages and proximity to the US, combined with Nafta duty-free treatment, give it a nearly insurmountable competitive advantage over the Caribbean. In the textile industry, for example, freer market access under Nafta caused the value of Mexican textile and apparel exports to the US to grow exponentially, while the combined value of the four larger Caribbean exporters sagged. From 1994 to 1996, figures from

the US International Trade Commission show that the value of Mexican textile and apparel exports to the US grew by 123%, while the combined exports of the Dominican Republic, Jamaica, St. Lucia and Haiti increased by only 14%.

In light of these developments, it seems clear that for the insular Caribbean, trying to maintain a competitive advantage in low-wage, labor-intensive maquiladoras is a self-defeating strategy. The only way to remain competitive as maquila export platforms is to deepen the social and economic disadvantages of the working population. Low-wage industries will continue to grow in those countries where policy makers are willing to go

along with wage-lowering policies such as continued currency devaluations, reductions in public services, and minimum or nonexistent fringe benefits. Clearly, the Caribbean must adopt alternative policies to compete in the new climate of economic restructuring.

THE CARIBBEAN IN THE EMERGING HEMISPHERIC ORDER

The analysis of the still-emerging global division of labor, based on liberalized trade and the freer flow of investment across national borders, cannot be conceived as a mere geographic reshuffling in the economic specialization of some regions. We are witnessing a set of technological, institutional and economic transformations that allow for greater global mobility of the factors of production (particularly capital and technology) on a

larger scale than ever before. The various international agreements, treaties and institutions--such as the International Monetary Fund, the General Agreement on Tariffs and Trade, and the World Trade Organization—are helping to implement and reinforce policies at a level above and beyond the power of national governments. These emerging supranational regulatory frameworks increase the freedom and security of movement of

transnational corporations and open up nationally controlled resources. They simultaneously facilitate the more complex transnationalization of economic space and further the vertical integration of production into vast global commodity chains.

What role will the Caribbean play in the trend toward globalization? The drive towards free trade is accompanied by the emergence of new technologies and management practices within transnational corporations which enable the adoption on a global scale of flexible production and just-in-time industrial organization. In this context, we can expect a retrenchment of traditional assembly manufacturing activities relying on location-specific FTZs and the restructuring of labor-intensive assembly manufacturing on a global scale. Once goods and capital can move under global conditions and supranational rules not easily affected by changes in national governments and their policies, then production sourcing will shift more easily and constantly from country to country or region to region, both within and even between trade areas, in search of lower costs, faster turnaround times, greater design flexibility, higher quality and so on.

If the above arguments are correct, then the crown jewels of the new international trade agreements are the liberalization of trade and investment in knowledge-intensive industries and services. The creation of an FTAA will shift the competitive advantage to postindustrial activities; knowledge, technology, creativity and management expertise, rather than location-specific fiscal advantages, will be the key to success in the twenty-first century. In the Caribbean, this trend can be defined as peripheral postindustrialization. The emerging crop of maquiladoras will focus on knowledge-intensive industries and services whose main imported inputs are knowledge and technology and whose main exports are royalties, fees and profits.

The Caribbean already has comparative advantages in tourism and banking, and has made substantial progress in telecommunications. In the 1980s, and in some cages earlier, many Caribbean countries developed banking facilities that served as tax havens for international companies and entrepreneurs involved in legal tax evasion schemes and outright illegal activities, such as drug trafficking or money laundering. At the same

time, a successful package tour resort-based tourist industry developed in the Caribbean as an alternative to other, more expensive destinations for North American tourists. And in the area of telecommunications, domestic and international companies developed a network of processing centers for "800" and "900" lines, driven by demand from companies and individuals who peddle a gamut of services, ranging from psychic readings and party lines to illegal gambling.

Thus far, peripheral postindustrialization in the Caribbean has proceeded along the lines of traditional economic asymmetries. The Caribbean tourist sector is highly transnationalized and depends on imports for food and beverages, equipment, etc. Resort-based complexes have homogenized their product to the point that it would be hard to tell the difference between a vacation in Cancun or in Barbados, except for the phenotypes and accents of the hotel attendants. Most jobs created in the tourism sector are low-end positions with heavy seasonal variations, while telecommunications and data processing have witnessed the development of what Barbara Garson calls electronic sweatshops: low-end repetitive jobs created to provide international services to individuals and companies.

ALTERNATIVES FOR THE FUTURE

Caribbean development is not simply an abstract moral issue of social justice, but rather a crucial practical issue if economic growth is to become the basis for providing an adequate living to the working population of the region. The adoption of a postindustrial strategy cannot be premised on low wages as the key competitive advantage for establishing low-end tourism operations, electronic sweatshops or paper companies that front for tax evasion and money laundering schemes. Instead, the Caribbean needs a policy designed to exploit niches of competitive excellence. The quality of human resources, infrastructure and services should be considered essential components of any development strategy. If the weather is a natural comparative advantage, it need not be squandered and sold cheaply in all-inclusive tourist packages with few linkages to local producers and providers of services. Policy makers and entrepreneurs should look at people as a valuable resource. Trained health care specialists, who usually migrate to developed countries, could get well-remunerated jobs in specialized retirement communities and medical facilities in the warm tropics. Cuba has already developed the concept of medical tourism, which generates foreign exchange by providing world-quality medical care to foreigners at costs that are a fraction of those in the US, Canada or Europe. And instead of gamblers, psychics and pornography dealers, more stable and profitable businesses should be promoted in the Caribbean telecommunications industry.

Caribbean policy makers, businesspeople, intellectuals and grassroots leaders should build a diversified and creative economic strategy from the ground up. Free trade should not mean economic regimes in which the key competitive advantage rests on the social, economic and environmental disadvantages of large sectors of the population. The goal of any development policy should be to take advantage of trade liberalization to promote commerce between and among Caribbean producers and consumers. If tariff barriers and political differences were overcome, small- and medium-sized farmers in, for example, the Windward Islands could meet many of the needs of tourist resorts in Barbados, Curacao, Antigua, Martinique, Puerto Rico or even Cuba. Freer trade could facilitate Cuban imports of Venezuelan oil and capital to produce fabricated metals using surplus industrial capacity. Or, a business alliance could be established between Puerto Rican scientists and Cuban laboratories to take advantages of the existing pharmaceutical infrastructure on both islands. In the area of services, a Caribbean broadcasting company could promote the expansion of the Caribbean entertainment industry by encouraging programs and newscasts from various islands. Joint program production could be established among French-, English- and Spanish-speaking groups throughout the hemisphere.

The future is full of opportunities, but if we reproduce the asymmetrical schemes of the past we will only be changing production styles while maintaining the skewed socioeconomic order of nearly five decades of development economics. We need to think of ways in which the private, public and social sectors can interact to produce viable economic enterprises that serve not just economic niches but wider social and economic needs. Innovative thinking and daring actions could result in the creation of an economic space for small- and medium-sized producers now relying primarily on the informal sector for their livelihood. To succeed, any effort in this direction should be anchored in the accumulated knowledge and experience of nongovernmental organizations and grassroots enterprises. There are no easy solutions, but the overwhelming concern of policy makers must be to create a development strategy that benefits the majority of the Caribbean population.

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Emilio Pantojas-Garcia is director of the Caribbean Resource Center at the University of Puerto Rico-Rio Piedras, where he specializes in political sociology and the sociology of development.

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