CARICOM and the WTO—A Matter of Compliance

Marcia Forbes PhD

A regional trade agreement (RTA) is one entered into by countries wherein the parties align themselves for the purpose of achieving a pre-determined form of economic integration or for political and military concerns, as was the situation with the 1985 creation of the U.S.-Israel free trade agreement. An RTA is not necessarily based on geographical proximity of the participating parties. Under the General Agreement on Tariffs and Trade (GATT)/ World Trade Organization (WTO) system RTAs can only be entered into by countries which qualify as customs territories. These are those which exercise autonomy with regard to their tariffs and other regulations of commerce.

Although the creation of a regional trade agreement flies in the face of the 1947/1995 GATT/WTO cornerstone principle of most-favoured nation (MFN) in that RTAs are by their very nature preferential, the GATT/WTO system has been supportive of their creation. This is because RTAs are regarded as having an overall trade creation, rather than trade diversion effect. Some of these agreements, having pushed beyond areas covered under the multilateral trading system, have helped to pave the way for new trading areas such as services and environmental standards to be brought into GATT/WTO ambit. It can therefore be argued that RTAs have complemented the multilateral trading system. 
Although the case is out as to the extent to which this still obtains, even up to the Doha Declaration coming out of the 2001 Doha Ministerial Conference, the WTO continued to enunciate its support, recognizing that regional trade agreements can play an important role in promoting the liberalization and expansion of trade and in fostering development. Writing in 2001, Roberto Echandi noted that “regional trade agreements can fulfill economic, political and legal objectives that are extremely unlikely to be attainable by the multilateral trading system alone.”  He further argued that, “political and other non-economic considerations must be taken into account to properly understand…the advantages and disadvantages RTAs may have for participating countries and the international community as a whole.”
CARICOM, a customs union created in 1973, is one type of regional trade agreement. Free-trade agreements such as the North American Free Trade Association (NAFTA) is another type. The difference between the two relates to their scope in terms of breadth and depth of trade liberalization, with free-trade agreements being much wider than customs unions. A creature of an earlier time, CARICOM has been slowly trying to reinvent itself in order to become more relevant. The birth of the CSME is an integral part of this process.
A Customs Union (CU) is established along geographical lines and based on a plurilateral agreement comprised of at least four contributing parties. CUs have been described as “closed, inward-oriented regionalism”.   In the Americas there are only four customs unions, the Caribbean Community (CARICOM) is one. The Common Market of the South, MERCOSUR (its Spanish acronym), involving Argentina, Brazil, Paraguay and Uruguay is another. One distinctive feature of a CU is the establishment of a common external tariff (CET) among its member countries and the rest of the world. This type of regional agreement is an older form and is being phased out or undergoing modernization.
GATT Article XXIV, 8:(a) notes that, “(a) customs union shall be understood to mean the substitution of a single customs territory for two or more custom territories….”, with a view to eliminating “duties and other restrictive regulations” on “substantially all the trade in products originating in such territories”. Paragraph 5 (a) of the same Article makes it clear that the formation of such a union or its interim agreement must “not on the whole” cause duties and other regulations of commerce to “be higher or more restrictive” to contracting parties who are not a part of the union than they were prior to adoption of the interim agreement or formation of the CU. It is not only trade in goods which is subjected to GATT/WTO rules. Article V of the General Agreement on Trade in Services (GATS) supports RTAs to the extent that they allow for “substantial sector coverage”, with this understood to mean “numbers of sectors, volume of trade affected and mode of supply.” 
A contracting party to a Customs Union which breaches either the rule regarding preventing higher or more restrictive duty or its schedule of concessions as detailed under its commitments, is required to provide a compensatory adjustment.  Based on the system and rules of control established by the WTO for regional trade agreements, one questions the extent to which CARICOM is WTO compliant. The answer is unclear to this writer. Here are a few questions to ponder:--
Matters re Trade Liberalization
  • Have “duties and other restrictive regulations” been “removed on substantially all the trade in products originating in such territories”? If not, why not? After over 30 years in existence, to what extent has CARICOM fostered trade liberalization among its members? Dialogue regarding the challenges to this would be useful in facilitating realistic expectations of businesses.
  • What of trade in services?
Where are the Blocks?
  • Has any member ever been required to provide compensatory adjustment for having breached its schedule of concessions? If so when, which territory and on what products?
CARICOM Achievements?
  • What are the CARICOM success stories? Hearing about these will create a more positive attitude towards CSME.
As an avowed regionalist, I feel answers to these questions (and I have many others) will help to put John and Jane Public in a better position to understand and appreciate the soon to come on stream Caribbean Single Market and Economy (CSME), how it fits into the context of CARICOM and the greater good it is designed to bring about. Too many of us now seem to see CSME as the latest buzz expression and use it without truly understanding the opportunities or threats it may pose for us within the region.