During the recent Annual General Meeting of the Caribbean Development Bank, I participated in a panel discussion titled “Accelerating Development: Optimising Trade Connectivity and Logistics for Growth” (see full panel discussion below). Trade theory would suggest that markets located near one another should also engage with one another in trade to a greater degree than they may engage with markets outside of their region.
Proximity to each other’s domestic markets, plus shared business and consumer cultures within the region would suggest this should be so. The 15+ member states of CARICOM share several geopolitical and economic characteristics; in the same way that members of other trading regions such as Latin America, Africa, the European Union, Asia Pacific, and North America do.
Yet the Caribbean has one of the lowest participation rates in intra-regional trade of any of the geopolitical regions based on data provided by the UNCTAD. The panel provided an opportunity for participants from within and outside the region to weigh in on recent efforts to develop and enhance intra-regional trade within the Caribbean.
The Caribbean – with only 16% of its total trade being intra-regional – challenges this assumption. As the panel discussion unfolded it was clear that regulatory, market development, and logistical solutions were required to improve the degree of trade which occurred intra-regionally. These three factors form the backbone of most trade policy models designed to increase both inter and intra-regional trade.
However, when looking at these categories to develop solutions, one must also appreciate the impact of historical and socio-cultural factors on both domestic and regional markets.
Historically, all three of the lowest performers in a recent UNCTAD survey (see table below) share a colonial past, which prioritized inter-regional (or, core-periphery) trade in raw materials and/or minimally processed goods.
Culturally, many of the domestic markets in these regions are relatively small and wary of trade or political measures, which may challenge their sovereignty. Interestingly, while the panel discussion focused on the potential to apply the formal mechanisms of trade policy, market development, and logistics to enhancing intra-regional trade, the impact of historical trade patterns and socio-cultural priorities quickly entered the conversation.
Both inter and intra-regional trade are influenced by the historical and socio-cultural context of the domestic markets within these regions. We cannot move forward with measures to improve intra-regional trade without acknowledging the impact of historical and socio-cultural factors in these markets. Nor – however – should we accept the view that these factors will forever blunt the growth in intra-regional trade in regions like the Caribbean, Latin America, and Africa.
Indeed, during the panel discussion regarding the need to improve Trade Connectivity, I noted that the inconsistent regulatory and trade environments within the Caribbean region create both inefficiencies as well as a hesitancy around investment in many sectors.
Each domestic market, when viewed in isolation, is relatively small. The adjustments required to operate across multiple jurisdictions can be significant. Looking strictly at projects delivered to the public sector – many of the projects I have seen delivered in these markets are overpriced due to limited economies of scale.
Certain projects will, by definition, be unique to the domestic market. But solutions to enable the movement of goods and services within the region should, by definition, be common to the entire region in both design and operation.
In an effort to balance historical and socio-cultural factors in applying the traditional mechanisms of trade policy, market development, and logistics to the Caribbean region, there are lessons that can be applied from regional integration efforts elsewhere. There are also pragmatic measures that can be applied in a thoughtful way to establish the regulatory, physical, and technical infrastructure required to enable greater intra-regional trade.
Key Factors Affecting Intra-Regional Trade
- Trade Policy Environment: The presence of trade agreements like NAFTA/USMCA in North America has significantly boosted intra-regional trade. Furthermore, they provide alignment between the signatories on the treatment of goods and services. Within the Caribbean, the historical orientation toward inter-regional vs intra-regional trade, plus the focus on Tourism and locally-driven, small-scale agriculture has created a vicious cycle. Limited trade and the protection of the local economies provide little incentive to add value to locally produced goods and/or increase intra-regional trade in these goods – despite the high cost to consumers courtesy of the present trade patterns.
- Economic Size and Diversification: The larger and more diversified economies in Europe, Asia Pacific, and North America facilitate higher intra-regional trade compared to the smaller economies in the Caribbean. The Caribbean’s small domestic markets, heavily influenced by agriculture and commodities, face challenges in developing value-added industries if they cannot achieve economies of scale that are only possible by developing regional vs domestic solutions. Furthermore, service sectors like tourism, financial services, and consulting are often linked to or dependent upon markets outside the region.
- Logistics and Infrastructure: Efficient logistics and transport infrastructure in North America, Europe, and Asia have been shown to significantly enhance trade flows. However many of the investments in the Caribbean prioritize connecting to the international market over intra-regional options. The feedback loop noted in the Trade Policy comments above is repeated here and creates intra-regional logistics options which become less and less attractive over time. Already, it is often more efficient and less expensive to access Caribbean markets by air from Canada or the United States than from within the region.
Potential Solutions and Investments
Prioritizing the following would provide a platform that would encourage investment and development by the private sector in providing goods and services for regional as well as international trade while recognizing the following initiatives could be considered:
- Standardize the Regulatory and Logistics Environment: It is possible to focus on aligning and standardizing the regulatory and logistical backbone for intra-regional trade without impacting the sovereignty or cultural identity of member states. Within Africa, there are many examples of “trade corridors” now in place or being developed. Within the ASEAN region, the ASEAN Digital Trade initiative has standardized and integrated key elements of intra-regional trade while retaining control over domestic economies.
A common approach within the region to the movement of goods and services, including customs treatment, tariff, and non-tariff barriers such as photo-sanitary regulations would provide significant incentives to the movement of goods within the Caribbean. - Public Sector Investment: Investments in common trade infrastructure platforms (both physical and technological) by CARICOM could provide a unified experience across multiple ports. Based on a recent study conducted on maritime trade within the region, an investment of less than USD 200 million could establish a common technical and physical platform for intra-regional trade within key CARICOM member states.
The initial investment required to address the needs of 15+ member states and a regional population of approximately 18 million is relatively small, at a little over $10.00 per person. The return would be significant. To put the $200M figure noted above in context, the average cost to build a 18,000-seat hockey rink for an NHL team ranges between USD 400 million and USD 700 million.
A common approach to regulations, licensing, plus the physical and technical elements of the logistics infrastructure would deliver economies of scale in cost and operations to all parties in the supply chain while enabling cost savings for consumers.
A “common market” for the movement of certain goods and services need not oblige member states to surrender their sovereignty or cultural identity. Nor is there any need to go to the extremes of – for instance – the European Union. The right answer for the CARICOM region may be a blend of the ASEAN Digital Trade initiative and the trade corridor concepts, which are being piloted in Africa.
The historical orientation to prioritize trade outside the region vs within the region presents a challenge that in many ways should be easier to solve than the alignment of trade policy across the 15+ member states. However, absent a regional trade policy that standardizes the treatment of goods and services within the region, there is little incentive for the private sector to invest in developing the regional trade infrastructure.
With this in place, the approach most likely to succeed and to “crowd in” private sector investment in intra-regional trade is to invest in an integrated, CARICOM-wide platform, leveraging the CARICOM wharves concept to provide a common physical and technical platform for use by intra-regional logistics companies.
In Conclusion
The Caribbean region’s current low levels of intra-regional trade, driven by historical trade patterns and socio-cultural factors, highlight the need for a strategic and coordinated approach to enhance trade connectivity. By addressing regulatory inconsistencies, investing in standardized logistics and infrastructure, and learning from successful regional integration models such as the ASEAN Digital Trade Initiative and African trade corridors, CARICOM can create a more favorable environment for intra-regional trade.
Implementing these measures would not only improve efficiency and reduce costs but also incentivize private-sector investment, ultimately fostering economic growth and development across the Caribbean. The challenge lies in balancing regional integration efforts with respect for each member state’s sovereignty and cultural identity, paving the way for a more unified and prosperous Caribbean market.
PGTS Inc. 