OECS Regional Integration

210. At the July 2001 meeting, the OECS Authority agreed to deepen their economic integration by creating an economic union. This followed an appreciation of the disadvantages stemming from their small size and the strength of a collective approach in addressing the challenges of globalization and trade liberalization, and gave new impetus to the aspiration for economic integration specified in the OECS Treaty. The intention is the creation of a single OECS Economic Union within which products, labor and capital moves freely, which would allow diversified economic growth, increased employment, and position the OECS to interface more effectively with the wider CARICOM Single Market and Economy initiative.

211. At the January 2002 meeting of the OECS Authority an agreement was reached, excepting Anguilla and the British Virgin Islands,⁹⁵ on measures that would allow free movement of labor, including amendments on immigration and landholding laws, and the introduction of an OECS passport. At the October 2002 meeting, the OECS Authority reiterated its commitment to the creation of the OECS Economic Union and agreed on appointing a committee that would review the “Treaty of Basseterre” and recommend how this could be aligned with the requirements of an economic union. The OECS Authority also established target dates for the free movement of goods and services (end-2003), free movement of labor (end-2007), and endorsed the ECCB’s program to develop and unify the money and capital markets.

The OECS Development Charter

212. At the October 2002 meeting, the OECS Authority approved “The OECS Development Charter” which outlines the development objectives for the region and how these would be achieved. The Charter presents the overarching development objective for the region as advancing the well-being of the population, expressed in terms of their needs, aspirations, and capacity. This objective is to be pursued by implementing programs that will raise living standards, improve working conditions, enhance labor skills, and protect vulnerable groups. The immediate objectives for these programs would include: reducing poverty, especially by training programs that target the poor, and particularly women and youth; facilitating a substantial increase in private sector employment; expanding access to education; improving access and the quality of health services; a sustainable use of environmental resources; empowering the disadvantaged; developing sports; and improving governance. The Charter recognizes the constraints facing the region and embraces the strengthening of a collective approach, deepening regional integration, and cooperation through regional institutions and particularly the creation of the OECS Economic Union.

213. The Charter outlines the set of economic policies that would underpin the development objective. These policies would aim to enhance investment and employment opportunities, encourage domestic savings, and stimulate economic activity in a competitive environment. These policies include a fiscal reform that would contain the accumulation of debt, and increase the efficiency of the expenditure and revenue systems, a public sector reform; improvement in the incentive regime for investments; maintenance of low inflation and a stable exchange rate. In addition, the Charter outlines policies to transform agriculture in line with the region’s comparative advantage, enhance the tourism sector’s contribution, support the development of the non-tourism service sector, strengthen the development of the domestic and offshore financial services sector, strengthen the development of enclave manufacturing and agro-processing and reduce emphasis on import substitution, and establish a well-functioning transportation network.

214. At the approval of the Charter, the OECS Authority gave guidance on critical areas of priority action and provided additional guidance on some of the initiatives that would be implemented. The region’s medium-term targets were defined and agreement was reached on a reform and transformation process that would begin in January 2003 with the first phase would end in December 2007.⁹⁶ Key priorities for the reform and transformation process include

• the free circulation of goods and services within the OECS by end-2003;

• free movement of labor within the OECS by end-2007;

• maintaining the existing fixed exchange rate system and low inflation;

• strengthening the fiscal situation, by implementing adjustment programs that include a tax reform in line with the advice expected from the Tax Commission, a public sector reform that establishes an appropriate expenditure system, strengthens the efficiency of expenditures particularly in the social sector and the Public Sector Investment Program (PSIP), and improved debt management;

• reaching agreement on income policies through tripartite committees (representing the government, trade unions and the private sector) for an equitable distribution of productivity gains; and

• the immediate priorities in tourism, agriculture, manufacturing, and the information technology sectors were also outlined.

215. In sum, “The OECS Development Charter” provides appropriate general guidance on the region’s development agenda, which is further specified by subsequent statements of the OECS Authority. However, the relevance of the Charter will be demonstrated by how closely the policies in the region conform to the agreed statements.

Joint Overseas Representation

216. The OECS governments have made known their wish to establish offices abroad of joint representation, and thus benefit from the economies of scale. So far, a joint High Commission has been established in Ottawa, Canada (for the OECS members except Anguilla and the British Virgin Islands), and in Brussels, Belgium (for the OECS members except Anguilla, Antigua and Barbuda, Montserrat and Grenada). Negotiations are to be requested with the government of Switzerland and the WTO, for the establishment of a joint mission in Geneva.

Eastern Caribbean Telecommunications Authority (ECTEL)

218. This was established by the ECTEL Treaty of May 2000, signed by five countries: Dominica, Grenada, St. Kitts and Nevis, St. Lucia, and St. Vincent and the Grenadines. The purpose of ECTEL is to advise and coordinate with the member countries on regulatory policy in the telecommunications sector, while promoting its liberalization and development. The ECTEL is guided by a Council of Ministers that meets at least once a year, with the more immediate guidance of its operations entrusted to a Board of Directors and to a Managing Director. In exercising its duties, the ECTEL is in regular contact with the National Telecommunications Regulatory Commission in each of the member countries. The ECTEL is headquartered in St. Lucia.

The Directorate of Civil Aviation (DCA)

219. The DCA regulates and provides safety oversight over all aspects of civil aviation within the territories of the OECS members except for the British Virgin Islands. The DCA operates under the guidance of a Civil Aviation Regulatory Board, comprising of the ministers responsible for civil aviation. The DCA has been in existence since 1957, though its structure and operations have changed with realities of political changes and in the field of civil aviation. The DCA is headquartered in Antigua and Barbuda.

Eastern Caribbean Supreme Court (ECSC)

220. The “West Indies Associated States Supreme Court Order” No. 223 established the Eastern Caribbean Supreme Court in 1967. It is the superior court for the OECS members, with unlimited jurisdiction in accordance with the respective Supreme Court Acts.⁹⁸ The ECSC comprises of the Court of Appeal, which sits as needed in the member’s countries, and the High Court, which sits continually in each member country. The head of the ECSC is the Chief Justice, who is appointed by the Queen of England.

221. The Court of Appeal hears appeals from the decisions of the High Court and Magistrates’ Courts of the members in both civil and criminal matters. The Court of Appeal also hears appeals from the Industrial Court in Antigua and Barbuda and the Administrative Tribunals in the British Virgin Islands and Montserrat.

Windward Islands Banana Development and Exporting Company (WIBDECO)

222. Banana farmers and the governments of Dominica, Grenada, St. Lucia, and St. Vincent and the Grenadines jointly own WIBDECO. WIBDECO provides technical and agronomic support to farmers, and markets and transports the product to the UK. WIBDECO is headquartered in St. Lucia.

Caribbean Single Market and Economy (CSME)

226. In 1989, the Conference decided to integrate the CARICOM economies into a unified market with free movement of goods, services, capital and labor, and a single economy that would operate under the same coordinated and harmonized economic policies. The intention was that this would allow the region to exploit economies of scale from a large internal market and strengthen its international bargaining position, in an effort to deal with globalization, but without establishing a political union. It was apparent that to implement the CSME the “Treaty of Chaguaramas” needed to be modified, which was done subsequently by negotiating nine Protocols (see Box 2). However, two issues continue to plague its implementation. First, the process has been characterized by slow progress in bringing national laws in line with the tenets of the Protocols. The lack of political will and reluctance to give up control at the national level appear to be the relevant impediments.¹⁰¹ Second, there has been a lack of awareness by the citizens in the member countries of the CSME agreements and their implications.

227. Protocol II was signed in 1997 but did not come into effect until July 1998. Since 1989, the focus of the issues under this Protocol has been the removal of restrictions on the rights of establishment, provision of services, and free movement of capital. Lists of these restrictions were developed with the help of consultants, and a process of phasing them out started in January 2001. The restrictions have been grouped into three, and agreement reached for their elimination by end-2003, 2004 and 2005.

228. Protocol IV was signed in 1999 and came into force in February 2000, and there has been a twofold focus on the issues under this Protocol, namely first, providing unrestricted access to each other’s product markets by the removal of existing restrictions but with few exceptions. An agreement was reached to dismantle the remaining restrictions by end-1996. To date, these restrictions have almost completely been dismantled but some members still retain some restrictions that are inconsistent with the Protocol second, the continuation of efforts towards common external trade policies and trade liberalization. The “Treaty of Chaguaramas” had set a deadline of August 1981 for members to adopt a common external tariff (CET), which was not met by 1989. A subsequent deadline was set and missed, culminating in the introduction in October 1992 of a phased reduction of the CET and by January 1, 1998. Only two countries (Trinidad and Tobago and St. Vincent and the Grenadines) met that deadline, and four members (including Antigua and Barbuda, St. Kitts and Nevis, and Montserrat) had still not achieved it as at end-2002. A regional negotiating body that represents CARICOM members in international trade negotiations, was established in 1994.

229. Implementation of Protocol IX has focused on establishing the Caribbean Court of Justice as the highest court in the region, and the arbitrator on matters pertaining to the “Treaty of Chaguaramas.” An agreement was reached in 2001 though several members have yet to sign and ratify the agreement, and none has enacted it into national legislation. It is expected that the Caribbean Court of Justice will be established in 2003.

230. On other issues, a proposal for monetary integration was approved in 1992. A common currency area for a selection of countries with stable and convertible currencies and low inflation (OECS countries, The Bahamas and Belize), was proposed along with the coordination of monetary policies and a gradual reduction of exchange rate fluctuations in the other countries. It was expected that this would allow the creation of a common currency area for the entire region by 2000. However, in 1994, the Committee of Central Bank Governors advised the Conference against pursuing a monetary union on the announced timetable, and the issue has not been addressed since then. More broadly, there has been little progress at the CARICOM level towards the coordination of macroeconomic and sectoral policies. Some progress has been made towards developing a regional capital market. Cross-listing and cross-border trading of securities can take place on three stock exchanges, and a stock exchange for the OECS countries was opened in 2001.

Characterizing the External Trade Policy

232. As discussed above, in October 1992 OECS countries agreed with other CARICOM members on a phased reduction of the common external tariff (CET), starting on January 1, 1993 and a target date of January 1, 1998 for the introduction of the final phase (Phase IV). Whereas the only country in the OECS to reach this goal was St. Vincent and the Grenadines, other countries have subsequently introduced Phase IV of the CET and as at end-2002 only Antigua and Barbuda and St. Kitts and Nevis had yet to introduce it. Under the Phase IV of the CET, tariffs on agricultural products were set at a maximum of 40 percent. Tariffs on the non-agricultural products were to be lowered to a maximum of 20 percent. However, there have been other complicating factors that have allowed duties to vary widely in the region. First, exemptions to the CET were allowed for a list of revenue-sensitive products, and for goods that a country regards as competing and wished to protect, but whose production accounts for less than 75 percent of regional consumption. Second, temporary suspension of CET rates on a number of agricultural products to the less developed members (mainly the OECS countries) was introduced. Third, the CET includes a list of conditional duty exemptions, mainly to be used for approved purposes. Duties can also be suspended in cases of temporary supply shortages.

233. The external tariff regime in the ECCU countries at end-2001 is summarized in Table 1. While the simple average tariffs are lower than 15 percent, customs and other charges are significant and there is wide dispersion in the tariffs. The maximum tariffs are also high, especially in Dominica, Antigua and Barbuda, St. Kitts and Nevis, and St. Lucia.¹⁰² Additionally, the Fund’s restrictiveness index characterizes these regimes as moderately restrictive.

Table 1.

ECCU: Summary of Tariff Regime for Non-CARICOM Trade, as at end-2001

(as a percent, unless otherwise indicated)

Sources: WTO’s reports on the OECS-WTO Trade policy review; IMF’s Trade Restrictiveness Database.

Table 1.

ECCU: Summary of Tariff Regime for Non-CARICOM Trade, as at end-2001

(as a percent, unless otherwise indicated)

			Antigua and Barbuda	Dominica	Grenada	St. Kitts and Nevis	St. Lucia	St. Vincent and the Grenadines
Combined Average			24.5	15.1	16.2	16.5	14.1	14.9
	Customs and other charges		10.0	2.0	5.0	5.0	4.0	4.0
	Average tariff (simple average)		14.5	13.1	11.2	11.5	10.1	10.9
		Agriculture	20.9	24.7	18.2	16.1	16.6	18.0
		Non-Agriculture excluding petroleum	13.1	10.9	9.8	10.6	8.8	9.6
Maximum tariff			70.0	200.0	40.0	70.0	70.0	40.0
Minimum tariff			0.0	0.0	0.0	0.0	0.0	0.0
Standard deviation			…	21.6	10.1	…	…	…
Number of tariff lines (number)			4,077	6,333	6,334	6,368	6,330	6,237
Overall Trade Restrictive Rating (index)			7	6	6	6	5	5
	Tariffs (index)		4	3	3	3	2	2
	Non tariff barriers (index)		2	2	2	2	2	2

Sources: WTO’s reports on the OECS-WTO Trade policy review; IMF’s Trade Restrictiveness Database.

View Table

Table 1.

ECCU: Summary of Tariff Regime for Non-CARICOM Trade, as at end-2001

(as a percent, unless otherwise indicated)

			Antigua and Barbuda	Dominica	Grenada	St. Kitts and Nevis	St. Lucia	St. Vincent and the Grenadines
Combined Average			24.5	15.1	16.2	16.5	14.1	14.9
	Customs and other charges		10.0	2.0	5.0	5.0	4.0	4.0
	Average tariff (simple average)		14.5	13.1	11.2	11.5	10.1	10.9
		Agriculture	20.9	24.7	18.2	16.1	16.6	18.0
		Non-Agriculture excluding petroleum	13.1	10.9	9.8	10.6	8.8	9.6
Maximum tariff			70.0	200.0	40.0	70.0	70.0	40.0
Minimum tariff			0.0	0.0	0.0	0.0	0.0	0.0
Standard deviation			…	21.6	10.1	…	…	…
Number of tariff lines (number)			4,077	6,333	6,334	6,368	6,330	6,237
Overall Trade Restrictive Rating (index)			7	6	6	6	5	5
	Tariffs (index)		4	3	3	3	2	2
	Non tariff barriers (index)		2	2	2	2	2	2

Sources: WTO’s reports on the OECS-WTO Trade policy review; IMF’s Trade Restrictiveness Database.

The OECS-WTO Trade Policy Review

234. In June 2001, the WTO completed the first review of the trade policies and practices of the OECS-WTO members.¹⁰³ Several issues were highlighted at that review, especially that the OECS members were slow in applying domestically their WTO commitments, including on WTO notification and the needed legislative reform to implement the WTO agreements. It was argued that these delays were principally due to the lack of human resources and adequate infrastructure. Other areas of concern included:

• Customs service charges have not reflected processing cost but have been used more like tariff surcharges.

• WTO bindings were exceeded by the applied rate in some cases, and in even more cases when the customs service charge is also included.

• Except for Dominica, quantitative restrictions apply on some imports. It is expected that these will be converted to tariffs by 2005. Import licensing is also widely used.

• Customs valuation methods are not fully WTO-consistent.

• Updated legislation on trade-related aspects of intellectual property rights (TRIPS) are generally not in place.

• The process for government procurement seemed to lack transparency.

Special Trading Arrangements for Banana and Sugar Exports

235. Along with others in the African Caribbean and Pacific (ACP) countries, banana exporters in Dominica, Grenada, St. Lucia, and St. Vincent and the Grenadines have over the years benefited from the various Lome Conventions These encapsulated trade cooperation with the EU in the awards of preferential tariffs and quotas. This regime benefited the ACP countries but recently came under heavy scrutiny since it was not WTO-compatible. Concomitantly, sugar exporters in the OECS and other Caribbean countries have benefited from the EU’s “Sugar Protocol” which provides specific quotas for imports to the EU at a set price that is well above world prices.

236. In June 2000, the OECS and other ACP countries signed with the EU the Cotonou Agreement, which is the successor of the Lome Conventions. Under this agreement, the existing system of preferential tariffs and quotas will be dismantled progressively and replaced by WTO-compatible trading arrangements. Specifically, the tariff and quota regime for bananas will be phased out by 2006 when it will be replaced by a WTO-compatible tariff regime, and the preferential arrangement for sugar will be phased out by 2009. The Cotonou Agreement stipulates that cooperation with the EU in trade-related areas will be enhanced, and detailed in an “Economic Partnership Agreement that will be negotiated with each ACP country by 2007.

Trade Negotiations

237. As discussed, the OECS members coordinate their joint negotiating position through the OECS Secretariat. In turn, the OECS Secretariat will through the Caribbean Regional Negotiating Machinery (RNM) coordinate these views with those of other CARICOM members, to yield a common position that will be presented at the negotiations by the RNM on behalf of all CARICOM members. Of the negotiations that are ongoing, these include on the WTO’s Doha Development Agenda, the Free Trade Area of the Americas (FTAA), and the EU’s “Economic Partnership Agreement.” With regard to the FTAA negotiations, the OECS and other CARICOM countries are committed to the agreed goal of concluding the negotiations on the FTAA Agreement by January 2005, and its entry into force by December 2005.