Foreign Trade
Guyana’s Agent to the ICJ & Adviser on Borders
Introduction
I was asked to outline the importance of trade to the Caribbean and to make a few comments on the implications of that issue for the prospects of improved cooperation between the Caribbean and the USA. I am pleased to join this august gathering today to share some thoughts.
The story of the Caribbean and its relationship to international trade is well-known. Most prominent among the elements of that story is the heavy, and even inordinate, dependence of the economies on international trade not only in arithmetic terms, but in economic terms that is to say that international trade is amongst the key determinants of the levels of income, fluctuations in GDP, investment levels and direction as well as employment and income-distribution. A recent WTO estimate of Guyana’s external trade dependence (exports+imports/GDP) set the level in the region of 170% for the year and “Exports are still concentrated on a few primary products, notably gold, sugar, bauxite, and rice. Imports are of great importance to supply the domestic market, and are equivalent to approximately 100% of GDP. Persistent deficits in the merchandise trade balance and the current account of the balance of payments implies the economy is highly dependent on transfers from abroad, which makes Guyana more vulnerable to …. financial crisis. Although the United States’ share in Guyana’s total merchandise trade fell significantly, it continues to be Guyana’s main trading partner (23%GDP – 2014-16), followed by Trinidad and Tobago. Imports from Asia have increased significantly.”
Due to the nature of its trade and the structure of production, the region produces largely what it does not consume and consume what it does not produce. Since there is little economic planning and no central planning in particular, closing that gap is largely a serendipitous exercise. Insignificant economies of scale in production and small markets have been among the main factors which underscore the need for the region to pursue regional integration and cooperation.
Guyana, like the member states of the rest of the region, is a micro-state physically and when this characteristic is juxtaposed with its tiny population there are implications for its capacity to raise investible funds to meet routine infrastructural needs. Other things being equal, a high land/labour ratio means that significant physical infrastructural projects would require levels of investment larger than can be raised from normal tax effort of such a small population. There has traditionally been inordinate dependence on external sources therefore to fund sea and river defences, D&I, hinterland roads and power projects such as hydro-electric dams, even without assumptions about some of the demanding nature of the landscape.
CARICOM & its trading partners
Guyana is a member of the Caribbean Community (CARICOM) and a signatory to the Treaty of Chaguaramas and the CSME goal. CARICOM’s strategy for achieving economic integration is dependent on implementing the Caribbean Single Market and Economy (CSME), formally launched on January 1, 2006. The CSME was initially intended to be fully in place by 2015. But as of today that is a goal which has yet to be fulfilled. Even as that is the case, there are new challenges facing the region. Those challenges involve the region deciding on exactly how to anticipate and adapt to changes among trading partners. At the same time the region is faced with the need to adapt by modifying its relatively rigid and outdated production structures.
As Guyana’s oil production expands to 500,000 bpd, oil will dominate the country’s export trade. It will leap- frog all export commodities except gold (gold contributed US$817.5M in 2017 and from 2012-2016 contributed on average US$633.4M) in the first three years, and eventually surpass gold. Even with this development Guyana’s trade will remain resource/commodity based.
Goods traded with fellow CARICOM countries enter the region duty free as long as they satisfy rules of origin laid out in the Treaty of Chaguaramas. As with the rest of the region, the composition and geographical distribution of its trade is relatively narrow.
In its trade relations Guyana and the region are similarly inordinately dependent on preferential treatment of exports. These arrangements account for more than 10% of GDP in some cases.
As a member of CARICOM, Guyana is a signatory to the following agreements:
The trade agreements to which CARICOM States are parties:
● CARICOM-Colombia Agreement.
● CARICOM-Costa Rica Agreement.
● CARICOM- Cuba Agreement.
● CARICOM- Dominican Republic.
● CARICOM-Venezuela Agreement.
● CARIFORUM-EU Economic Partnership Agreement.
● CARIFORUM-UK Economic Partnership Agreement.
The CARIFORUM Economic Partnership Agree-ment (EPA), which grants all CARIFORUM goods, with a temporary exception for rice and sugar, duty-free and quota-free access to the European Union. The CARIFORUM region is the first group of the ACP States (African, Caribbean, and Pacific countries) to secure a comprehensive agreement with Europe covering goods as well as services, investment, and trade related issues, such as innovation and intellectual property.
Guyana also enjoys preferential market access to the:
● Canada market under CaribCan.
● United States market under CBI and more specifically,
1. the Caribbean Basin Trade Promotion Act (CBTPA)[1],
2. Caribbean Basin Economic Recovery Act (1990)[2] ,
3. Caribbean Trade Partnership Act of 2000,
4. the 2016 US-Caribbean Strategic Engagement Act,
Guyana is also a signatory to a number of bilateral trade agreements which seek to enhance trade in traditional and non–traditional markets:
● Guyana–Brazil Partial Scope Agreement,
● Guyana–China Trade Agreement,
● Guyana–Venezuela Partial Scope Agreement
As a signatory to the Summit of the Americas, Guyana agreed in principle to the establishment of a Free Trade Area of the Americas.
Political and international relations
At the same time, Guyana’s international relations have been, and have to be, influenced by the fact that two states have been, since its independence, laying claim to over 80% of its land territory, success with which would most likely relegate it to being an unviable economic unit. That likelihood combined with its small size makes it imperative for Guyana’s foreign policy to always place foremost the existential risk posed by these neighbours. In that regard how Guyana projects itself regionally and globally would therefore be an over-riding consideration because Guyana would need to exercise a positive influence globally and to ensure that Guyana’s foreign policy is geared to keeping friends close and to creating no new enemies.
Status of Caribbean Trade & Challenges
The Caribbean story in international trade is well rehearsed and I do not want to restate the obvious.
A recent Inter-American Development Bank (IDB) article (Schwartz, M.J et al (2021) Economic Institutions for a resilient Caribbean) says Latin America and the Caribbean need a “quality leap” from declining export competitiveness. The study argued that recent improvement in LA & Caribbean external trade (2017 compared with 2018) was due to favourable commodity price movements and is likely to be followed by less competitive performance in the face of rising economic risks and global trade tensions. They believe that there is a real prospect of the region facing, “a loss of market share due to declining competitiveness and the lack of high-quality exports from many countries in the region.” (“The Quality Leap: Export Sophistication As a Driver for Growth,”). The region’s low productivity and high trade costs lie at the heart of these future export problems. The study estimated that the region’s loss of competitiveness between 2011 and 2016 was 7.4 percentage points during the period, which accounts for 22 per cent of the decrease in exports.
In addition to the usual problems, CARICOM faces dual challenges in its quest for economic integration through the CSME. First, it must complete the intraregional integration scheme, including tightening the loose common external tariff and intraregional trade policy, integrating more fully labour and capital markets, and deepening “functional cooperation” – pooling resources to improve efficiency in the delivery of public services. Second, it must devise and implement strategies for “inserting” the CARICOM economies into a dynamic and competitive global economy in the wake of expiring preferential trade arrangements with its two largest trade partners, the United States and the European Union (EU).
Some of the specific issues faced by the region include:
1. There is a serious infrastructural deficit – costly transport & energy, gaps in high-speed broadband. Energy costs are some of the highest in the world, transportation is often expensive, and there are significant gaps in services like high-speed broadband. The region is especially susceptible to climate change and inaction.
2. Covid-19 vaccination efforts are limited by failure to build resilient healthcare systems as part of its infrastructure.
3. There is an urgent need for digital transformation in the Caribbean
4. There are serious supply chain gaps as the Covid 19 crisis exposed at its outset. Many studies attest to missed opportunities in the arena of manufacturing – see agro-processing which, where it exists, has been badly hit by Covid-19
5. A skilled labour pool is needed for regional electronics manufacturing – COMPETE CARIBBEAN has attempted to deal with this. Similar attempts at near shoring are hamstrung by low investment in ports, digtal and energy infrastructure
6. The region faces severe migration challenges. It must expand migrant integration and reintegration programming so that they contribute to (rather than destabilize) the regional workforce. In particular, there are a total of 200,000 Venezuelan migrants in the Caribbean as of November 2020, a figure that does not include the intra-regional migration also present within the Caribbean.
7. The structure of the region’s productive sector needs attention. There is not enough investment in diversification. The region needs ‘Investment beyond tourism’
8. Education challenges – plugging remote learning and gaps in digital access
9. Challenges with sustainable debt and access to concessional funding
10. Tying existing programs together to facilitate bilateral private-sector engagement.
CARIBBEAN & the USA
The USA has a strategic interest in the Caribbean but this interest is not always evident from the actions and policies of the United States and doubt largely because the region is small. They have mutual interests in a variety of fields ranging from trade, investment, immigration, drug interdiction, and national security policies. The USA often acknowledges that the Caribbean is part of the USA’s 3rd Border but notwithstanding the cooperation in areas such as health, security, education and the environment, the US policy-makers just as easily forget the strategic reality. The region’s interest and dependence on the USA is, in contrast, very intense and the US switches and ‘mis-handling’ are often resented. In any case US Foreign Policy seems increasingly dictated by its approach to China and in the process forcing states to choose from a false menu of options – ‘with us or against us.’ At the same time America First has tended to mean America Alone. In fact, small states need at least one ‘big friend’ but their survival and safety dictates the prudence of having many friends, albeit with, as far as possible, shared values. However, when all is said and done, viable IR policy for all of us small and large requires cooperation across ideological space, a difficult but necessary route.
There has been a lack of consistent engagement from the United States policy-wise whereas many other states see the region’s countries as safe partners. See a reimagined CBI, as described by CSIS senior associate Georges Fauriol in 2019. The USA and the Caribbean need more than a Strategic Engagement Act.
In the light of the infrastructure deficit, the USA should be interested in learning from the region from two angles. First, its pro-longed lack of interest is damaging politically and economically and needs to be addressed. Given the region’s infrastructure deficit, neglect of international financial support is very debilitating. Without infrastructure, investment would be expensive and not attractive. US can help and it should be obvious that we have common interest in climate-related investment aimed at the need for resilience. The US’s attitude to and problem with China and the Chinese has seriously negative implications for the region if only Chinese companies will be looking at these areas. The prosperity of the states in the Caribbean is dependent on strong and trade relationships and not only with one partner or ally (in the past it has been USA, Canada, the UK etc) and goes without saying even before one considers risk. The Dominican Republic’s mining sector and Guyana’s hydrocarbon sector would not have developed with the speed they have were it not for the Chinese public and FDI. In Guyana’s case the Chinese firm, CNOOC, holds some 25 percent interest, in the major ExxonMobil oil venture.
In similar vein, Guyana and Suriname have collaborated with the Chinese technical firm Huawei to create “smart city” initiatives that integrate facial recognition technology with surveillance. The United States’ ban on Huawei has posed complex questions for the Caribbean, with most countries wanting positive relations with both players but eager to pursue a digital transition—especially since the pandemic began—through established players such as Huawei. In fact, the USA is offering no alternative when it is evident that Regional projects under the BRI have actually included constructing major roadways in Jamaica and deep-water ports for Chinese supertankers in the Bahamas, and billions of dollars have been pledged to Haiti for infrastructure. Chinese firms are also heavily invested in Caribbean industry.
Guyana itself has a significant Chinese diaspora, just as it has an Indian, Portuguese and African diaspora. This has to have implications for Guyana’s foreign policy just as a large Latin diaspora impacts US policy.
Supply chains need to be established as part of the drive to diversification. Guyana and many states in the region need to undertake strategic alliances with larger bilateral partners from whom they aim to acquire not merely investible surpluses but marketing, technological and management skills necessary to facilitate participation in important value chains. In this regard the USA and Caribbean can find common cause if the USA could envisage a situation in which its institutions such as the EXIM Bank can facilitate Caribbean industry to join US supply chains. This ought not to be too difficult because in the context of outsourcing, production systems are now largely driven by technology and manpower skills rather than labour costs. In that regard, investment should be channelled particularly in diversification to build resilience. The region should likewise be a target for energy investment and engagement, creating opportunities for both development and nearshoring. The region has the potential to lead in the “blue economy”. Pilot projects should be encouraged as part of a sustainable development strategy that uses ocean resources to create job growth.
Education support is intended to cope with the remote learning and gaps in digital access we mentioned earlier. Addressing these issues would promote regional competitiveness and raise possibilities for creating long-term knowledge economies. Similarly, investing in infrastructure could both close significant development gaps and provide alternatives to China’s current assistance to the region.
The region has noted that although the Caribbean economy has largely shifted toward service sectors, services are not covered by the current CBI, so an updated strategy toward the region should reflect this. In that context one should urge investment beyond tourism.
The Region has been facing unsustainable debt levels and limited access to concessional funding from the MFIs. One way in which the USA could assist would be via the injection of funds to enhance the region’s natural disaster preparedness. The USA should be encouraged to include private financial institutions in a new CBI, as it was in the first.
CONCLUSION
It has been suggested that as an alternative to some of the foregoing, the United States should be approached to adopt a Prosper Africa approach. The latter is a U.S. initiative emphasizing a whole-of-government approach to facilitate two-way investment and trade between the United States and African countries. Such a program would allow for coordinating the resources directed at the Caribbean, tying existing programs together to facilitate bilateral private-sector engagement.
The USA could be approached to take a more proactive approach to its policy at the MFI level where it has traditionally been reluctant. The region needs an ally in the MFI /international financial institutions (IFIs) fora with the goals of assisting the Caribbean confront its ongoing challenges with sustainable debt and access to concessional funding. The participation of private financial institutions would be essential to a new CBI, as it was in the first. The injection of funds could help build the region’s natural disaster preparedness, which often obstructs long-term development, and contributes to current Covid-19 vaccination efforts and building resilient healthcare systems.
It would not be trite to reiterate that competition with China should not dictate US foreign policy and more importantly its policy to the Caribbean.
Finally, building alliances with the Caribbean diaspora could be the basis for a new U.S. initiative in circumstances where that diaspora has skills and capital and knows the US corridors. Careful examination of this phenomenon is worthwhile for new work on innovation theory and Weberian state theory on administration point us to likely fruitful lessons for small states regarding how innovation policy needs to develop under the new ICT-led paradigm. There is a suggestion that these policies ought to be built following bottom-up logic: creating new networks and scaling them up into wider networks. This is the opposite of the mass-production paradigm where creation of national or supra-national economies was key. (Kattel, R et al Small States and Innovation, 2000).
