The view from Europe
By David Jessop

At present, much of the income Caribbean governments
receive comes from import duties. These are levied in
many and various forms on goods bought from trading
partners in North America, Europe and elsewhere. 

In many Caricom economies and most especially in the
Eastern Caribbean these revenues account for over 50
per cent of government income. They are spent on a
wide range of socially beneficial activities. The
income from tariffs enables Governments to provide
services such as education, health care, social
security, law, order and a civil service to administer
government. They provide a measure of equity that
ultimately underwrites Caribbean democracy.

Although these services are of variable quality they
are the norm and are largely based on European
thinking. This is not necessarily the case elsewhere
in the Americas. In many other hemispheric nations the
role of the state is seen differently for
philosophical or historic reasons. There, public
services are more readily paid for by other forms of
tax gathered at a local level through alternative
fiscal systems or are assigned to the private sector. 

Very soon the manner in which many regional
governments are funded will have to change.
Negotiations to liberalise trade will see import
tariffs traded away and the government revenue that
goes with them. While Caribbean countries that are
well prepared for trade liberalisation have already
introduced forms of consumption or value added tax so
as not to rely on import tariffs, most of the smaller
and poorer nations within the region have not. 

By September 15th of this year in the Free Trade Area
of the Americas (FTAA) process all Caribbean
Governments will have to inform trade negotiators the
tariff rates from which to negotiate. They have to do
so as on December 15th this year Caribbean negotiators
will have to indicate not only the national base rates
from which future reduction will be negotiated but
also by how much and when the region will reduce its
import tariffs.

To achieve this every Caribbean state will have to
fully comprehend the labyrinthine tariff and
non-tariff systems they have created over many years.
But more importantly they will also have to understand
the revenue implications when these are traded away
and have a view on what system of taxation will be put
in place to cover the shortfall. This is made more
complex as some Caribbean nations have made a virtue
of having zero or low income tax and consumption taxes
in order to provide an incentive for development, in
particular of the financial services sector.

These are politically sensitive issues. Governments
rise or fall on the basis of decisions made about
taxation and social services and the numbers in
employment in the public sector. Moreover, in some
Caribbean nations changes of this kind fly in the face
of the thinking of those groups that support political
parties and the philosophies espoused by both the
party in power and in opposition.

This direct relationship between Caribbean politics,
social service provision, trade negotiations, taxation
and political thinking is infrequently understood
outside of the region. 

Trade negotiations in the US in particular are seen as
being about geo-politics, security and trade advantage
rather than about development. 

 Anyone who thinks otherwise should look closely at a
speech delivered recently in Washington by Otto Reich,
the US Assistant Secretary of State for Western
Hemisphere Affairs. He told an invited audience at the
Centre for Strategic and International Studies:
‘History tells us that natural and political geography
dictate patterns of trade. Neighbours of like-mind are
our most likely trading partners. The U.S. sells more
to Latin America and the Caribbean than to the
European Union. Trade with our NAFTA partners is
greater than our 
trade with the EU and Japan combined. Latin America
and the Caribbean comprise our fastest growing export
market. These commercial relationships bind the
prosperity of United States to the prosperity of the
hemisphere’. 

In his remarks Mr Reich equated economic development
with democracy and good governance. He noted that the
US would increase its core development assistance by
50% over the next three years, resulting in a $5
billion annual increase over current levels by fiscal
year 2006 and beyond. These monies, the Assistant
Secretary of State said, would be directed to those
countries that govern justly and honestly, uphold the
rule of law, fight corruption, invest in their people,
and promote economic freedom. 

CARICOM countries continue to press for the
establishment of a Regional Integration Development
Fund in the context of the FTAA, but so far to little
effect. Those who make hemispheric policy and
negotiate trade liberalisation do not, it seems, yet
recognise the need to provide what in Europe are
described as flanking measures. That is, during trade
liberalisation, the provision of financial and
technical support to enable economies and government
systems to restructure within a finite but realistic
period of time. 

Any nation that aspires to build a system that
provides the social services required by their
electorates requires a stable source of revenue. 

Declining government income in parallel to the end of
preference and the probable eventual demise of much of
the Caribbean’s sugar, banana and even rice industry
make clear the need for sophisticated and well
delivered schemes for social support and economic
regeneration. But if development now equates with
security, market access and trade in the mind of the
region’s most powerful neighbour, what hope do the
smaller nations of the region have. 

International trade negotiations will require
adjustments to many fiscal systems. There is a direct
relationship between tariff reductions and good
governance in many of the smaller and poorer nations
of the Caribbean. Under these circumstances should
trade advantage be ceded without the provision of
external development support?

David Jessop is the Executive Director of the
Caribbean Council and can be contacted at
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July 26th, 2002




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