Can Jamaica fit in the CSME?

By Edward Seaga

West Indies Federation

The relationship of Jamaica with its Caribbean neighbors in a regional organization was first publicly discussed at a conference in Montego Bay in 1947, called by British Secretary of State Arthur Creech Jones, to discuss the question of regional political integration.

From this opening discussion, 11 years later the West Indies Federation was born, comprising 10 English-speaking countries. None of this group were independent countries. Some were seeking independence through the federal structure, and others were doing so independently.

The federation was ill-fated from the start. It was based on the strength of a common heritage from which was to be forged a common destiny of political, economic and social development, through integration. If the commonalities of the federation were its strength, its diversities were its weakness: population size, wide income spread and economic performance, differences and distances between political power centres and, from Jamaica’s point of view, lack of socialisation with the other member countries and their people.

The federal system was planned from the top down. The people were never consulted until the very end, when a referendum was held in Jamaica on September 19, 1961, to determine its fate. That was the day that the West Indies Federation died. It was rejected by the people of Jamaica and, as so cogently phrased in the memorable words of Eric Williams, premier of Trinidad & Tobago, “one from 10 leaves nought”. The federation was promptly dismembered and abandoned. That acute analysis was more than a piercing truism. It spoke volumes to the strength of the central role of Jamaica in the federal scheme.

The demise of the federation put an end to political integration, but it did not destroy the concept of regional cooperation. Just as the founding of the University College of the West Indies in 1948 established a successful, integrated structure of higher education, there were other areas which could be pursued.

Caribbean Common Market

The first step to further cooperation was the establishment in 1965 of the Caribbean Free Trade Association (CARIFTA), an agreement among member nations to advance trade by eliminating trade barriers. The machinery was established with broad objectives to:

 • Promote the expansion and diversification of regional trade, particularly by the removal of excessive and unnecessary tariffs;
 • Ensure fair competition;
 • Foster harmonious development and liberalization of Caribbean trade; and
 • Encourage the progressive development of economies in the region.

The Caribbean Common Market, under the Caribbean Community (CARICOM) umbrella was seen as the logical extension of CARIFTA. But equally, it was the expression of a hopeful expectation that as a vehicle for the establishment of a common market, it would be a regional mechanism to enhance declining exports by facilitating economic expansion within the region.

CARICOM was established under the Treaty of Chaguaramas in 1973. The larger scope of a common market would include eventual introduction of a Common External Tariff and free movement of labor and services-focusing first on professionals and university graduates, and a single market for economic cooperation.

A common market is broader than a free trade association. It moves beyond free trade to facilitate economic and social development of member states in an integrated region for:

 • Coordination of foreign policies;
 • Extending cooperation in common services and functional matters such as health, education, justice, culture communication and industrial relations;
 • Economic cooperation.

Against this background of high expectation, the performance of CARICOM trade with Jamaica must be addressed to assess the impact on the Jamaican economy and the potential of CARICOM for reviving the stagnant economic performance, particularly since a new flagship initiative, the Caribbean Single Market and Economy (CSME), was introduced in 1993 for this purpose.

Trade Imbalance

Regional trade with Jamaica over the years, since the inception of CARICOM in 1973, has persisted as a low-impact economic activity, particularly in exports. In 1973 exports from Jamaica to CARICOM were 6.3 percent of Jamaica’s total exports and 5.2 percent of total imports. By 2001 Jamaican exports to the region declined to 4.1 percent and imports from CARICOM were a substantial 12.7 percent.

Further, between 1995 and 2010, a period fully covered by the CSME, Jamaica’s trade balance with Trinidad & Tobago deteriorated by 295 percent while the balance between Trinidad & Tobago and Jamaica increased by 268 percent. The fact that Jamaica’s decline was virtually Trinidad & Tobago’s gain is considered by many to be just cause to insist that something should be done to reduce the imbalance. Indeed, during my term in office as prime minister in the 1980s, when the shoe was on the other foot and Trinidad & Tobago was in deficit with Jamaica, I was approached by the financial secretary of the Government of Trinidad & Tobago, while we were both at a conference in Barbados, to determine whether Jamaica could find a way to ease the problem of that country. Realizing that Trinidad & Tobago was a valuable importer of Jamaican exports and supplier of oil, I responded positively to improve the balance.

There is a justifiable feeling that Trinidad & Tobago should make a similar concession, perhaps by a special agreement on a discounted price for oil which could be passed through to exporters as an export rebate until the energy problem in Jamaica is overcome. After all, without a Jamaican market Trinidad & Tobago’s CARICOM trade would be reduced to virtually nil. This is a trump card that Bustamante would have played; he would so shake up the CARICOM system that we would stop talking the talk and walk the walk.

This, however, would only amount to temporary assistance. There must be a deeper probe to determine why this anemic performance occurs.

Over the 30 years of CARICOM trade Jamaica has moved from being a net exporter to a net importer. This weak export performance is at the heart of queries now being raised as to whether Jamaica can overcome its weak export record and, if not, whether there is any purpose in extending its CARICOM involvement in the CSME.

The reason for this listless performance is not to be found in any lack of product acceptance by consumers. In a region where the producing countries carry much the same lines of production, preference is largely driven by competitive pricing.

Trade Gap

Studies have found that the main contributors to the lack of price competitiveness in Jamaican exports are low productivity arising largely out of:

 • Inadequate skills; and
 • Macroeconomic instability.

Productivity, though of great importance as an underlying factor, is an index insufficiently used in assessing economic growth and performance.

In a study of 10 countries by the Jamaica Promotions Ltd (JAMPRO) on the apparel industry, the downplaying of productivity measurements was eloquently stated:

“Despite the rhetoric about productivity, the country has not captivated the concept through measurement and procedures. Official statistics and publications, private and public, do not feature it. Hence, there is no imbibing of it by the general community, no utilization in policy pronouncements, no inclusion of it in training and education programmes, and no reference to it in organisation and industry planning.”

One of the principal reasons for the negative movement of Jamaican productivity was that over the 34-year period 1973-2007, labor productivity or output per Jamaican worker declined at an average annual rate of 1.3 percent. This was attributed to output growing at a slower pace than employment. On average, output increased by 0.5 percent annually while unemployment advanced 1.8 percent annually. Today’s marginal growth rate of the economy is even more swallowed up by rising employment. More broadly, there is no evident culture of productivity.

Hence, Jamaica lags behind other countries. Jamaican exports are priced out of the market and domestic production is unable to adequately compete against imports, while neighboring and other countries with lesser potential lead the way.

This is not a viable scenario for participation in the CSME. Current conditions of economic frailty and barely evident prospects for overcoming non-competitive performance will expose the Jamaican economy to still greater displacement of local production, with no greater ability to expand Jamaican exports. The trade gap will widen and the economy will worsen further with involvement in the CSME under these conditions.

From the Jamaican perspective, the question must be asked: is the CSME to be abandoned, or is there room to improve productivity and competitiveness of Jamaican production to make participation worthwhile?

Productivity is a measurement, not a function. It is the thermometer that measures the state of a critical aspect of economic health. As a measurement, productivity per se is not the source of the problems which ail the economy. The source lies with the different inputs which impact on the functioning of the economy. Chief among these are:

 • Human resource capability; and
 • Macroeconomic stability.

These are two all-embracing categories of inputs that greatly affect productivity and costs.

The impact of human resources and macroeconomic stability on productivity must be analyzed to determine whether there is room for the improvement necessary to sufficiently redeem the weak export performance of the Jamaican economy, in order to justify participation in the Caribbean Single Market and Economy.

Human capital formation is a critical link in the production process. The education system, in particular, provides the training ground for skills to improve productivity.

Some of the embarrassingly weak performances of the education system will assist in reminding the authorities of the risks to which the country is exposed and the charge they bear to prevent further failure.

The record of depressing performance can be illustrated by those areas which impact most directly on production. According to the Ministry of Education:

 • About a third of the children leave the early childhood system not ready for primary learning;
 • Forty percent of the students who enter high school at grade 7 perform below their grade level;
 • A 5th of the secondary cohort drop out by grade 9, and of those that make it to grade 11, only 50 percent sit 5 subjects at the Caribbean Secondary Educations Certificate (CXC) exams;
 • Of the 50 percent who did the CXC exams in 2012, only 52 percent passed English, and 38 percent, math.
 • 75 percent of the youngsters who seek entry into the institutions for vocational skills run by the training agency HEART cannot get acceptance, because of their low levels of literacy and numeracy.”

Little wonder that Jamaica ranks 3rd-lowest on ratings in vital areas of the education system (the statistical database of UNESCO for the region ranks Jamaica 3rd-lowest in literacy at 79.9 percent.

It is not only the dismal performance of the sector which matters in regard to productivity. The sector is itself a misfit in the society, producing at one end 70 percent school leavers with no skills at all, and at the other end 80 per cent of university graduates who, according to a World Bank report, live abroad.

Surely little more need be said to confirm that the development of human resources in Jamaica, particularly the education system, is not benefiting the drive to prepare the economy for the demands of the competitive regional environment of the CSME, much less global trade.

Here again, Jamaica is at a grave disadvantage in the regional setting. The education system, as it currently stands, is not geared to lifting productivity and improving competitiveness in the marketing of Jamaican goods and services and, from the lack of priority the sector is receiving, this condition will likely continue to prevail.

Monetary Union

To facilitate trade and investment in the CSME, it is proposed that a Caribbean Monetary Union (CMU) be established within the framework of the Caribbean Single Market and Economy. The CMU would be regulated by a Caribbean Monetary Authority (CMA). This concept originated among regional central banks in 1990, with a target date for implementation in 2000.

Central to the concept of a monetary union is the creation of a single Caribbean currency to replace regional currencies.

The criteria framed for participation in the CMU require member countries to maintain a minimum of:

 (1) Three months’ import cover in foreign exchange reserves for at least 12 months;
 (2) A stable exchange rate against the US dollar for 36 months;
 (3) An external debt service ratio of no more than 15 percent of the value of exports.

Perhaps only a couple of the proposed participating countries in the CMU could meet all these criteria.

A 2nd reason for a CMU is that the CMA would be introduced as a regional monetary institution to administer a fixed exchange rate regime with a single currency. This would enable monetary and fiscal stability to be established for the region. But with the exception of Jamaica, Guyana, Haiti, Suriname and possibly Trinidad & Tobago, this macro-stability already exists, based on the fixed exchange rate of the OECS countries.

What incentive would exist then for these stable economies to be involved in a CMU which offers nothing better than what they have already achieved? Worse yet, the distinct possibility of weakening their own macro-credibility, by involvement with the instability of Jamaica, Guyana, Haiti, and Suriname, which would be a great threat?

On the basis of the above criteria of lack of productivity, a dysfunctional education system, and monetary policy which is discordant, Jamaica cannot benefit from the Caricom/CSME regime. However, to reach a definite conclusion on such a project, it would be better to have a proper study done, using the most up-to-date figures, to determine whether any benefit does exist.

Edward Seaga is a former Prime Minister of Jamaica