Strengthening Caribbean Regional Integration

IMF News, February 4, 2020

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Improving regional integration in the Caribbean can help the region’s small-size economies build greater resilience and scale, as well as enhance bargaining power on the global stage.
The Caribbean economies have long recognized the value of working together; improving regional integration—for instance, through more intraregional trade and policy coordination—can deliver these benefits.
Recent IMF research finds that further liberalizing trade and labor mobility in the region can generate significant economic benefits—potentially over 7 percent of the region’s GDP in 2018.

Compared to other well-integrated regions, like the ECCU and EU, the Caribbean lags.
Integration indices suggest Caribbean community’s integration has proceeded in several waves, with periods of integration followed by slowdowns in progress.
Remaining challenges include removing tariff and non-tariff barriers to trade and constraints on intraregional labor movement.
Financial integration has proceeded faster with tightly-interconnected financial systems across the region, but capital markets remain underdeveloped and fragmented.
Harmonizing economic and structural policies to support a single economic space is still work in progress, with lacking harmonization and coordination of investment codes, tax incentives, and macroeconomic policies.

Institutional, political economy, and structural factors underlie slow implementation of integration policies.
Lack of a regional body with powers and accountability to transform community decisions into binding laws in individual jurisdictions is a key impediment.
Decision-making based on the unanimity principle, where each member retains sovereign authority, hinders progress.
Cooperation must rely on well-aligned national interests and shared goals, but national incentives are not well-aligned: potential benefits are perceived by some as uncertain, potentially uneven, and only materializing over a long horizon.
Differing export/production structures and income and development levels make harmonization of policies challenging.
Some regional authorities attribute slow pace to a “crisis of will,” duplication, slow harmonization of legal and institutional frameworks, and binding resource/capacity gaps.

Further liberalization of trade and greater labor mobility within the region can generate significant benefits.
A 25-percent reduction in non-tariff barriers and trade costs within CARICOM and vis-à-vis non-CARICOM trade partners can:
- boost trade and improve welfare gain for all members—at about $6 billion, or 7.6 percent of the region’s GDP in 2018;
- help restructure economies from contracting to expanding sectors, resulting in a net employment gain across the region.

Greater cooperation is the key to furthering regional integration in the Caribbean.
Regional integration should be a means to deepen Caribbean integration into the global economy, not an end in itself.
At a time when momentum for economic integration seems to have stalled, close cooperation in high priority areas can demonstrate benefits and serve as building blocks toward full integration.
Key areas could include:
- Addressing impediments to institutional integration by harmonizing and rationalizing institutions and processes across the region and resolving resource/capacity constraints;
- Facilitating an equitable distribution of benefits through well-structured, adequately-resourced mechanisms to help realign national and regional interests;
- Enhancing functional policy coordination in areas of common challenges, including building climate resilience, containing violent crime, and coordinating tax policies and systems to limit harmful competition;
- Ensuring financial stability in an increasingly more interconnected financial system.

The Caribbean Community (CARICOM) is comprised of twenty countries (fifteen Member States and five Associate Members), mostly island states in the Caribbean stretching from the Bahamas in the north to Suriname and Guyana in South America.
It was established by the English-speaking parts of the Caribbean in 1973 with the primary objectives to promote economic integration and cooperation among its members, ensure that the benefits of integration are equitably shared, and coordinate foreign policy.
CARICOM is the oldest existing integration movement in the developing world.

Source: Strengthening Caribbean Regional Integration, IMF News, By Ding Ding and Inci Otker, February 4, 2020.