Free trade and its effects on the Guyana economy
May 30, 2000
Remarks by Ambassador Odeen Ishmael at the `Guyana Independence Forum' held in Toronto on May 19, 2000
Mr Chairman, Ladies and Gentlemen,
I wish to deal specifically with the issue of free trade and how it affects us or will affect Guyana and the countries of the Caribbean region.
As you are aware, Guyana along with 33 other countries of this hemisphere are committed to the establishment of the Free Trade Area of the Americas by the year 2005.
In all these countries, particularly the ones in the Caribbean and Central America, there is now an on-going debate as to whether or not free trade will bring any benefits for these smaller economies.
What we have to agree with is the fact that a free trade area involving almost the entire hemisphere will open a vast market for our products and we have to be prepared to take advantage of this opportunity when it eventually arrives.
The smaller economies, like Guyana, obviously have some clear disadvantages which can work against them in any free trade arrangement.
In the first place, they have very few products to export; at the same time there are also very few markets for those products.
Further, these economies have a collection of small firms which cannot practise economy of scale and scope. These small firms compete at a clear disadvantage with large firms on the international market.
As a matter of interest, it is worthy of note that the largest firm in the USA is more than 300 times larger than the largest firm in Guyana. And the revenues of the largest US firm are larger than the Gross Domestic Product of all the CARICOM countries put together.
Already certain aspects of free trade under World Trade Organisation rules are already in place.
But this increasing liberalisation of international trade has only increased the gap between the rich and poor countries.
Obviously, this growing liberalisation of free trade has not benefited all countries. So far, small countries with small economies have managed to survive because of preferential treatment of their export products. For example, Guyana has a preferential sugar market in the European Union, but very soon the rules will be changed to force us to compete in this very same market without any preferential treatment. And we will have to compete with a number of larger and richer countries.
As you also know, the banana producing countries of the Caribbean which have only a 3 per cent share in the world market are now having their preferential market in Europe threatened by the United States and a few other Latin American countries which are saying that the WTO rules do not allow for any preferential market arrangement.
So the preferential markets that we in the Caribbean have enjoyed for decades are now being threatened by the growing globalisation and trade liberalisation trend. The countries which object to our preferential market arrangement do not bother to think that if we lose those markets how much our people will suffer, and what can be the social, economic and political repercussions which can result.
With preferential markets threatened, both the private and public sectors in Caribbean countries will be forced to diversify their production, and in the initial period, there may be a displacement of labour through lay-offs. This can eventually lead to labour disputes since trade unionism is a very strong force in our region, and since trade unionism and politics are historically closely connected, both the economic and political security of the smaller economies may be threatened.
While we cannot stand alone and isolate ourselves, we have to insist that we must have fair trade as well. How can this fair trade come about?
Smaller economies must be provided with facilities to improve their circumstances. There must be an expansion of special and differential treatment for our export products and such treatment must be expanded to take advantage of differences in size of the smaller economies.
When the FTAA eventually comes into being, the smaller economies must be granted certain exemptions and concessions and a longer adjustment period to meet the necessary requirements.
We also need technical assistance from the larger and more advanced economies. There must be special loan facilities offered by the multilateral financial institutions for small firms and small economies.
I am of a firm opinion that the more advanced economies will also benefit from such arrangements. As the smaller economies improve their economic base and infrastructure, the standard of living will improve and the people will demand more and more consumer products manufactured in the more advanced economies. A win-win situation will therefore be created.
It is of great importance that trade must be related to debt cancellation. When we sell our products we use much of the revenue to service existing external debt. Therefore, we must continue to press demands for debt cancellation and debt relief.
As I mentioned earlier, globalisation and liberalisation processes are dismantling existing trade barriers and threatening preferential market arrangements.
For Guyana, the costs are real since about two thirds of its exports and foreign exchange earnings, and a third of its labour force benefit from existing preferential trade arrangements.
Increasing trade liberalisation now causes cheaper products to find their way much easier to the countries of the Caribbean region, and in this way making it easy for the transfer of labour skills across national frontiers.
While cheaper goods are welcomed by the consumers, local small firms which are producing goods face great difficulty to compete against this flood of cheaper foreign goods and some are being forced out of business and thus throwing workers out of their jobs.
Additionally, Guyana has not been helped much by developments in commodity markets. As producers and exporters of primary commodities, Guyana has no control over the prices of her exports. Rapid decline in commodity prices in the last two years has greatly exposed the vulnerability of the economy.
Falling prices for gold and bauxite, two of Guyana's main commodities, have in turn led to reduced production, thus affecting employment also.
At the domestic level, many companies are experiencing economic pressures, the cost of capital is high, quality standards of products and packaging are generally poor, and because of inadequate planning some companies have not been able to meet their supply quotas.
The next decade will present serious economic challenges to the smaller economies of the hemisphere particularly those of the Caribbean and Central America.
The larger economies cannot wish away the problems that free trade will present to the smaller economies, since these problems will eventually migrate to these larger economies. Therefore, the Free Trade Area of the Americas (FTAA) must establish a facility to provide economic assistance to Guyana and the other smaller economies as they move into a hemispheric free trade agreement.
The FTAA will bring together the largest and smallest economies in the world. It will be driven by private business people seeking to maximise shareholders' profit in the global environment. Trade and investment will gravitate to and polarise in the centres and countries of greatest profitability.
It is clear that the benefits of regional free trade cannot realistically come without certain costs. It has been proven that smaller economies have a disadvantage in an atmosphere of completely free trade. The significant disparities in the size and strength of the economies of the nations of the Americas make this a problem that must be considered by the smaller economies before undertaking the decisive move into the hemispheric free trade area.
While free trade can bring with it significant benefits, it could be disastrous for the smaller economies if integration issues are not properly addressed. One of the main mechanisms to facilitate integration is that of an independent Regional Integration Fund (RIF), first proposed at the Miami Summit by the late Dr. Cheddi Jagan, President of Guyana. This proposal had since been endorsed by the CARICOM countries. A number of other countries in Central America and South America have also expressed support in principle for the idea.
The FTAA should establish the Regional Integration Fund to help handle the difficulties of this transition, which involves extremely significant disparities. The costs for such a fund will be minimal. The benefits will also be many. For the United States, for example, free trade means more jobs, more wealth, and overall, a more robust American economy. The European Union is also reaping benefits as its own free trade process develops.
The Regional Integration Fund is not a completely new idea. Similar funds were set up to accompany the integration of European Union (EU). The four Structural Funds include the European Regional Development Fund, the European Social Funds, the European Agricultural Guidance Fund and the Financial Instrument for Fisheries Guidance.
It is important to note, however, that although we can look to the experiences of the European Union for some evaluation of what integration issues need to be addressed, we must bear in mind that the disparities have been far smaller for the Europeans.
The problem areas for the FTAA are much more urgent should we wish to pursue an effective free trade policy for the hemisphere. All the greater, then, is the need for the Regional Integration Fund.
The general purpose of such a Fund is to make it available to the smaller economies to help them develop their infrastructure and productive base. This will help to level the playing field in order to enable these countries to better compete in the free trade arrangement.
The most pressing and most widely recognised problem in the smaller economies is underdevelopment. Assistance with two areas of development will provide a considerable boost to the smaller economies.
With time, the positive effects of this economic growth will provide benefits for North American businesses with enhanced opportunities for trade and investment in the smaller economies.
The first area of development is infrastructural development. This is essential to the economic prospects of the smaller economies. Funding infrastructural development, including development of telecommunications infrastructure, will provide a foundation for extra-regional investment opportunities in the smaller economies.
The second area, also fundamental to these economies, is human resource and technological development. As with infrastructure development, this is a basic area of development which can propel the smaller economies to a more competitive level. The positive economic benefits, too, will be felt throughout the hemisphere.
The advantages of providing funding for development, then, are manifold. First, the funding will spur economic growth within the individual countries, which will indirectly benefit the other FTAA participants.
Second, the human resource, technology, and infrastructural development will all provide better opportunities for North American investors in the smaller economies. Finally, the economic growth provided by the RIF could relieve pressure on US and other bilateral aid over the long run.
One key requirement of financial assistance is the uniqueness of the facility through which it is distributed. A hemispheric problem cannot properly be addressed through globally-oriented financial institutions. The intended functions of the existing facilities must be examined. They fail to address financial issues from a Western Hemispheric perspective, as they were designed in the context of worldwide lending.
Integration into the FTAA is a region-specific issue which most of the current institutions, by their very nature, cannot address.
The Asian financial crisis of 1997 has done much to stretch thin the budgets of the major international financial institutions. The limited resources of these institutions and the vulnerability of the smaller economies demonstrate the need for the Regional Integration Fund which can be funded by FTAA member states or even private institutions.
This Fund can help to stabilise the economic disparities of the region, and should another crisis hit, it will be the best way to adapt the integration process to the new financial climate, without the baggage of dependency on any globally-oriented financial institutions. Of great importance to note is that this Fund will certainly help to boost investment and economic development in Guyana and the Caribbean region since small and large investors will have access to it.
As Guyana and the other smaller economies move into the FTAA, they will experience great difficulty in participating without guaranteed financial assistance to help with the transition. If there is no economic assistance, as envisaged in the proposed Regional Integration Fund, they will be forced to participate at a cost not only to their own economy, but to those of the rest of the hemisphere as well.
This will be one of the major challenges facing Guyana and other CARICOM countries in the next few years.
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