Facing the challenges:
Preparing for the opportunities
By Clement Rohee
Minister of Foreign Trade and International Development
May 13, 2001
THE notion that all are gainers and none are losers with free trade has been proved overly simplistic.
At the same time, it is relatively true that economic growth and prosperity can accrue from free trade, but a country must have the capacity to take advantage of the opportunities, if not those opportunities will remain illusive and mere academic postulations.
Take Guyana for example. We account for only a minuscule part of world trade. However, changes in demand for, or prices of our export commodities or a policy of rapidly reducing our export duties can have major economic and social repercussions on our economy.
Moreover, while Guyana has a marginal role to play in world trade, the latter has a major effect on it and obviously, a far larger effect than it would have on any industrialized state.
But the buck does not stop there. A fundamental and over-arching prerequisite to gain the necessary economic growth and prosperity flowing from free trade is political stability. Without political stability the country is doomed.
I have often wondered whether those who were once belching "mo fyah" ever thought about the incalculable damage their actions have caused in the short, medium and long term regarding the prospects of attracting urgently needed investments to Guyana. Such investments are critical if we are to expand the enterprise capacity of the country, facilitate more exports, earn more foreign exchange and, above all, create more jobs.
Unlike the United States where political turmoil in Cincinnati would not have the same impact on the US economy as political turmoil in Georgetown would have here in Guyana, that alone, is the raison d'etre why small economies like Guyana with so many global challenges can ill afford such violent interruptions in their day to day lives. These developments, among others, certainly undermine Guyana's chances of getting FTAA-ready. This apart, we've also heard the view that: "with Guyana having so little world class products to export the gains accruing from membership of the FTAA will not materialize for a considerable time".
Further, it was also suggested that the Government of Guyana "seems irrevocably committed to membership in the FTAA..."
The real question is, what is the alternative?
Actually, there is no other option available to us and the strategy is quite straight-forward; we have to fight the battle on two fronts viz; on the domestic front by putting our house in order and simultaneously, on the international, first by getting what suits us best onto the negotiating table, and second, by getting what we want agreed to by all and enshrined in the final text of the Agreement. In essence, what we want is not only free trade but fair trade.
Let's deal with the first line of action viz; getting FTAA-ready.
The National Development Strategy posits "Overall, a Western Hemispheric Free Trade Agreement (meaning the FTAA) would be of net benefit to the region, particularly those economies with a stronger macro-economic environment, sufficient infrastructure and entrepreneurial dynamism"
This is the first challenge we as a Nation and the rest of the Caribbean Community have to grapple with.
The CARIFTA/CARICOM regional integration model was patterned after the Latin American Free Trade Area (LAFTA), the Central American Common Market, (CACM), the European Free Trade Area (FTAA) and the European Economic Community. Now our community is faced with the FTAA which requires reciprocity.
Of importance to note is the fact that regional trade between CARICOM States remains very small (in net value added terms probably not more than 5-6 per cent of the total trade) and is hardly increasing. However, trade with other parts of the world has increased at a significantly faster pace.
If the Region's productive sector is to assume a position of influence in the global economy, CARICOM's industries must seek to match both the productivity and the competitiveness of the extra-regional productive sectors.
Let's face it, in a competitive international environment, there is simply no other way. At the sametime, if we are to compete effectively, it is not too late for the region to undertake a fundamental re-assessment of its productive sector with a view to determining its comparative strengths and weaknesses. Such an assessment may result, for example in agreement on the need to locate new industries on the basis of territorial specialisation which may offer significant comparative advantage. Guyana is a case in point where agro-industry, as well as down-stream, forest originating manufacturing and other natural resource-based industries can be assigned.
As we work to overcome these challenges we need to bear in mind the fact that a major problem faced by countries such as ours is that while we may be able to control the pace by which we liberalise our imports, we cannot in reality determine how fast our exports can grow.
The point is that export performance partly depends on the prices of the existing exported products and also in having or developing the infrastructure, human and enterprise capacity for new exports. There is also the key question of market access. The fact is that the developed countries still maintain tariff and non-tariff barriers in sectors such as textiles and manufactured products not to mention the hefty subsidies being doled out to the agricultural sector.
That is yet another major battle that has to be fought.
This brings me to the importance of international trade for Guyana. According to the National Development Strategy, "International trade is a core activity of the economy and therefore the steps that are required to support its further development are far reaching and diverse". The document goes on to recommend 13 principal measures that should be implemented to facilitate this "further development". They are:
1: "narrow the range of nominal tariffs adopting as a goal a range of five to 15 per cent. Agricultural tariffs that correspond to CARICOM's ceiling should be reduced from their currently high level of 40 per cent."
2: eliminate exemptions and move the minimum rate initially to three per cent and eventually to five per cent
3: eliminate tax holidays of other kinds and apply standard tax regimes to further move towards relatively uniform rates of effective production over different classes of producers;
4: eliminate the remaining quantitative import restrictions including licensing on specific goods such as fuel.
5: remove export taxes. They are counter-productive to export production and encourage evasion.
6: adopt policies that guarantee maintenance of an exchange rate that is propitious for exports and also for import substitution.
7: ensure a system of agricultural research;
8: eliminate government's marketing intervention for timber;
9: carry out the suggested restructuring and participatory privatisation of the sugar industry;
10: encourage international enterprises involved in the marketing of non-traditional products;
11: restructure G0-Invest
12: create a tripartite TVET and use of a payroll tax for funding training activities
13: Institute Export Processing Zones;
There is also a need to reduce dependence on imported inputs such as fuel. In this regard, the benefits that can flow from a negotiated Guyana/Venezuela Energy Agreement could contribute to a significant reduction in production costs of our exports.
And a solution to the maritime dispute between Guyana and Suriname based on the principles of law and equity and the Convention of the Law of the Sea should be expedited so as to allow speedy access to hydrocarbon resources within the disputed area.
The reduction in internal transport costs can also be a key factor in improving the competitiveness of prices of our exports. That is why the construction of the bridge across the Berbice river and a deep water harbour as well as the road to Brazil are critical to Guyana's economic growth and expansion of its international trade. As regards the issue of competitiveness, the National Development Strategy recognizes that for:
"Guyana as an export economy, maintaining our competitiveness is vital to our survival thus the need
for a policy framework that aids competitiveness".
However, measures aimed at improving our competitiveness cannot be taken into isolation from diversification which is critical for accelerated growth.
In this connection, an end to the GT&T monopoly to free up the telecommunications sector is of utmost importance.
According to the National Development Strategy; Guyana has a comparative advantage and the capacity to produce and export a number of products at competitive rates in the following non-traditional sectors and sub-sectors. These include:-
- semi-precious stones
- agro processing
- deep sea and cultivated prawns
- wood products
- fabricated houses
- handles, veneers, hardboards and match sticks
- meat and meat products
- leather, textiles and packaging products
Now the question arises as to whether Guyana is `FTAA-ready', but as already pointed out, because some countries have huge internal markets, as well as the technological, industrial and human resources wherewithal which enables them to take advantage of the FTAA there are other countries who, would be unable to do so due to a combination of disadvantages. This implies that some countries will be ready and others not to join up-front the hemispheric free trade arrangement. In fact, what has actually emerged are two types of criteria for membership;
a: eligibility - to participate in the current negotiations on the treaty;
b: readiness - to benefit from the treaty;
Guyana by virtue of its participation in the current negotiations is obviously eligible, but it does not follow ipso facto that it is FTAA-ready.
`Readiness', is a somewhat abstract notion, and in view of what was said earlier, the notion seems to imply that potential beneficiary countries must have in place the following measures:-
a: stability of prices
b: strong fiscal discipline
c: external debt within manageable proportions
d: a stable exchange rate
e: market oriented policies
f: less dependence on foreign trade taxes
g: a strong and functioning democracy
Other variables that should be taken into consideration are: endowment of human and natural resources, as well as infrastructural capacity. Some of these indicators, it will be observed, reflect structural and institutional aspects of the economies that could be deemed `FTAA- ready'. But for those who are not ready, any attempt to tinker with these elements could prove harmful especially if the country's level of socio-politico, cultural and economic development is not taken into consideration.
With this in mind, it is clear that actual signing on to the FTAA Agreement will be a major policy decision for the small economies in the Caribbean, Guyana included.
But there is yet another dimension to our dilemma. It has to do with access to finances for development.
International trade must be viewed as a vehicle for development with a human face and for growth with equity. However, when our inherited production structures face the vagaries of free trade such as increasing competition and the demands of new non-traditional markets but cannot transform overnight; to take advantage of the new opportunities and challenges, we need help. It was in recognition of the inextricable link between trade and development that Guyana came forward with the idea of a Regional Integration Fund (RIF) as a sine qua non for the successful realisation of the FTAA.
The proposal advanced by the late Cheddi Jagan at the 1st Summit of the Americas held in Miami in 1994 was timely and constructive.
It takes into consideration that the FTAA does not offer a safety net as is the case with the European Union. The latter provides for free movement not only of capital and goods but also of people. Moreover, for the Union's poorest members: Greece, Spain, Portugal and Ireland the Development and Structural Funds were established to raise their per capita income to at least the level of 68 per cent of the Union=s average income in 1988.
These countries per capita income has now climbed to 79 per cent of the EU's average income in 1999.
The specific objectives of the RIF are to:
a: strengthen and diversify the productive base of the smaller economies through the promotion and facilitation of enterprise development and private sector participation;
b: foster infrastructure development;
c: encourage human resource development and the the application of science and technology to the production process;
d: enhance the competitive capacity of the smaller and weak economies and facilitate access of their goods and services to the markets of the FTAA countries.
While some observers have cautioned about drawing parallels with the EU's experience, they nevertheless agree that the proposal should be discussed within the FTAA. Today, a hemispheric consensus has emerged on the proposal and many Latin American Leaders are now seeing how critically important it is to have such a facility in place. To those who raise questions about where is the money to come from it is the view of many FTAA countries that fresh financial resources should be made available from the Inter American Development Bank on terms and conditions worked out and agreed upon by Governments of participating countries.
Our main objective is to push for the acceptance of the proposal by all the stake-holders in the FTAA-process
We are making much headway in this direction. Pronouncements by the key players at the Quebec Summit clearly indicate that Guyana is on the right track.
Actions required to advance the "further development" of international trade places a heavy responsibility on the recently created Ministry of Foreign Trade and International Cooperation.
If this Ministry is to deliver and avoid becoming a glorified outfit engaging only in the advocacy of economic diplomacy and the formulation and implementation of trade policy, but doing little in concrete terms to bring about the further development and enhancement of international trade jointly with the private sector then, it will certainly leave much to be desired.
The Ministry of Foreign Trade and International Cooperation must adopt a pro-active approach to these matters while at the sametime building institutional capacity to undertake the highly complex and complicated external negotiations currently taking place at different levels.
The Ministry will have to ensure that at the highest political and inter-agency levels there is close coordination, consultations and cooperation.
In this regard, the establishment of a permanent Advisory Body which will include representatives of the Private Sector as well as the creation of a Chamber of Foreign Trade can assist considerably in ensuring the effective translation of trade policy and the further development of international trade into material benefits and for the all-round improvement of the well being of all Guyanese.