The Role
of Caribbean Export Development Agency in Preparing for Free
Trade Agreements (FTA) Negotiations.
Dr. Arnold Mc Intyre
Programme Manager
Caribbean Export Development Agency (CEDA)
Paper to be presented at the Colloquium
Entitled "Diplomacy After 2000: Small States and
negotiating Space in the New International Trading Environment"
and organised by the Institute of International Relations, UWI for the 8th and 9th of
October 1996.
1. Introduction
2. Caribbean Export In The FTA Negotiations
2.1 Trade Information
Support
2.2 Private Sector
Involvement
3. Identifying The
Trade Facilitating Arrangements
3.1 Transportation
3.2 Trade
Financing/Clearing Arrangements
3.3 Market Entry
Strategies
3.4 Private Sector
Alliances
4. End Notes
5. Bibliography
1. Introduction
The rapid pace of technological change and increased capital
mobility has stimulated a process of globalization which has
encouraged firms to locate the production process across
countries to take advantage of differences in comparative
advantage. To facilitate this process countries have attempted to
widen their economic space beyond national boundaries via the
removal of all restrictions on trade and investment. The clearest
manifestation of this is the proliferation in Free Trade
Agreements (FTAs) between countries (developed and developing)
particularly the emergence of large trading blocs e.g. The
European Single Market and the North American Free Trade
Agreement. The process has been given further impetus by the
recent efforts at hemispheric integration in the creation of a
Free Trade Area of the Americas (FTAA) by 2005.
The clear implication of these developments is that small
developing countries will have to restructure their international
economic relations via the negotiation of FTA's. In the case of
the Caribbean countries this would imply participation in the
FTAA process and negotiation of FTA's with sub-regional groupings
e.g. MERCOSUR. In many instances, Caribbean countries will be
negotiating FTAs with countries with whom trade flows are
negligible. Signing the FTA will not accelerate trade flows, it
is the creation of facilitating conditions that would encourage
increased trade.
Caribbean Export (CE) can provide vital assistance in the
actual process of negotiations, particularly in trade information
support, and coordinating private sector involvement. However,
the more important role for Caribbean export is in identifying
the facilitating conditions that must be put in place to
encourage trade expansion e.g. transportation and marketing
arrangements.
Section 2 of the Paper addresses the key role Caribbean Export can play in assisting Caribbean countries in the actual process of negotiations. In Section 3 the role CE can play in putting in place the trade facilitating conditions to support FTAs is discussed.
2. Caribbean Export in the
FTA Negotiations
In the process of FTA negotiations Caribbean Export can provide policy guidance or technical assistance to Caribbean countries. Given Caribbean Export's recognized capability in trade information services and its close relationship with the exporting Community in the CARIFORUM it can provide assistance in two critical areas: trade information support to the negotiating team and coordinating private sector involvement in the negotiation process.
2. 1 Trade Information
Support
The negotiation of an FTA is an information intensive activity
and requires a variety of information inputs, particularly trade
information. Trade information inputs range from the basic trade
data e.g. aggregate export and import data to detailed
information on exports and likely "sensitive" products.
Caribbean Export has developed a computerized trade
information network (CARTIS) with a wide range of trade and
market information. First, the CARTIS company database contains
detailed profiles of at least 3,000 Caribbean exporters and
importers. Secondly, CARTIS maintains a computerized database of
regional import/export trade statistics. Data reflecting the
latest three-year trade figures for at least 150 frequently
traded products is maintained. Thirdly, information on the import
regulations and procedures in CARICOM countries is also available
in CARTIS.1
The range of trade information provided by CARTIS would assist
negotiators in developing a negotiating strategy on market access
arrangements. First, the range of products for which there is no
domestic (regional) production would provide the basis for
identifying the list of products for free trade in a FTA.
Secondly, the trade data and information on exporters would help
to develop the list of "sensitive" products that would
not be provided with immediate duty-free access. In addition, the
'phase-in' periods for the "sensitive" products could
be developed with the assistance of Caribbean Export's trade data
and detailed knowledge of the export capability in the Region.
A critical issue in FTAs is the treatment of Non-tariff barriers (NTBs). The trade expansion stimulated by the removal of tariffs could be constrained by the use of NTBs. Caribbean Export has a database of information on NTBs in CARICOM and is beginning to develop data on the Dominican Republic, Haiti and other export markets e.g. Cuba. In this regard, Caribbean Export can provide on-going policy guidance to regional trade officials on developments in the market place and the use of NTBs against Caribbean exports by their FTA partners. In many instances, there is discriminatory use of NTBs by partners in an FTA and it requires detailed knowledge of the market and close contact with exporters to develop a case against trading partners for applying NTB's in a discriminatory manner. Caribbean Export is well placed to assist Member States in the Caribbean in developing cases against trading partners. This is necessary to ensure that free and fair trade is developed and practised in an FTA.
2.2 Private Sector Involvement
Traditionally, negotiation on FTAS were conducted largely by
Government officials with inputs from Consultants and other
specialists. The private sector or business community had a
limited role in the preparatory and actual negotiation process.
This was a fundamental weakness in the process, particularly
between countries who had negligible trade flows, as there was no
clear understanding by private business what the possible
opportunities to be derived from an FTA would be and what the
policy and institutional difficulties could be in expanding
trade. For these and other reasons trade flows resulting from
FTAs, particularly between developing countries, with no
established trading patterns, have been disappointing e.g.
CARICOM/Venezuela and CARICOM/Colombia.2
More recently, developed and developing countries have
collaborated very closely with the business community in the
preparations for and actual negotiations of FTAs. Caribbean
Export is the only regional institution that is attempting to
build comprehensive and sustainable relationships with the
Caribbean exporting community. By so doing, Caribbean Export is
developing an intimate knowledge of exporters and would probably
be well placed to coordinate the participation of exporters in
the preparation for and negotiation of FTAs.
For instance, in negotiating an FTA with Costa Rica it would be critical to have the input of exporters who do business with Costa Rica on market access arrangements, trade procedures and regulations. potential export areas, key private sector actors in Costa Rica, standards administration and a whole host of trade policy issues that are key to developing an effective negotiating strategy. Given the recent importance attached to FTAA negotiations, discussions with sub-regional groupings e.g. Association of Caribbean States (ACS) and other bilateral trade discussions increased collaboration with the private sector on these matters is an area in which Caribbean Export can provide immediate assistance.
3. Identifying the Trade
Facilitating Arrangements
The development of FTAs does not immediately result in an
expansion of trade between countries, particularly with countries
that do not have established trading patterns. To develop trading
relationships requires the putting in place of facilitating
arrangements e.g. transportation and trade financing/clearing
arrangements. Equally as important in the case of small
developing countries, is technical assistance in developing
market entry strategies for their exports. This requires intimate
knowledge of the "new" export markets and the export
capability of exporters. Caribbean Export can also provide
assistance on the 'supply' side to stimulate export expansion via
policy guidance on macroeconomic policy and in-plant technical
assistance to improve international competitiveness.
Given its work in export development and its knowledge of Caribbean exporters, Caribbean Export is well placed to advise Governments on the required policy and institutional arrangements that must be implemented to stimulate increased trade with partner countries in an FTA. To facilitate trade expansion via an FTA the following areas will require appropriate policies and institutional arrangements to be implemented:
3.1 Transportation
Transportation links are usually not well established for
countries that do not have developed trading relationships. It
requires detailed analysis to identify the cost-effective
transportation options for exporters so that trade flows can be
developed. Caribbean Export with its technical capability could
provide advice to exporters on possible transportation
arrangements in the "new" export markets resulting from
an FTA.
Given the difficulties that have been encountered by CARICOM exporters in exporting to Venezuela to take advantage of the CARICOM/Venezuela Agreement this is an important area of assistance that must be fully developed prior to the coming-on stream of the FTA. This is vital to the developmental impact of the FTA as transportation difficulties could undermine the attractiveness of the FTA to exporters.
3.2 Trade
Financing/Clearing Arrangements
In developing trading relationships with new trading partners
arrangements must be put in place for payments/clearance for
exporters. In facilitating Caribbean exporters in their business
activities with Cuba, Caribbean Export collaborated with Republic
Bank in Trinidad and Tobago in developing clearing arrangements
for exporters trading with Cuba. Prior to the recent arrangements
payments had to be cleared through a bank in a third country and
delays could be as long as one month. Having developed relations
with banks in Cuba, Republic Bank can now facilitate all
Caribbean exporters trading with Cuba via their local
correspondent banks.
As Caribbean countries attempt to deepen their trading relationships with other countries in the hemisphere, particularly with the non-English speaking Caribbean, efficient financing/clearing arrangements must be put in place. This is obviously a vital issue that must be resolved to ensure that trade can expand with the development of an FTA. Caribbean Export is well placed to provide policy advice to regional policymakers on the financing/clearing arrangements that must be developed to support an FTA.
Probably the most important form of assistance to exporters
seeking to take advantage of an FTA is technical assistance in
developing effective market entry strategies. To penetrate export
markets firms need to develop contacts with local distribution
networks. A lot of financial resources can be spent by firms in
an effort to influence local distributors to purchase their
product(s).
The establishment of contacts with local distributors can be
facilitated by an individual or institution that has an intimate
knowledge of the market and a good working relationship with key
private sector actors in the export market. Technical assistance
in this area requires that the institution solves the
informational problems of the firm by putting the firm in contact
with important buyers in the export market. This implies that the
institution providing the technical assistance has a good
reputation in the export market among the important
wholesalers/buyers.
Wade (1990) has clearly demonstrated how important Trading
Companies were in the expansion of East Asian exports,
particularly in the early stages of their export drive. Marketing
intermediaries or trade correspondents can play a similar role
for regional exporters. At present, Caribbean Export has trade
correspondents in the US, UK, Canada and Cuba who are providing
vital assistance to regional exporters seeking to penetrate the
Cuban export.
Although at present Caribbean Export is not set up as a trading company or marketing intermediary it can still provide assistance in developing marketing entry strategies for some export markets, particularly in the CARIFORUM Region (independent CARICOM States, Dominican Republic and Haiti). In addition, Caribbean Export's experience and expertise in this area would certainly be useful to Member States in developing and implementing policies and institutional arrangements to assist regional exporters in penetrating export markets resulting from an FTA.
Developing trade between trading partners with negligible
trade flows usually requires deepening the relationship between
the private sectors in the partner countries to the FTA3.In
many developing countries there are a variety of private sector
institutions, in the larger ones there are organized on a
regional as opposed to national basis, and it is important to
know what are the most influential institutions with whom to
establish strategic alliances. Caribbean Export can assist in
identifying the important private sector institutions for the
regional private sector to build links to foster business
relationships. It is the establishment of close business
relationships between the private sector's in partner countries
to an FTA that will facilitate increased trade between the
countries.
The identified assistance in developing facilitating
arrangements by Caribbean Export would help exporters penetrate
export markets created by an FTA. But Caribbean Export can also
provide vital assistance to help firms increase their overall
output. At the macro level, through a programme of trade advocacy
working closely with the public and private sectors Caribbean
Export can provide policy guidance on the appropriate
macroeconomic policy framework to promote international
competitiveness. This is absolutely essential as ill-conceived
macroeconomic policies can thwart genuine efforts by firms to
expand their exports.
In the contemporary environment, a related goal of trade
policy advocacy would have to be information dissemination on
hemispheric integration FTAA process) and the possible
opportunities and potential costs for Caribbean countries. This
would be specifically targeted at the private sector and would
help to deepen the private sectors understanding of the
hemispheric and regional integration processes. This would assist
firms in developing strategic plans, targeting new markets and/or
products as opportunities are created in the implementation of
FTAS.
To assist firms on the supply-side Caribbean Export also
provides valuable in-plant technical assistance. Specifically,
the forms of in-plant assistance provided by Caribbean Export
are:
Small Exporter Assistance
The Small Exporter Assistance Facility is designed to help
small regional companies which export, enter new markets and
maintain these markets. These companies can use the services of
Consultants where specialized technical expertise is required.
Companies could recover up to 65% or up to US$5,000 (whichever
is less) of the cost of implementing their export development
plans.
The export development plan should be designed to
significantly boost a company's exports.
Level of support
Under the facility, participating companies could qualify for
financial assistance of 65 per cent of eligible expenditures
incurred in implementing agreed export development plans.
Eligible Activities
In principle, any activity within a properly formulated export
development plan that is cost effective and leads to export
expansion will be eligible for support. The following list of
typical eligible activities is provided for guidance:
(a) Desk Research: As a means to direct field research
in most promising geographical areas and product market segments.
(b) Overseas Field Market Research: With the aim of
designing an export marketing strategy and which will include:
(I) which products are required; (ii) what are the channels of
distribution; (iii) who makes the purchasing decision; and (iv)
what factors affect this decision.
(c) Minor Product Packaging Adaptation: When market
research shows product adaptation to be justified, support may be
given for advisory and technical services in product re-design,
advice on packaging and product testing.
(d) Overseas Travel by Company Executives: Travel and
subsistence costs may be supported for purposes directly related
to the development or implementation of an export development
plan e-g (I) finding and appointing agents and distributors; (ii)
direct selling; and (iii) keeping up-to- date with product
developments. This activity may be supported only when travel is
directly related to a strategy based on adequate market research.
(e) Product Inspection and Testing Services:
(f) Training: To encourage a more informed, strategic
approach to export marketing and export procedures and financing
services. Support may be given to training in export marketing,
including: export marketing methods such as pricing, distribution
channels, and promotion methods; export market research;
organizing an export department; export financing arrangements;
and export procedures including support schemes, shipping and
forwarding
Eligible Export Development Plans
The plan should be designed to take a firm from its present
exporting situation to a future situation representing a
significant expansion in export performance. Normally, such a
plan would take the form of three distinct stages:
States (1): Market Exploration: An export development
plan should normally start with exploration of market
opportunities. Local desk work should firstly ascertain the most
suitable markets to visit and should determine:
(i) what similar products are being bough/imported;
(ii) what is the total volume and value of such purchases;
(iii) what are the conditions of access to the market (e.g.
preferential arrangements, tariff and non- tariff barriers such
as quotas, health and safety regulations, currency and payment
restrictions)
(iv) what are the channels of distribution;
(v) who makes the buying decision.
(v) what factors affect this decision.
This information from the market is then compared with the
firm's capability, not just in terms of product specification
itself but covering all aspects of the supply package, including
delivery times and reliability, maintenance of quality, speed of
response to letters, etc. This analysis leads into the next
stage.
Stage (2): Supply Package Adaptation: This stage
consists of a series of specific measures, which will upgrade
those supply package aspects highlighted in the first stage
analysis. The measures might, for instance, be in product
redesign, quality maintenance systems packaging, export office
efficiency, training of export staff, etc.
Stage (3) Sales Promotion : This third stage will only
begin once adequate progress has been made in adapting the supply
package, so as to meet market preferences. Firms which are
assessed as having met stages (I) and (2) prior to their
participation in the programme may also be eligible if they have
already been exporting related products to similar markets.
Activities directed specifically at achieving sales will take
place during this stage. They might include direct selling visits
by representatives of the firm, visits to appoint agents or
distributors, or participation in specialized trade fairs. Sales
promotion expenditures would need to be justified by evidence
that progress with adaptation had created a supply package
sufficiently in line with market preferences, as revealed by the
initial exploration.
Caribbean Export Assistance
The Facility will support larger enterprises which already
export outside of the Region and who wish to expand these
exports.
Companies can recover 50% (or maximum of US$10,000), of the
cost of implementing their export development plans.
To Qualify Companies must
- Be majority-owned by CARIFORUM nationals and their products
must already meet international standards, or can be made ready
to meet these standards with very little financial input and
technical assistance in order to enter export markets and satisfy
quality, quantity requirements, pricing, packaging and labeling.
- Have total annual sales of at least USS750,000.
- Have annual export sales (excluding intra-CARICOM sales) of at least 15% of total sales
or
Annual export sales (including intra-CARICOM sales) of greater
than 30% of total sales.
Level of support
Under the facility, participating companies could qualify for
financial assistance of 50 per cent of eligible expenditures
incurred in implementing agreed export development plans.
This facility is similar to the Small Exporter Assistance
facility in design and the only real difference is that it is
catering to the "larger" exporter.
ISO 9000 Assistance
The ISO 9000 Assistance Facility is designed to help exporters
implement the internationally accepted ISO 9000 quality standards
by achieving ISO 9000 certification.
Companies could recover up to 50% (or a maximum of USS10,000)
of the cost of implementing an ISO 9000 certification programme.
The certification programme must be designed so that
ultimately a company's operations adhere to the ISO quality
standard. The programme must specify the stages of work planned
and the expected benefits of the programme's implementation of
the firm's general performance, particularly its export
performance.
To Qualify Companies must
- Be majority-owned by CARIFORUM nationals and their products
must already meet international standards, or can be made ready
to meet these standards with very little financial input and
technical assistance in order to enter export markets and satisfy
quality, quantity requirements, pricing, packaging, and labeling.
- Have total annual sales of at least US$750,000.
- Have annual export sales (excluding intra-CARICOM sales) of
at least 15% of total sales.
Level of support
Under file facility, participating companies could quality for
financial assistance of 50 per cent of eligible expenditures
incurred in implementing agreed ISO 9000 certification
programmes.
Eligible Firms
Eligible firms shall be those involved in the export of
non-agricultural goods and services which are selected by
Caribbean Export to participate in the programme. Selection shall
be based on:
- recommendations of Caribbean Export's counterpart
institutions (Trade Promotions Organizations, Manufacturers
Associations etc) at the national level.
- the importance of ISO 9000 certification to the firm's
export competitiveness, and
- the value of annual export sales.
Eligible Activities
In principle, any activity within a properly formulated ISO
9000 certification programme (other than internal operational
activities) will be eligible for support. The following list of
typical eligible activities is provided for guidance:
(a) Retaining Quality Consultants and Technicians: To
assist company personnel in such tasks as:
- Assessment of existing quality management activities.
- Planning the ISO 9000 project.
- Preparation of procedures, work instructions and a quality
manual.
- Training of personnel in ISO 9000.
- Coordination of implementation activities.
- Conducting internal and pre-certification audits.
(b) Training: Attendance of company personnel at
training courses, seminars and workshops on topics including ISO
9000 Sensitization/Appreciation, Internal Quality Auditing and
ISO 9000Implementation. Attendance at courses organized and
subsidized by Caribbean Export will not be eligible for further
support.
(c) Exposure: of company personnel to operations which
are similar to their own and where ISO 9000 quality systems have
been implemented.
(d) Engaging an ISO 9000 Certification Body: The
facility will contribute towards application fees and assessment
costs leading to ISO 9000 certification by an accredited
certification body. To qualify for support, the certification
body must be accredited by an internationally recognized
accreditation body such as the British National Accreditation
Council for Certifying Bodies (NACCB) or its equivalent. The
costs associated with maintaining certification once it has been
obtained are not eligible for funding.
In conclusion, the globalization process has resulted in the proliferation of FTAs between countries (developed and developing). To develop economic opportunities and diversify their economic relationships Caribbean countries will need to participate in FTAs at the hemispheric and regional level and develop their own bilateral free trade arrangements. Caribbean Export can play a critical role in the preparation for and in the actual process of FTA negotiations. Vital assistance can be provided in trade information and in coordinating the involvement of the private sector. However, the mere signing of a FTA does not automatically stimulate trade between countries that do not have established trading relationships. It is essential that partner countries put in place the facilitating conditions that would encourage trade expansion in the medium-term e.g. transportation and trade financing/clearing arrangements. As Caribbean countries seek to develop new trading relationships they will develop FTAS with countries with whom they have negligible trade. Therefore, the putting in place of trade facilitating arrangements will be essential. Caribbean Export can play the lead role in assisting Caribbean countries in identifying and putting in place the necessary trade facilitating arrangements to encourage increased trade with partner countries in an FTA.
1. The CARTIS databases are presently being upgraded to
include data on the Dominican Republic and Haiti.
2. Caribbean Export in discussion with some exporters have
learnt that there has been some increase in trade with Venezuela
since the CARICOM/Venezuela Agreement, but some constraints have
emerged, particularly in shipping, which have seriously inhibited
trade expansion.
3. In recognition of the importance of building private sector links between trading partners to support an FTA recent FTA agreements have included in their institutional arrangements the establishment of Business Councils.
1. Keesing, P B and Singer, A (1990) "How Support
Services Can Expand Manufactured Exports" World Bank
Policy, Research and External Affairs Working Papers ,
WPS544, 1990.
2. Caribbean Export (1996) Caribbean Export News, Vol.
1, No 2.
3. Wade, Robert (1990) Governing the Market: Economic
Theory and the Role of Government in East Asian
Industrialization (Princeton: Princeton University Press),
4. Amsden, Alice A (1989) Asia's Next Giant: South Korea and Late Industrialization ( New York and Oxford: Oxford University Press, 1989).
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