How should the Caribbean region foster economic development? The question has long been on the minds of Caribbean leaders. Their small island states face significant hindrances to development, including modest populations, limited expanses of viable land, and insufficient capital flow. Even worse, the global shift toward free trade has hit the Caribbean hard, removing market protections of major industries like bananas. Heads of state have turned to integration of the region’s markets to increase investment and improve competitiveness. It is a smart strategy, largely because integration brings increased leverage in trade negotiations. Operating as an economic bloc, the Caribbean nations must compel WTO free-trade negotiators to approve concessions that will not force the Caribbean prematurely into global competition.

In July 2001, members of the Caribbean Community (CARICOM) prepared for an increasingly competitive global marketplace. They agreed to replace their Common Market agreement with the CARICOM Single Market and Economy (CSME). This replacement represents a shift from trade protectionism to trade liberalization vis-à-vis the rest of the world and to more extensive integration within the region. The earlier agreement sought to protect CARICOM markets from foreign goods and included such policy measures as a common external tariff. By contrast, the CSME has made way for the elimination of external tariffs, pushing for a common free-trade policy with the world. Internally, while the Common Market lowered barriers on the trade of goods produced among member countries, the CSME has also allowed the free trade of services and the free movement of certain skilled personnel.

The liberalization of trade in goods and services within the region will expand the resource base and increase the potential consumer market, making more businesses regionally sustainable. However, the liberalization of trade with the rest of the world has proven detrimental to Caribbean economies in the past. This is most noticeable in banana-producing countries. Since the Lomé Convention of 1976, Caribbean banana producers enjoyed secure preferential markets for their produce. According to a 2003 Caribbean Banana Exporters Association report, bananas comprised about 33 percent of total exports from the Windward Islands of Dominica, St. Lucia, and Grenada. In 1999, however, the WTO condemned the European Union’s preferential trade agreement as non-compliant with WTO free-trade rules. The subsequent opening of the European Union’s banana market and the phasing out of Caribbean preferential status has resulted in an almost yearly decline in production. According to the same report, the Windward Islands experienced a 35 percent drop in production from 1999 to 2001 alone, as small-scale farmers were unable to produce fruit profitably at market prices. Imports from large-scale producers in South and Central America, such as US-owned Dole and Chiquita, had driven down these prices.

This is one of many specific examples of the devastating effects of rapid and unqualified trade liberalization in the Caribbean. Free-trade proponents argue that in the face of increased global competition, Windward Island banana-producing countries will eventually gain from specializing in industries in which they have a comparative advantage. While this may or may not be the case for countries with diversified economies, it is much less likely to be true for the majority of the Caribbean nations, which rely on one product as the mainstay of their economy. As these narrow economies adapt to industries in which they have sufficient comparative advantage (which bananas have proven not to be), they should be granted a transition period to do so.

This is what CARICOM negotiators must emphasize in pursuing free-trade negotiations. Negotiators must use the case of Windward Island bananas to convince WTO delegates of the necessity of a transition period before Caribbean economies are forced to bear the brunt of global competition. For bananas, preferential quotas should be phased out gradually. An alternative is a slowly falling price floor to ease the transition from bananas to industries of higher comparative advantage.

Whether free trade and the pressure of global competition will be good for the Caribbean in the long run remains to be seen. However, an eventual WTO free-trade deal could prevent further collapse of Caribbean economies and allow the region to benefit if the negotiators grant a transitional period. Caribbean nations, united through the CSME, must fight the notion that free trade affects the small, undiversified economies of the Caribbean the same as it affects more diversified economies of other developing regions.