The Way Forward: Diversification, Environment, Tools of Negotiation

• Author: Edwin Laurent
• Pages: 85-100

85

The Way Forward

THE WAY FORWARD:

Diversification, Environment, Tools

of Negotiation

88

88

8

Adopting New Approaches

Earlier sections have sought to explain and demystify the working of the

trading system. This final chapter explains some of what Caribbean Members

can do to ensure that they actually benefit from the multilateral system.

Diversification and Development

A Role for the Private Sector

Whilst Government representatives deal with the regulations and structures

of international trade and economic relations, in free market economies like

those of the Caribbean, investments in productive activities are principally

undertaken by the private sector. The private Sector actually produces the

goods and services that are traded. Hence, the success of diversification

ultimately depends on how it adapts with respect to the creation of production

structures.

Reliance on trading in just one traditional commodity, tourism or one of

the new service sectors will not be enough to secure the economic future of

Caribbean countries. Instead, they need a range of productive activities that

generate employment and income. This is so even if small size and limited

natural resources make it difficult for most of them to be simultaneously

competitive in a range of activities. The key reason is that being able to

benefit from economies of scale is often required, but the countries might not

have the capacity to produce the minimum volumes of several products that

86 Understanding International Trade

would permit them to be internationally competitive. As a result they have

often relied on mono-crop (or single industry) production. Their specializing

permits them to be able to produce at the lowest unit price and thus helps

them minimise their size disadvantage. However, external shocks and

slowdowns in specific export sectors are inevitable; so if the economy relies

for its income on a broad range of activities, it could continue to make

overall progress and grow, even when one particular industry slows down or

suffers a reversal.

There can be little doubt that a diversified production base is essential

for balanced and sustained economic growth and development of the

CARICOM. Furthermore, the traditional sources of income and employment,

bananas and cane sugar, are being lost. Admittedly, it was rational to seek to

maintain for as long as possible the preferential arrangements that permitted

these commodities to be sold at relatively high prices in the secure and

protected EC market. The strategy of seeking to prolong the protection, which

defined policy for many years, has contributed to the continuation of the

arrangements that permitted the marketability of their bananas. However,

with the reforms set in train by the EC, the advantages that permitted their

traditional exports to be sold on a remunerative basis are disappearing. St.

Kitts/Nevis has had to abandon the sugar industry and the prospects for

CARICOM banana exports to Europe are bleak.

To view the policy of safeguarding current marketing arrangements as a

substitute for diversification could be a mistake The correct approach was

the countries’ attempt to “buy time” during which diversification could take

place in a stable environment without the catastrophic shocks of massive

employment and foreign exchange losses that would result from the sudden

demise of these traditional industries.

However, diversification is not easy for single-commodity exporters. In

fact, their economies were structured that way in the first place largely because,

given their size, such extreme specialisation permitted them to make fullest

use of their limited scope for economies of scale. The process of diversification,

though, is not simply switching reliance from one existing industry to another

single crop or industry. If the countries are to develop, the production base

will have to be extended to a mix of industries turning out a range of goods

and services in which they have an international competitive advantage.

Even if actual investment in productive and income-generating activities is

undertaken principally by the private sector Government has an indispensable

role in providing support and creating an environment that is conducive to

business and risk taking.