MOREPRESS RELEASE
EMBARGO:  NOT FOR PUBLICATION UNTIL
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PRESS/TPRB/166
7 June 2001
(01-2760)
ORGANIZATION OF EASTERN CARIBBEAN STATES BENEFIT FROM
INTENSIVE PARTICIPATION IN INTERNATIONAL TRADE
DESPITE THE CONSTRAINTS OF SMALL SIZE
Antigua and Barbuda, Dominica, Grenada, St. Kitts and Nevis, St. Lucia, and St. Vincent and
the Grenadines (WTO Members of the Organization of Eastern Caribbean States - OECS) have
achieved, as a group, an average per capita income of about US$4,800.  This is linked to their
intensive participation in international trade, which,  despite shortcomings in their trade regimes, has
allowed services exports to grow and imports to meet most of their domestic needs.  However,
according to a WTO report on the trade policies and practices of the WTO members of the OECS,
there are wide disparities in and among these countries, and their low populations result in a high per
capita cost of social and economic infrastructure.
The WTO secretariat report, along with the policy statements of the Governments of these
countries, will serve as a basis for the first trad e policy review of the OECS-WTO Members by the
Trade Policy Review Body of the WTO on 5 and 7 of June 2001.
The report says that OECS-WTO Members are successfully moving away from reliance on
agriculture to tertiary activities, notably tourism and offshore services.  Nevertheless, they remain
vulnerable to external shocks;  this vulnerability is in part due to local production patterns sometimes
reflecting long-standing unilateral preferences granted by a few trading partners.  Moreover, their
small size exposes them to diseconomies of scale, both in the production of goods and the provisionof government and other services.  OECS-WTO Members are also faced with high labour and
transportation costs, and with the effects of hurricanes.  Exports suffer from these factors and take
place almost exclusively under preferential conditions, mostly to the European Union, the
United States, and other CARICOM members;  the main import sources are the United States, the
United Kingdom, and CARICOM.
OECS-WTO Members determine and implement trade policy within a multi-layered structure
in which domestic, OECS, CARICOM and multilateral considerations strive for harmony.  The entryPRESS/TPRB/166
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MOREinto force of the WTO brought in new rules that ar e yet to be fully incorporated into the domestic
statutes of all the OECS Members;  most of them have also lagged in meeting their notification
obligations.  A more active participation of these countries in the WTO would be to the benefit of all,
not least to the OECS-WTO Members themselves, whose national interests are best protected within
the context of a strong multilateral system.
The report notes that although trade policy is in principle coordinated at the
OECS/CARICOM level, in practice policy differences exist between countries.  All OECS-WTO
Members apply CARICOM's Common External Tariff (CET) to imports from third countries at rates
of up to 35% for industrial products, and 40% for agricultural goods.  However, import duties (tariffs
plus customs taxes) vary considerably across Members, reflecting the many allowances CARICOM
makes for tariff suspensions and reductions, and national exceptions to the CET.  Although a schedule
of reductions of the CET in four phases, to end in 1998, was established in 1991, few members have
complied fully.  Antigua and Barbuda, and St. Kitts and Nevis have not reached Phase IV due to fiscalproblems;  Dominica is expected to do so on 1 July 2001.  The reduction of the CET has caused some
implementation problems in Grenada, where import duties exceed WTO bound rates for some
products.
Some non-price trade measures remain in effect, notably non-automatic import licensing,
local-content requirements and import quotas:  OECS-WTO Members apply quantitative restrictionson a number of products, in general to protect infant industries.  These restrictions, which are
expected to be tariffied by end 2005, affect a number of products, including beer and aerated
beverages, curry, and pasta.  Among OECS-WTO Members, only Dominica has, since 1998, replaced
most quantitative restrictions with import duties.  None of the OECS-WTO Members grants direct
export subsidies but tax concessions are awarded on a case-by-case basis through investmentincentives that carry potentially large benefits to recipients and costs to taxpayers.
OECS-WTO Members have service-oriented economies.  They made commitments under the
GATS in hotel construction and management, subject to number-of-room limitations, as well as in
recreational and sporting services;  all except St. Kitts and Nevis made commitments in reinsurance.
Commitments in other areas vary according to the country and are, in general, limited.  Commercialpresence is in general open to foreign investment in most service areas, but restrictions still exist for
specific activities, either reserved for nationals or  subject to additional requirements for foreigners.
Tourism is the most important economic activity, followed by offshore financial and other
services, which, combined, provide more than half of the foreign exchange earnings of these
countries.  Tourism is expected to remain the main  driving force of growth, particularly through its
effect on investment;  incentives are used in this industry to promote the construction and renovation
of hotels.  Tax exemptions are granted to the offshore service industry, whose legislation has been
amended following recent international pressure;  the stated goal of some OECS-WTO Members is to
phase out the distinction between on-shore and of fshore activities.  A phased-out, coordinated
liberalization of the telecommunications industry is being undertaken by these countries except
Antigua and Barbuda;  in the latter, the market is controlled by two operators, with plans in place to
partly privatize one.
Agriculture has been in decline but is still significant and likely to recover somewhat.
Following quality problems and an erosion of preferences, the Windward Islands' (Dominica,
Grenada, St. Lucia, and St. Vincent and the Grenadines), traditional dependence on bananas for export
earnings has been declining in recent years, although they remain the main crop in Dominica, St.
Lucia, and St. Vincent and the Grenadines.  In Grenada, where nutmeg is the main crop, bananaproduction has been phased down drastically.  In St. Kitts and Nevis, the sugar industry's future isPRESS/TPRB/166
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MOREunder consideration given the high costs of production.  Manufacturing activities play a small albeit
gradually growing role in the economies of the OECS countries.
Note to Editors
Trade Policy Reviews are an exercise, mandated in the WTO agreements, in which member
countries’ trade and related policies are examined and evaluated at regular intervals. Significant
developments which may have an impact on the global trading system are also monitored. For each
review, two documents are prepared: a policy stat ement by the government of the member under
review, and a detailed report written independently by the WTO Secretariat. These two documents are
then discussed by the WTO’s full membership in the Trade Policy Review Body (TPRB). These
documents and the proceedings of the TPRB’s meet ings are published shortly afterwards. Since 1995,
when the WTO came into force, services and trade- related aspects of intellectual property rights have
also been covered.
For this review, the WTO’s Secretariat report, together with policy statements prepared by the
Governments of the OECS-WTO Members will be discussed by the Trade Policy Review Body on 5
and 7 of June 2001. The Secretariat report covers the development of all aspects of the six OECS-
WTO Members trade policies, including domestic laws and regulations, the institutional framework,trade policies by measure and by sector.
Attached to this press release is a summary of the observations in the Secretariat report and
parts of the common Government policy statement. The full Secretariat report and all the
governments' policy statements are available for the press in the newsroom of the WTO internet site
(www.wto.org). These documents and the minutes of the TPRB’s discussion and the Chairman’ssumming up, will be published in hardback in due course and will be available from the Secretariat,
Centre William Rappard, 154 rue de Lausanne, 1211 Geneva 21.
Since December 1989, the following reports have been completed: Argentina (1992 and
1999), Australia (1989, 1994 and 1998), Austria (19 92), Bahrain (2000) Bangladesh (1992 and 2000),
Benin (1997), Bolivia (1993 and 1999), Botswa na (1998), Brazil (1992, 1996 and 2000), Brunei
Darussalam (2001), Burkina Faso (1998), Cameroon (1995), Canada (1990, 1992, 1994, 1996, 1998
and 2000), Chile (1991 and 1997), Colombia ( 1990 and 1996), Costa Rica (1995 and 2001), Côte
d’Ivoire (1995), Cyprus (1997), the Czech Republi c (1996), the Dominican Republic (1996), Egypt
(1992 and 1999), El Salvador (1996), the Eu ropean Communities (1991, 1993, 1995, 1997 and 2000),
Fiji (1997), Finland (1992), Ghana (1992 and 200 1), Guinea (1999), Hong Kong (1990, 1994 and
1998), Hungary (1991 and 1998), Iceland (1994 a nd 2000), India (1993 and 1998), Indonesia (1991,
1994 and 1998), Israel (1994 and 1999), Jama ica (1998), Japan (1990, 1992, 1995,1998 and 2000),
Kenya (1993 and 2000), Korea, Rep. of (1992, 1996 and 2000), Lesotho (1998), Macau (1994 and
2001), Madagascar (2001), Malaysia (1993 and 1 997), Mali (1998), Mauritius (1995), Mexico (1993
and 1997), Morocco (1989 and 1996), Mozambique (2001), New Zealand ( 1990 and 1996), Namibia
(1998), Nicaragua (1999), Nigeria (1991 a nd 1998), Norway (1991, 1996 and 2000), OECS-WTO
Members (2001), Pakistan (1995), Papua New Guinea (1999), Paraguay (1997), Peru (1994 and2000), the Philippines (1993 and 1999), Poland (1993 and 2000), Romania (1992 and 1999), Senegal
(1994), Singapore (1992, 1996 and 2000), Slovak Republic (1995), the Solomon Islands (1998),
South Africa (1993 and 1998), Sri Lanka(1995), Swaziland (1998), Sweden (1990 and 1994),
Switzerland (1991, 1996 and 2000 (jointly with Liechtenstein), Tanzania (2000), Thailand (1991,
1995 and 1999), Togo (1999), Trinidad and Tobago (1998), Tunisia (1994), Turkey (1994 and 1998),the United States (1989, 1992, 1994, 1996 and 1999) , Uganda (1995), Uruguay (1992 and 1998),
Venezuela (1996), Zambia (1996) and Zimbabwe (1994).PRESS/TPRB/166
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MORETRADE POLICY REVIEW BODY
OECS-WTO MEMBERS
Report by the Secretariat – Summary Observations
Introduction
Antigua and Barbuda, Dominica, Grenada, St. Kitts and Nevis, St. Lucia, and St. Vincent and
the Grenadines (OECS-WTO Members) are small, independent island States with close links to each
other in trade;  they are all members of the Orga nization of Eastern Caribbean  States (OECS).  As a
group, they are among the better-off developing-country Members of the WTO, with an average per
capita income of about US$6,500.  This is linked to their intensive participation in international trade,
which, despite shortcomings in their trade regimes, has allowed services exports to grow and importsto meet most of their domestic needs.
OECS-WTO Members are successfully moving away from reliance on agriculture to tertiary
activities, notably tourism and offshore services.  Ne vertheless, they remain vulnerable to external
shocks;  this vulnerability is in part due to local production patterns sometimes reflecting long-standing unilateral preferences granted by a few trading partners.  Some distortions have also been
introduced through a number of domestic measures to favour certain activities at the cost of others.
Over time, long-term international competitiveness has been reduced and "high cost" economies have
emerged.
The six Members under review apply CARICOM' s Common Customs Tariff;  in practice,
although import duties (tariffs plus customs taxes) have been lowered in recent years, they remain
relatively high and vary across countries.  This reflects their relatively fragile individual fiscal
positions, and pressure from domestic groups seeking benefits through increased tariff protection
or concessions.  Moreover, some non-price trade measures remain in effect, notably non-automaticlicensing, local-content requirements and import quotas.  None of the OECS-WTO Members grants
direct export subsidies but tax concessions are awarded on a case by case basis through investment
incentives that carry potentially large benefits to recipients and costs to taxpayers.
OECS-WTO Members determine and implement trade policy within a multi-layered structure
in which domestic, OECS, CARICOM and multilateral considerations strive for harmony.  The entry
into force of the WTO has brought new rules that ar e yet to be fully incorporated into the domestic
statutes of all the OECS Members;  most of them have also lagged in meeting their notification
obligations.  A more active participation of these countries in the WTO would be to the benefit of all,
not least to the OECS-WTO Members themselves, whose national interests are best protected within
the context of a strong multilateral system.  The administrative costs of such participation and the
limited resources that these Members could deploy suggests, perhaps, the delegation of greaterresponsibilities to regional structures, building on their experience within the OECS on trade issues
and the Eastern Caribbean Central Bank on monetary policy.
Economic and Institutional Framework
The economies of the OECS-WTO Members are characterized by a recurrent shortage of
savings over investment;  they require substantial capital inflows to finance deficits in their external
current account, which range to 20-30% of GDP.  Growth has varied considerably in the last decade:
given the small size of the economies a natural disaster can lead to a recession, and subsequent
reconstruction to a boom.  Although growth rate s differ considerably across these countries, onPRESS/TPRB/166
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MOREaverage they have been in the 3-4% a year range.  Inflation has in general been low in recent years, at
levels reflecting international inflation.
The OECS-WTO Members participate in the Eastern Caribbean Currency Union (ECCU).
Since 1976, the Eastern Caribbean Central Bank (ECCB), based in St. Kitts, responsible for monetary
and foreign exchange policy for the OECS, keeping the EC dollar pegged to the U.S. dollar at a rateof EC$2.70 per US$.  Each country's fiscal policy has generally been geared at obtaining an
operational (current account) surplus.  The overall fiscal balances of the OECS countries are in deficit,
largely due to substantial capital expenditure linked to public projects.
The small size of OECS-WTO Members makes them vulnerable to diseconomies of scale,
both in the production of goods and the provision of government and other services. Participation in
the integrated regional market being created by CARICOM seeks to address this problem.  OECS-WTO Members are also faced with high labour and transportation costs, and are exposed to the effects
of hurricanes.  Exports suffer from these high costs and take place almost exclusively under
preferential conditions, mostly to the European Union, the United States, and other CARICOM
members;  the main import sources are the United States, the United Kingdom, and CARICOM.
Most OECS-WTO Members have experienced difficulties meeting their WTO notification
requirements, as well as in amending their national legislation to conform to the WTO Agreements.
The main reason seems to be the lack of human resources and adequate infrastructure.  Since the
beginning of this Review, however, some OECS-W TO Members, in particular Dominica and St.
Lucia, have made a serious effort to meet WT O notification requirements.  Although most OECS-
WTO Members have made efforts to amend national legislation, further amendments are still
necessary to reflect WTO commitments, especially because WTO Agreements may not be invoked
directly in domestic courts.
The review of the domestic implementation of WTO Agreements reveals areas where support
from the international community would be of particular assistance in achieving a fuller degree of
integration of OECS-WTO Members into the multilateral trading system and the global economy,
namely:  customs valuation;  import licensing;  contingency measures;  subsidies;  technical barriers
to trade;  sanitary and phytosanitary measures;  TRIPS;  agriculture;  and services.  Support could be
provided through institutional arrangements already in place with bilateral partners;  at the regionallevel, including the OECS and CARICOM Secretariats;  and the Inter-American Development Bank
(IADB).  Indeed, although OECS countries are not members of the latter, the IADB provided
considerable financial support in the preparation of this Review.  Such collaboration demonstrated the
advantages of linking WTO technical cooperation with existing arrangements to avoid duplication and
make activities more efficient.
Market Access for Goods
Although trade policy is in principle coordina ted at the OECS/CARICOM level, in practice
policy differences exist between countries.  All OECS-WTO Members apply CARICOM's Common
External Tariff (CET) to imports from third countries at rates of up to 35% for industrial products, and
40% for agricultural goods.  However, import duties vary considerably across Members, reflecting themany allowances CARICOM makes for tariff suspensions and reductions, and national exceptions to
the CET.  Although a schedule of reductions of the CET in four phases, to end in 1998, was
established in 1991, few members have complied fully.  Antigua and Barbuda, and St. Kitts and Nevis
have not reached Phase IV due to fiscal problems;  Dominica is expected to do so on 1 July 2001.
The reduction of the CET has caused some implementation problems in Grenada, where import dutiesexceed WTO bound rates for some products.PRESS/TPRB/166
Page 6
MOREIn general, OECS-WTO Members are gradually moving away from an import-substitution
model, towards a more open and liberal trade regime.  However, the OECS-WTO Members' fiscal
dependence on customs duties and other charges on imports has tended at times to slow down the
pace of liberalization.  In this respect, as tariffs have been lowered in recent years, other duties and
charges, such as the customs service charge, the consumption tax, and environmental taxes have been
increased;  this has countered the market-access improvements from the lower tariffs since, in anumber of cases, Governments have attempted to make tariff reductions revenue-neutral.  Moreover,
in some cases the customs service charge is as high as 5%, and acts more as a tariff surcharge than as
a charge reflecting the cost of processing imports.  With the exception of St. Kitts and Nevis, OECS-
WTO Members have not recorded the customs service charge in their WTO Tariff Schedules.
Under Article 56 of the CARICOM Treaty, OECS-WTO Members apply quantitative
restrictions on a number of products, in general to protect infant industries.  These restrictions, whichare expected to be tariffied by end 2005, affect a number of products, including beer and aerated
beverages, curry, and pasta, which are included in Annex I of the WTO Agreement on Agriculture.
Among OECS-WTO Members, only Dominica has,  since 1998, replaced most quantitative
restrictions with import duties.  Import licensing is widely used by all six countries for their trade with
third countries.  A number of safeguard measures are also applied under Article 29 of the CARICOMTreaty;  these measures have not yet been notified to the WTO.
Despite strained fiscal situations, all OECS countries apply various wide-ranging incentives
programmes that result in tax holidays, and the waiver of tariffs and other charges on imports.  These
programmes target mainly manufacturing and service activities.  The duration of benefits is, in somecases, related to local value added.  Although the incentives provided are generally for all production
and for a specific number of years, some fiscal advantages are also granted to export earnings in
manufacturing, after the tax holiday period.
In customs valuation, while progress has been made in some OECS countries towards the use
of the transaction value, others continue to use minimum import or reference prices, reportedly due
to widespread under-invoicing.  Standards bodies have been established in each of the OECS-WTO
Members;  these bodies act independently and their degree of development varies.  Most OECS-WTO
have adopted, or are in the process of adopting, new laws in the areas covered by the TRIPS
Agreement, but some still apply legislation pre-dating the WTO.
Sectoral Policies
OECS-WTO Members have service-oriented economies.  Tourism is the most important
economic activity, followed by offshore financial and other services, which, combined, provide more
than half of the foreign exchange earnings of these countries.  Recent international pressure has
resulted in amendments to the legislation governing the offshore service industry.  The stated goal ofsome OECS-WTO Members is to phase out the distinction between on-shore and offshore activities,
by having a uniform set of regulations.  Incentives are used in tourism, to promote the construction
and renovation of hotels, and tax exemptions are granted to providers of  offshore services.  A phased-
out liberalization of the telecommunications industry,  to be concluded in late 2002, has been put in
place recently, and a specialized agency, the Eastern Caribbean Telecommunications Authority(ECTEL) has been created to regulate the telecommunications industries of Dominica, Grenada, St.
Kitts and Nevis, St. Lucia, and St. Vincent and th e Grenadines, in coordination with the respective
national regulatory agencies.  In Antigua and Barbuda the market is controlled by two operators, and
there are plans to partly privatize one of them.
Agriculture is in decline but still significant.  Following quality problems and an erosion of
preferences, the Windward Islands' (Dominica, Grenada, St. Lucia, and St. Vincent and thePRESS/TPRB/166
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MOREGrenadines), traditional dependence on bananas for export earnings has been declining in recent
years, although they remain the main crop in Dominica, St. Lucia, and St. Vincent and the
Grenadines.  In Grenada, where nutmeg is the main crop, banana production has been phased down
drastically.  In St. Kitts and Nevis, the sugar industry's future is under consideration given the high
costs of production.  Manufacturing activities play a small albeit gradually growing role in the
economies of the OECS countries.
All OECS-WTO Members have made commitments under the GATS in hotel construction
and management, subject to number-of-room limitations, as well as in recreational and sporting
services;  all except St. Kitts and Nevis made commitments in reinsurance.  Commitment in other
areas vary according to the country and are, in gene ral, relatively limited.  Commercial presence is in
general open to foreign investment in most servi ce areas, but restrictions still exist for specific
activities, either reserved for nationals or subject to additional requirements for foreigners.
Outlook
In the OECS-WTO Members, tourism is expected to remain the main driving force of growth,
particularly through its effect on investment.  GDP is estimated to expand by some 4% a year in 2001-03.  Although agriculture is likely to recover, the economies of the OECS countries should continue
shifting towards tertiary activities.  Policy initiative s in areas such as tariff reductions will continue to
be constrained by the fragile fiscal position; despite this, there seem to be no plans to rationalize the
use of investment incentives.  The external current account is likely to remain under pressure as
imports expand faster than exports.
OECS Members are expected to continue to implement of the CET reductions in the near
future.  In countries where this process has been completed, however, no further tariff reductions are
envisaged.  By end 2005, OECS Members are scheduled to dismantle all quantitative restrictions and
replace them with tariffs.  With respect to WT O implementation, OECS Members intend to carry on
required legal and institutional changes where they lag behind, and consolidate and make operational
those already introduced.PRESS/TPRB/166
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MORETRADE POLICY REVIEW BODY
OECS-WTO MEMBERS
Report by the OECS- WTO Members Parts I and II
I. ECONOMIC ENVIRONMENT
A. MAIN ECONOMIC DEVELOPMENTS
1. Introduction
1. The independent Members States of the Organisation of Eastern Caribbean States (Antigua and
Barbuda, The Commonwealth of Dominica, Grenada, St. Kitts and Nevis, St. Lucia and St. Vincent
and the Grenadines) welcome this Trade Policy Review conducted by the World Trade Organization
(WTO).  We see it as an exercise in inventory taking of our trade policy regulations which would lay
the basis for transparency in our dealings with international economic agents.  The exercise could nothave come at a more opportune moment since the Eastern Caribbean states are in the process of
articulating a comprehensive economic development strategy.  We have learnt a great deal from the
exercise so far.
2. The independent members of the OECS are small island economies.  Their combined population
is approximately 425,000 people.  In 1999 their combined GDP amounted to US$2,169.34m.  In1999, the economies’ share of world exports was approximately 0.0061%.  Bananas, the largest
merchandise exported by the economies account for a mere 0.86 percent of world exports of that
commodity.  Exports as a percentage of GDP was 15.4 percent, while imports as a percentage of GDP
amounted to 68.4 percent.  Meanwhile, the combined merchandise trade deficit totalled 52.9 percent
of GDP in 1999.  All the economies have a high import content in their production and consumptionpatterns making it pointless to use the exchange rate as a policy instrument aimed at favourably
altering their international competitiveness.
2. Structure of the economies
3. The economies of the Eastern Caribbean are small, dependent, vulnerable and open.  Historically,
the economies of the Eastern Caribbean have been inserted into the global economy on terms whichwere not of their own making.  Part of that historical insertion into the global economy has been the
development of a mono-crop production system (with the resulting limited export mix and inflexible
economic structures) and preferential treatment for the resulting product going to the metropolitan
countries.  This character of integration into the world economy has had far reaching implications for,
and diverse impact on, these economies.
4. To a large extent most of the economies are attempting to focus on the services sector as the
engine of growth while at the same time attempting to modernise and diversify their agricultural
sector.  Nonetheless, the economies still remain primarily single sectored thereby prolonging and
reinforcing their vulnerable character.  Besides, the fundamental feature of smallness is one which
cannot be ignored and one which the economies can do little about.  They are small, period.
5. Given the small physical space of all of the economies, production possibilities are limited and
most operations are of a very small scale.  This small scale has also been conditioned by thenarrowness of the domestic markets.  Although there is a larger regional market, the transportation
pattern has, in part, not allowed for any meaningful development of enterprise and joint production
possibilities have remained largely unattainable.  Again the historical pattern of insertion into thePRESS/TPRB/166
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MOREworld economy shows itself in the lack of a proper  intra-regional transportation network for goods in
the Eastern Caribbean.  Another dimension of the smallness of the economies is the fact that most are
topographically mountainous which further reduces the available physical economic space which
could be used for sustainable material production.
3. Macroeconomic developments
6. While by conventional measures and standards the economies have posted a relatively good
macroeconomic performance during the last two decades  of the twentieth century, the total picture is
not always evident from those macroeconomic indicators.  The economies still continue to suffer from
income volatility primarily as a result of natural disasters and adverse movements in internationalprices, including exchange rate.  Five devastating hurricanes in five years underlines the region’s
vulnerability to natural disasters.  An adverse movement in the value of the pound sterling and the
price of bananas on the European market have severe consequences for the economies of the Eastern
Caribbean.  The same is true with respect to travel advisories issued by some developed countries
against the economies of the Eastern Caribbean.
7. Despite the apparent fair macroeconomic perfor mances, unemployment continues to be a chronic
problem for all of the economies as the rate reportedly averages an estimated 20.0 percent.  The
attendant problem of poverty also continues to cry out for alleviation, if not eradication.  At the same
time there continues to be rising expectations on the part of the people of the Eastern Caribbean;
expectations which in the main are difficult to realis e.  In turn, there has been a growing threat to long
held social values, a noticeable increase in disenchantment and discernable impatience with the
international economic order as characterised by globalisation.  It is against this background that the
macroeconomic performance of all the economies of the Eastern Caribbean must be viewed.
4. Fiscal policy
8. As a result of prudent fiscal management most of the economies of the OECS have been posting
current account surpluses.  However, the relatively small current account surplus was achieved under
tremendous constraints as expenditure on some critical services had to be curbed.  The outcome on the
current account should also be viewed in the contex t of fiscal policy instruments being the only levers
available to the governments to influence the course  of economic activity.  This means that there is
little scope for the governments to pursue expansionary fiscal policy, especially since deficit financing
through the central bank is constrained.
9. For all of the governments fiscal policy is primarily directed at raising revenue to finance both
current and capital expenditure.  In the main, most of the revenue goes to satisfying current
expenditure, while capital expenditure is financed primarily from loans and grants made availablefrom external savings.  In recent times external sources of funds for financing capital expenditure
have been difficult to identify and access as the geo-political importance of the Caribbean, in general,
has been downgraded.
10. The process of trade liberalisation in the form of tariff reduction poses great difficulties for the
Eastern Caribbean.  Because of the narrow production base of the economies and the uneven
distribution of income in the economies most of  government revenue is derived from taxes on
international trade and transactions.  The process of tariff reduction, therefore, poses an acute public
policy dilemma for all of the Eastern Caribbean.  Invariably, reductions in tariffs are accompanied bya compensatory revenue enhancing measure as a first, albeit second best, preliminary approach to
resolving this public policy dilemma.  This policy course was, and still is, necessary so as to allow the
governments of the Eastern Caribbean to continue performing some of the vital economic functions
they are expected to perform.  These include the provision of some essential social services, public
investment, and the provision of counterpart financ ing of projects funded by international donors.PRESS/TPRB/166
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MORERecognising the fundamental policy dilemma posed by the liberalisation of trade the economies have
implemented some measures as part of a comprehensive fiscal reform programme.  More recently the
Heads of Government have called for a review of their fiscal regime and an examination of the
feasibility of implementing a value added tax.
11. The governments of the Eastern Caribbean have also pursued a policy of providing fiscal
incentives to investors by way of tax holidays and import duty concessions.  This policy approach alsoposes a economic dilemma for all of the governments.  While it is necessary to encourage investment
to alleviate the unemployment condition, the only means for luring investors to the OECS has
considerable fiscal implications in terms of revenue foregone.
5. Monetary policy
12. Monetary policy in the Eastern Caribbean is centralised under the Eastern Caribbean Central
Bank.  The focus of monetary policy is to maintain a strong Eastern Caribbean dollar so as to provide
a degree of certainty to the economic policy environment.  This policy stance means that thegovernments have had to set strict limits on the extent of debt monetisation.  The economies have
never used the central bank to finance government debt beyond statutory limits and economic
adjustment has always been on the fiscal side in the form of contractionary policy.  The external value
of the Eastern Caribbean dollar has consequently remained at the same level for more than two
decades.
13. The strong dollar policy of the central bank has provided a significant degree of policy
predictability in the face of an unpredictable envi ronment.  This has influenced the flow of foreign
direct investment to the economies.  Equally significant, the strong dollar policy has contributed to a
relatively low inflation rate in the region and hence the curbing of further  demands for wage increase.
From the standpoint of the governments, the stability of the value of the dollar has meant that therewas, and still is, a certain degree of certainty with respect to the amortisation of external debt
contracted in United States dollars.  This has played a significant role in assisting the prudential
management of government finances.
14. At the broader financial systemic level, there is the planned establishment of a regional stock
exchange for the economies of the Eastern Caribbean.  The hope is to deepen the financial system soas to foster greater intermediation of regional financial resources that would facilitate further
mobilisation and allocation across the economies in a market driven manner.  With the passage of
time the expectation is to open up the exchange to global transactions thereby almost completing the
process of integrating the economies into the global financial system.  Relatedly, a regional market for
government papers will be operational in the very near future.
6. Balance of payments
15. The persistent merchandise trade deficit, and indeed current account deficit, experienced by the
economies of the OECS speaks to a structural characteristic of the economies.  All the economies are
high net importers of food and capital goods, while exporting primary agricultural products.  On the
services side the economies are heavily dependent on tourism, with efforts currently being made to
develop a vibrant financial services sector and an information technology sector.
16. Given the current trends in foreign direct investment and the general directional movement of
global capital it is not certain that financing of the structural current account deficit on the balance of
payments would be sustainable in the long-run.  This is particularly so in a context where, in order to
attract the little foreign direct investment the economies of the OECS have to make sizable fiscal
concessions and when that is done there is the added complication of blacklisting from somePRESS/TPRB/166
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MOREdeveloped countries.  The economies of the OECS would therefore be placed under greater pressure
to close the savings - investment gap through the use of foreign savings.
B. DEVELOPMENTS IN TRADE AND INVESTMENTS
17. Notwithstanding the difficulties faced by th e economies, there is a commitment to pursuing
economic policy aimed at liberalising trade, market penetration, building more nimble economicstructures and more efficient business facilitation.  At the same time, we advocate appropriate
accommodation for their special circumstances.  All of the economies have embarked on a phased
reduction of external tariffs, curtailing their reliance on quantitative restrictions and are taking steps to
make their legislation consistent with their WTO commitments.  In a very practical way the
economies of the Eastern Caribbean have taken the bold step of de-monopolising the
telecommunications sector and set in motion a process of liberalisation almost unheard of in the
Eastern Caribbean.  This has led to a practical coordination of sector policy and the establishment of acoherent regional regulatory framework for the sector.  Policy expectations are that this process of
liberalisation of the telecommunications sector will be followed by similar processes with respect to
the other utilities in the economies.  With the passage of time, we would expect to embark on a deeper
process of liberalisation of the economies in a co -ordinated manner and in conformity with our
commitments made under the Marrakesh Agreement.
18. As part of opening up the economies there have been efforts aimed at implementing measures that
would allow for the free movement of labour and capital in the Eastern Caribbean.  The process of
free movement of labour and capital also extends to the wider Caribbean region.  Included in that
process would be provisions for the right of establishment.  Complimentary policy measures were
adopted to liberalise current and capital account transactions and all the economies, operating under acommon central bank, have long attained Article VIII status.
19. The governments of the Eastern Caribbean will cont inue policies aimed at attracting foreign direct
investment in order to stimulate economic growth  and employment, and close the savings-investment
gap in the economies.  Particular attention will be given to the services sector in general, and in
particular, the tourism industry.  The aim will be to create an environment that is conducive toinvestment with the granting of some con cessions to participating foreign investors.
C. O
UTLOOK
20. Over the medium term, the economies of the Eastern Caribbean are expected to post moderate
growth spurred on by tourism,  information technology, financial services, construction and to a lesser
extent agriculture.  The construction sector is likely to be influenced by public sector projects as wellas projects associated with the tourism industry as hotels seek to expand their capacity and new hotels
are constructed.  While there would be a continuing role for agriculture, the future of that sector is less
certain, especially in the context of the general move to fully liberalise the banana trade on the
European market following the ruling of the WTO Dispute Settlement Body.  Nonetheless,
expectations are that developments in the other realm of the agricultural sector would be more
favourable than in the case of bananas.
21. Both fiscal and monetary policies are expected to be in line with the immediate past trend.  The
governments of the Eastern Caribbean will continue their prudent fiscal management in order to
generate surpluses so as to facilitate public sector investment in the economies.  Monetary policy will
continue to be directed at maintaining a strong dollar so as to provide a predictable environment for
investment and economic activity in general.  General macroeconomic policy would have to be
guided by policies which recognise the close relationship between productivity and employment inPRESS/TPRB/166
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MOREorder to better manage aggregate demand in the system, while stemming pressure on the balance of
payments.
II. TRADE POLICY REGIME
A. INTRODUCTION
22. Contrary to some views, tariffs have not been used in the Eastern Caribbean as a mechanism for
protecting domestic industries.  Indeed, for there to be adequate protection of domestic industriestariffs would have to be extremely high.  Whatever protection accorded to domestic industries can
only be meaningfully done through the use of quantitative restrictions.  Despite the singular
importance of quantitative restrictions to the economies of the OECS, a process tariffication has
begun and the hope is to ultimately place less reliance on quantitative restrictions as a trade policy
instrument.  However, the process of tariffication has been tempered by fiscal revenue considerations
as well as tariff binding considerations and the economies now have to approach the tariffication
exercise with more caution than anticipated.
B. P
OLICY OBJECTIVES AND INTERNATIONAL RELATIONS
23. In all our international negotiations and in all our efforts at making the transition to new global
requirements we have sought to place the fundamental economic mitigating factor of vulnerability on
the agenda.  Recognising the vulnerability faced by our economies, we have been painstakingly
arguing for special and differential treatment in regional, hemispheric and global economicnegotiations.  Up to more recent times these arguments have in the main fallen on unreceptive ears.
But the logical economic corollary to vulnerability is the recognition that there is need for special and
differential treatment.  We wish to place the issues of vulnerability and the need for special and
differential treatment on the global agenda again.
24. From all objective appraisals, the success of any future policy requires the economies of the
Eastern Caribbean to be accorded special and differential treatment in the global economic
environment.  The mitigating factors of vulnerability and lack of capacity are sufficient to suggest that
if these economies are treated equally in the international economic arena, without due consideration
to their peculiarities, then their chances of su rvival in the global economy would be fraught with
greater difficulties.  Even if the playing field is levelled, there is the equally critical factor of unequalparticipants in the game.  The economies of the Eastern Caribbean can never be economically equal in
that sense.
25. This special and differential treatment may take the form of longer periods for compliance with
specific regulations and easier market access to our major trading partners, exemption from certain
obligations and lower levels of commitments.  Short of these, the economies of the Eastern Caribbeanwould be disproportionately affected by the resu lting character of insertion into the global economy.
This could have untold implications for the peoples of the region.  While some may argue that it is
time for the economies to operate on a level playing field and that all should be treated equally, we
must be reminded that while this may be so, the players in the game of global economic relations are
far from being equal.  It is an irony that equal conditions and requirements, when applied without
regard to the relative position of the players could generate the most unequal set of results.  Factor
endowments of the economies are radically differ ent making it more easy, with minimal socio-
economic dislocation, for those with a stronger factor endowment to take advantage of equally applied
rules and regulations.
26. We should also be reminded of the interdependent nature of the global economy and the ultimate
objective of the rules and requirements; that is, the economic advancement of all peoples.  We shouldPRESS/TPRB/166
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MOREnever lose sight of this objective in the construction of rules and in the application of the requirements
of the global economic system.  If it is the case that the construction of the rules and the stringent
application of the requirements of the global economy would lead to more disadvantaged countries
and more impoverished peoples of the world then we should pause and reflect on the fundamental
objective of global economic integration.  This is not to say that there would not be some greater
gainers from global economic integration.  However, there should not be greater losers, certainlywhen contrasted with their initial position before entering the global economic arena in this new type
of conditions.  Indeed, it would be useful to recall what the Protocol 5 of the EC- ACP Lomé
Convention asserted in respect of the banana industry of the ACP Member States.  According to that
Protocol, with respect to access and advantage on the European market no ACP states should be
placed “in a less favourable situation than in the past or at present”, i.e, they should be made “no
worse off”.  This is particularly relevant if as a result of globalisation some economies turn out to be
disproportionately worse off from their initial conditions relative to other countries.  The economiesof the Eastern Caribbean are forever mindful of this basic objective and potentially desirable result of
global economic integration.  We hope not to be made worse off.
(i) World Trade Organization
27. In recent times the economies have followed traditional economic wisdom and have adopted an
outward-looking  economic posture.  The economies have gradually reduced their external tariffs overa number of years, while attempting to penetrate external markets.  As a further attempt at following
conventional economic views, the economies have all joined the World Trade Organisation.  The
hopes were that a rules based international trading system would be more beneficial than harmful to
the economies of the Eastern Caribbean, and that there would be a recognition of the peculiar
economic position in which the economies find themselves.
28. While the attempts at inserting the economies into the global system are incomplete, the hopes of
the economies are far from being realised given the conflict over the European banana regime and the
unfavourable rulings of the Dispute Settlement Body against the preferential treatment accorded to
ACP bananas on the European market, as well as th e concurrent erosion of preferential arrangements
for sugar.  The economies have been caught in th e middle of a conflict between two economic powers
over issues which had little to do with bananas or sugar.  The economies suffered, and are still
suffering collateral damage as a result of that conflict.  That was particularly worrying to the
economies of the Eastern Caribbean as it compounds the difficulties of economic adjustment and
complicates the process of global engagement.  Similarly, further efforts at diversifying the economies
of the Eastern Caribbean in the form of the development of the financial services sector have met withchallenges from the larger economies.  The system of rules which the Eastern Caribbean economies
had hoped would be of some assistance apparently has been turned against those policies the
economies have followed based on the prevailing economic consensus on outwardness, global
engagement, and economic diversification.  In this regard, it may be necessary to give greater
prominence to the issue of financial services on the agenda of the new round of multilateral trade
negotiations.
29. Because of resource constraints, coupled with minimal manpower, the OECS countries find it
difficult to participate in the deliberations of the WTO in a consistent manner.  Attempts have been
made to establish a physical presence in Geneva, but the cost of operating such a presence has so far
proven to be prohibitive.  The cost of operating from Geneva plus the cost of implementing the
agreement, when contrasted with the benefits derived from participation in the process, have led to
renewed thinking on the possible net benefit of participating in the WTO.
30. There is also the perennial problem of the lack of capacity.  This is probably one of the most
daunting structural institutional problems facing the economies of the Eastern Caribbean. ThePRESS/TPRB/166
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MOREengagement of the economies in the WTO has more forcefully brought to light the acute nature of the
capacity shortfalls of the economies.  In some cases we have been unable to establish the requisite
contact point in each country.  We have been unable to address the issue of notification to the fullest.
We have not even been able to take maximum advantage of some offers, especially in the area of
training, made to us because of a lack of capacity.  Worst of all, when the dispute over the European
banana regime was litigated we found ourselves in a legally disadvantaged position in terms ofrepresentation.  Even the process of data gathering for the conduct of this very Trade Policy Review
was in many instances hampered by a lack of capacity.  Basic data which most economies are
presumed to have readily at their disposal were not that accessible to the economies of the Eastern
Caribbean and unusual searches had to be conducted to facilitate this Trade Policy Review.
Meaningful participation in the work of the WTO is impossible for the economies of the EasternCaribbean without assistance from the developed countries.
2. Regional Agreements
(a) OECS
31. As a regional grouping the members of the OECS  have sought to promote free trade among its
members.  As it currently stands there are few restrictions on trade within the OECS and steps are
taken to foster the free movement of labour and capital within the grouping.  The barriers to free
movement of labour and capital are under constant examination with a view to removing them.  The
overall policy objective is to create a single economic space in the economies of the Eastern
Caribbean so as to maximise all possible economies of scales.  The single economic space envisages a
more efficient and effective payment system, greater mobility of labour and capital and a deeper level
of policy co-ordination and harmonisation, especially in the field of international trade.
32. A critical element in the OECS grouping is the fact that a number of activities are conducted
under common arrangements.  The basic idea behind this functional cooperation is to achieve
economies of scale in the provision of some services to the people of the region.  The small size of the
economies is such that not much economies of scale can be derived in the provision of a number of
services.  The per capita cost of providing some services are simply prohibitive, but in some cases,given the nature of the service, the economies have to absorb the loss associated with the
dis-economies of scale and make individual arrangements for the provision of some vital services.
(b) CARICOM
33. The membership of the OECS in the CARICOM regional integration movement is aimed at
fostering stronger economic ties with the rest of the Caribbean.  It is also directed at attempting toovercome some of the difficulties associated with  smallness.  This means an expanded market for
products of the OECS economies and common approaches to some activities which could be better
done at a regional level as opposed to a national level.
34. Recognising the small size of the economies of the OECS, the larger member states of the
CASRICOM integration movement have accorded special and differential treatment to theseeconomies.  Despite the application of some trade restrictions within the ambit of the special and
differential treatment afforded to OECS countries exports from the rest of CARICOM to the OECS
countries continues to post strong growth over the year s.  It is indeed a clear case of using special and
differential treatment in such a way that trade flows within the members of the regional grouping are
not unduly hampered.PRESS/TPRB/166
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MORE(c) Other
35. Bilateral trade agreements between CARICOM and countries of the hemisphere have all allowed
for non-reciprocal trade between those countries and the small economies of the OECS.  Despite the
fact that non-reciprocal status has been given to the OECS in those other trading arrangements, the
economies have not been able to effectively use the agreements to the fullest.  This is primarily due to
the fact that the smallness of the economies does not allow for large-scale production possibilities,and where some more than small production possibilities exist there is the problem of severe supply
response constraint.  Again, we see the constraining factor of smallness affecting the economies of the
OECS in effectively participating in hemispheric ar rangements.  The problem is even greater at the
global level.
C. T
HE OECS M EMBERS , THE WTO, AND TECHNICAL COOPERATION
36. The economies of the Eastern Caribbean are attempting to build capacity in the field of trade
policy.  To that end there is currently in place a trade policy project (funded by the Canadiangovernment) whose objectives are, among others, the development and maintenance of an OECS
international trade strategy and strengthening of OECS capacity to meet obligations under regional
and international agreements.  Attempts are also being made to rationalise the coordination of inter-
agency relations in the area of international trade.  To that end some of the economies have integrated
their Ministries of Foreign Affairs with their Ministries of International Trade.  Greater efforts arecurrently being made to structure the relationship among the different agencies dealing with matters
related to trade, for example, the Ministry of Health, the Ministry of Agriculture, Customs
Department, and the Ministry of Legal Affairs.  In some economies steps have been taken to have a
lawyer specialised in trade law who would operate in the Ministry of Trade.  Meanwhile, the training
of trade officials is an ongoing exercise with the assistance of various regional and internationalorganisations, including the WTO.  And, a series  of legislative reforms is underway to ensure
conformity with obligations under the WTO.
37. In the light of the difficulties faced there is a critical need for technical and financial assistance to
the economies of the Eastern Caribbean.  Those who were involved in the formulation of this Trade
Policy Review would need no more to convince them of such a need.  Technical and financialassistance would be needed in the general areas of economic policy formulation and implementation,
and particularly trade policy formulation and implementation.  For the economies of the Eastern
Caribbean there is a need for technical and financial assistance in capacity building aimed at
transforming the institutional environment of policy making, implementation, management, and
administration.  Important areas needing attention include: customs operations, statistical gatheringand compilation to assist in policy decision making, legislative drafting, standards, and modern
business operations for the private sector.  Our experiences have shown that resources would have to
be allocated for at least the medium term.  Our collective experiences have also made it clear that it is
impossible to build capacity, transform institutions, and adjust economic agents and markets in the
short term.  Nevertheless, the economies of the Eastern Caribbean are committed to those policy
directions.
38. The economies of the Eastern Caribbean are also committed to the multilateral trading system.
As was noted before, the economies are currently in the process of deeper trade liberalisation and
some economic restructuring.  Those are not easy tasks to accomplish in the midst of rising
expectations and growing concerns over the unevenness of globalisation.  The economies would need
all of the assistance they can get from this internat ional body.  Further, whatever international trading
rules are agreed upon in the future, greater efforts wo uld have to be made to take into account, the
special characteristics of these small island economies.  Once these are properly taken into account
the survival and success of the economies of the Eastern Caribbean within the global economicPRESS/TPRB/166
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environment would be made less uncertain than has been the case in the past and is the case at
present.  Special and differential treatment must be securely anchored in all policy regimes which
seek to ensure that the Eastern Caribbean participates in the process of globalisation.  Effective
participation of the economies in the global economy could be meaningful to us only in a context of
special and differential treatment.
END