Emsley D Tromp: Regional integration - a policy agenda towards
prosperity
Address by Dr Emsley D Tromp, President of the Bank of the Netherlands Antilles (Bank van
de Nederlandse Antillen), on the occasion of the seminar "Is Curaçao economically truly
Caribbean?", Willemstad, 24 April 2008.
* * *
Good evening, ladies and gentlemen,
Let me start by thanking the Department of Economic Affairs of Curaçao and the Faculty of
Social Sciences and Economics of the UNA for inviting me today. The topic of this seminar is
a timely and important one for several reasons. First, regional integration has proven an
important contributor to economic growth, especially in the case of small open economies
such as ours, and second, Curaçao will become an autonomous country within the Dutch
Kingdom in the near future. The ongoing constitutional changes provide a unique opportunity
to design an economic policy that is aimed at sustainable economic growth by focusing on
the development of key sectors of the economy. I believe that regional integration and
cooperation should be included in this policy agenda.
The Curaçao economy shares many characteristics with other economies in the Caribbean
basin. Similar to most economies in the region, our economy is small and open and has to
deal with diseconomies of scale. Consequently, we are very vulnerable to international
developments and external shocks. Moreover, like many islands in the Caribbean, tourism
and international financial services are the main pillars of our economy.
Interestingly, despite sharing several characteristics with the neighboring economies, in
terms of trade, our island is not really integrated into the Caribbean. The main trading
partners of the Netherlands Antilles - of which the Curaçao economy represents 75 percent
- are North America, Europe, and South and Central America. According to our trade
statistics, trade with the Caribbean averaged only 8 percent of our total trade during the
period 2000-2006. Despite our geographic proximity with Caribbean islands, the share of
goods and services exported from the Netherlands Antilles to the Caribbean was 11.5
percent of total exports. Meanwhile, imports of goods and services from the Caribbean were
only 4.3 percent of our total imports.
Ladies and gentlemen, trade flows are determined by the comparative advantage of a
country vis-à-vis its trading partners. A country's comparative advantage is determined by,
among other things, factor endowments and relative prices. Trade flows are negatively
affected by trade barriers, which can be either tariffs, such as import duties, or non-tariffs
including quotas, unfair customs procedures, and import licenses. These barriers affect trade
in merchandise. Trade in services also is hampered by barriers, such as licensing
procedures, nationality and residency requirements, and discriminatory treatment
advantaging domestic companies over foreign ones. To stimulate trade flows, countries
usually engage in free trade agreements with other countries. As you may know, free trade
agreements reduce trade barriers considerably and ultimately may result in trading blocks
with unrestricted trade among the members of the block.
Currently, there are several trading blocks based on free trade agreements among groups of
countries in the Western Hemisphere. So far, the Netherlands Antilles has no full
membership affiliation with any of the regional trading blocks. Furthermore, we lack bilateral
free trade agreements with individual countries in the region. Hence, the Netherlands Antilles
- and consequently Curacao - is faced with high trade barriers in the region. I believe that
these barriers have a negative impact on our trade flows in the Caribbean. As a
consequence, we are not seizing the opportunities the Caribbean market place has to offer.
Our failure to take advantage of these opportunities is unfortunate given that economic
growth in our region has been particularly buoyant in recent years. According to the
International Monetary Fund, the Caribbean economy grew by 4.2 percent last year, the
fastest pace in the last two decades. For 2008, the IMF expects economic growth in the
Caribbean to decelerate due to the global economic slowdown. Nevertheless, an
aboveaverage economic growth of 4 percent is projected for the region. By increasing cooperation
within our region, the Netherlands Antilles, and consequently Curaçao, could benefit more
from the ongoing economic expansion in the region.
Regional cooperation and integration are now imperative. Besides the classical benefits of
trade creation and diversion, regional integration provides a platform for more effective
integration into the world economy. This integration is crucial given the fast pace of
globalization today. Globalization provides great opportunities, but it also leads to more
competition. And globalization brings with it new risks and vulnerabilities.
Greater regional integration, if carried out correctly, can complement the process of global
integration, both by taking advantage of the opportunities presented by globalization and by
guarding against the vulnerabilities. This is especially important for small open economies
such as ours.
With greater regional integration, economies of scale in the production of goods that are not
attainable for individual islands due to their small size may be feasible for the region as a
whole. Through regional agreements, politically challenging policy changes often can be
realized. Furthermore, gains from specialization within the region can be achieved by
pursuing different strands of the value-added chain. Regional integration also strengthens
the ability of countries to deal with negative shocks, both external and country-specific. This
ability is particularly relevant in our region, where the impact of shocks can be devastating for
any single economy. Finally, combining forces through regional cooperation is the most
effective way to proceed in international trade negotiations because it increases the power of
small states.
Given these benefits, Curaçao must become more economically integrated within the region.
Therefore, the barriers that are currently hampering trade between our economy and the
region should be removed. I do realize that regional integration in the case of the
Netherlands Antilles is very complex as our country is not autonomous in matters related to
international affairs and trade. The government of the Dutch Kingdom is the authority
responsible for international treaties and agreements. Because the Netherlands Antilles, and
consequently Curaçao, are not sovereign with respect to international negotiations, regional
integration achieved by joining a trading block is very difficult or even impossible. However,
this challenge should not discourage us from making alliances or cooperating more
intensively with regional trading blocks or individual countries in areas of interest. Such
negotiations should take place, of course, with the support of the government of the Dutch
Kingdom.
Ladies and gentlemen, the policy agenda towards more regional integration should include a
thorough assessment of our comparative advantages and disadvantages vis-à-vis our
neighboring economies. In this context, we must realize that cooperation and integration will
be effective only if countries complement each other in terms of trade. By assessing our
advantages and disadvantages, we will be able to select those areas and industries where
regional cooperation will be most likely to stimulate trade.
Closer regional cooperation in such areas as tourism, transportation, telecommunication, and
financial services will greatly facilitate the business development and economic growth of
both Curaçao and its regional partners. Our tourism industry would benefit from more
regional cooperation in marketing and promoting the Caribbean as a tourist destination. In
addition, the sector would also gain from regional collaboration in tourism education and
training programs.
In the area of transportation, we would benefit from more intra-regional shipping routes to
promote the growth of intra-regional trade and business links. Furthermore, increased
intraregional air connections would support the further growth of our tourism industry.
In the area of telecommunication, our authorities could pursue regional collaboration to
promote the further liberalization of the telecommunication services market and adequately
regulate market monopolies, which tend to develop in this sector. This approach will
stimulate the provision of state-of-the-art equipment and services at competitive prices. In
addition, removal of barriers to trade in the telecommunications industry will provide our local
companies with opportunities to expand their activities in the region.
Finally, more intensive collaboration is needed to promote the free flow of capital between
our island and the region. Such collaboration will contribute to broader and deeper financial
markets and the development of regional financial institutions, resulting in a wider range of
financial instruments at lower costs. We already have had positive experiences with
Caribbean banks and insurance companies that have expanded their activities toward our
island.
Ladies and gentlemen, successful regional integration requires more than just the removal of
trade barriers. Economic policy coordination and cooperation are also important in this
context. Such coordination should include the following goals:
1. Fostering of a stable macroeconomic environment. Macroeconomic policy
instruments, such as fiscal policy and monetary policy, should be applied in a
consistent and sustained manner, complemented by supporting policies in the fields
of, for example, education and infrastructure, and a stable institutional framework.
2. Harmonization of regulatory frameworks towards a system of best practices. This
goal comprises a wide range of policy areas, such as standards for prudential
regulation and supervision of the financial sector, foreign investment regulations,
labor standards, product and professional standards, and tax harmonization, to
mention just a few. Tax harmonization should include a regional code on fair tax
competition and limiting the extension of tax holidays to attract foreign direct
investment to prevent the erosion of our tax bases.
3. Development of human capital. A well-educated and skilled labor force is a critical
success factor for regional integration and effective competition in a globalizing
world. Regional cooperation between universities and training and research
institutes can create economies of scale and attract high-quality staff to produce a
labor force that meets the skills demanded by the business sector and the
government.
4. Improvement of productivity. This goal comprises not only labor productivity, but
also managerial capacity, adaptation to new technologies, and improvement of
infrastructure.
Through regional integration, alliances, and cooperation, we can overcome our inherent
weaknesses and ultimately be able to compete successfully in the global market. Many
countries in the region have already realized that regional integration is crucial to seizing the
opportunities of globalization, and overcoming the risks and challenges of this irreversible
process.
I am convinced that progress towards more integration in the region will foster the
performance of the Curaçao economy. For that reason, I sincerely hope that the question is
not whether to integrate or not integrate, but rather, how integration can be realized in the
most effective way. Therefore, integration into the region should be given a prominent place
on the economic policy agenda of the new country of Curaçao. I thank you for your attention!