EASTERN CARIBBEAN DELAYS ENTERING CARICOM SINGLE

UNCLAS SECTION 01 OF 03 BRIDGETOWN 000992

SIPDIS

SENSITIVE
SIPDIS

SOUTHCOM ALSO FOR POLAD

E.O. 12958: N/A
TAGS: ECIN ETRD EAID PGOV PREL XL
SUBJECT: EASTERN CARIBBEAN DELAYS ENTERING CARICOM SINGLE
MARKET

REF: A. BRIDGETOWN 553

B. BRIDGETOWN 206


1. (SBU) Summary: CARICOM's delay in setting up a special
fund for less developed countries threatens to further
postpone the entry of the small nations of the Organization
of Eastern Caribbean States (OECS) into the CARICOM Single
Market and Economy (CSME). The OECS members made the
establishment of a Regional Development Fund (RDF) a
precondition for their entry into the single market and
declined to join other CARICOM members in signing the CSME in
January. Continued setbacks in creating the development fund
have led to a debate within the OECS over whether to sign the
CSME without first having the fund in place. Questions have
also been raised about the utility of the OECS nations even
being in the single market. Although the OECS members may
ultimately elect to sign the CSME without the development
fund, the current regional discussion has raised serious
questions about whether the CARICOM single market would
actually benefit the Eastern Caribbean. End summary.

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Eastern Caribbean Waits for Development Fund
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2. (U) The six nations of the OECS (Antigua and Barbuda,
Dominica, Grenada, St. Kitts, St. Lucia, and St. Vincent and
the Grenadines) attended the CSME signing ceremony on January
30, but chose not to sign the agreement at that time in order
to wait until CARICOM established a Regional Development Fund
to assist the less developed nations in the region (ref B).
The OECS heads of government declared their intention to sign
the CSME by June 30, by which time it was thought the RDF
would be in place. Now that it appears probable the
development fund will not be established by the end of June,
a debate has ensued about when to join the single market.

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Prime Ministers Divided
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3. (U) The OECS heads of government have sent various signals
regarding their intentions toward signing the CSME with or
without the development fund. Following an April CARICOM
meeting, statements by OECS Prime Ministers suggested the
sub-region would wait for the finalization of the RDF, which
the leaders were confident would be in place by their
suggested June 30 CSME signing date. After, however,
CARICOM's Council for Finance and Planning (COFAP) failed
during a May 19th meeting to agree on details for funding the
RDF, Antigua Prime Minister Baldwin Spencer explained that
OECS participation in the CSME is contingent upon
establishing the development fund, but stopped short of
stating that Antigua would not sign if CARICOM missed the
June 30 date. In contrast, the Prime Ministers of St.
Vincent and Dominica made clear that the OECS had committed
to sign the CSME by June 30 regardless of whether the RDF was
in place. Eastern Caribbean leaders will attempt to reach a
consensus during their June 21 meeting in St. Kitts that
marks the twenty-fifth anniversary of the founding of the
OECS.

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Who Pays for the Development Fund?
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4. (U) Money is behind CARICOM's impasse over establishing
the RDF, which has been envisioned to hold anywhere from
US$120 to US$250 million that would be made available to fund
development projects in the less developed CARICOM member
states. The May 19th CARICOM meeting was to have settled the
contentious issue of the amount each country should
contribute to the RDF. The small Eastern Caribbean states
are looking toward regional economic powers Jamaica,
Trinidad, and Barbados to donate the majority of the funding
while an assessment would be made to determine the
contributions from other CARICOM members. A funding formula
is being discussed at a June 9th COFAP meeting in Barbados
and should be settled upon at a CARICOM Heads of Government
meeting in July in St. Kitts.


5. (SBU) Note: Dominica Foreign Minister Charles Savarin
told P/E Counselor during a May 18 conversation that the USG
should send a signal as to how much it would contribute to
the development fund. Savarin suggested that the U.S. match

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Trinidad's contribution. This appeared to be Savarin's
initiative alone and not an official CARICOM request. End
note.

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OECS at a Disadvantage in the CSME
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6. (U) Establishment of the RDF has become the key element of
the CSME for the Eastern Caribbean states, which see the
development fund as potentially making up for the competitive
disadvantage they are at compared to more developed CARICOM
members. An assessment carried out by the OECS Secretariat,
the organization's St. Lucia-based professional staff, found
that the small (population 500,000) sub-region has higher
labor and energy costs than most CARICOM states. Combined
with poor transportation, these costs have made it difficult
to attract manufacturing or other non-tourism related
investment. The result has been a steadily worsening trade
deficit with the rest of CARICOM. Consumers in the OECS
already see their market dominated by products from Trinidad,
the region's industrial giant. Many local observers believe
the CSME will be a boon to Trinidad at the expense of the
Eastern Caribbean.

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So Why Join the Single Market?
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7. (U) Regional business leaders have typically expressed
quiet concern over the impact of the CSME on the Eastern
Caribbean, choosing not to confront their government leaders
who have been staunch supporters of CARICOM-wide economic
integration. This calm was broken in May when Allen
Chastanet, President of the St. Lucia Hotel and Tourism
Association, publicly challenged the CSME during a hoteliers
meeting in Dominica. "The question is why is it taking our
ministers so long to figure out that the CSME offers nothing
for the OECS. Right now Trinidad and Tobago has a massive
trade surplus with us. We don't have a hope in hell in
competing," he declared. Chastanet recommended that the
Eastern Caribbean focus instead on strengthening its own
integration through the OECS.

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Don't Knock Trinidad
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8. (U) Dominica Prime Minister Roosevelt Skerrit came to the
defense of the CSME by dismissing Chastanet's criticism and
decrying what the PM described as "a growing negative
attitude in the OECS towards Trinidad." While recognizing
that Trinidad has a substantial trade surplus with the OECS,
Skerrit said that that the people of the Eastern Caribbean
should not criticize the Government or people of Trinidad for
taking advantage of their economic strength. The PM cited
Trinidad's willingness to assist its less developed
neighbors, such as aiding Dominica when the country faced
financial collapse several years ago or Grenada after
Hurricane Ivan destroyed much of the island's infrastructure
in 2004.

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Comment
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9. (SBU) The Eastern Caribbean's insistence upon receiving
special development funds in exchange for entering the
CARICOM single market is based upon both fear and hope. The
small countries in the region fear their increasing economic
marginalization within the larger Caribbean and the dominance
of their small market by products from Trinidad and to some
degree Jamaica. Their hope is that with the Regional
Development Fund in place, the OECS will receive funding for
development projects that will help it to better compete
within the CSME. The case of Ireland using European Union
(EU) development funds to become an economic success story is
often presented as an example of what could happen within the
Eastern Caribbean. The problem with the analogy is that the
OECS countries are much smaller than Ireland and their
populations lack the high educational level attained by the
Irish. Most importantly, the Eastern Caribbean is part of
CARICOM, not the dynamic economy of the EU.


10. (SBU) The six OECS member states will most likely gain

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access to money through the Regional Development Fund and
ultimately join the CSME. How the OECS intends to apply this
new assistance to its development needs remains uncertain.
Given that the region already receives significant aid from a
variety of international donors, the RDF will not be the
determining factor in turning the Eastern Caribbean around;
the small island states will remain on CARICOM's economic
margin for the foreseeable future. Independent of CARICOM
and the single market, the OECS has taken significant steps
toward closer economic integration among its member states
(ref A). Continuing along these lines represents the Eastern
Caribbean's best hope of gradually becoming more competitive
within the CSME and beyond.
KRAMER