5. Basis for Differentiation in the Region

[page-number of print ed.: 15 (engl. part)]

5. Basis for Differentiation in the Region

Relevant criteria are needed to assist in designing transitional arrangements that would best meet the needs of the region. The poorest would still be in need of special treatment. In this regard, Haiti, in terms of its level of development and the reforms presently being attempted, would qualify for a special package.

Debt overhang should also be integrated into the assessment. Guyana is the only Caribbean country to be classified among the severely indebted low-income countries(SILICs) whose debt ratios (debt-to-exports, debt-to-GNP, net present value of debt-to-exports) are above 200% and considered unsustainable by international standards. [ Guyana recently received some debt relief from the Paris Club to the extent of two-thirds of its Paris Club debt. Recent and detailed information is still scarce and has not been factored in the above.] Guyana would be in need of a special package.

While the focus must be kept on the poorest and neediest, adequate attention must also be given to vulnerability to preference erosion. Caribbean countries are regarded as middle income countries, but this tends to mask the dependence of their income on preferences. In this regard, another important criterion should be vulnerability to the erosion of preferences (commodity and tariff protection) in general and specifically in relation to the EU. TABLE I attempts to give some indication of the dependence of GDP on preferences in the various countries.

Using the criterion of the portion of exports covered by preferential treatment, preference erosion vulnerability seems strongest in Suriname, Belize, Guyana, St Lucia, St Vincent, and Dominica. The Joint Declaration on Bananas in Lomé IV, to the effect that Lomé aid programmes should take account of the special problems of ACP banana producers, is a reflection of the need to pay more attention to this vulnerability criterion.

Next, capacity to participate in a world of liberalized trade could constitute another factor. It would imply the use of some structural competitiveness index using variables such as technology development, human resource development, etc., and would be based on some notion of sustainable and diversified export capability. On the latter score, it is not helpful, given the size of these countries, to use broad concepts of industrial diversification such as the distribution of GDP in agriculture, industry and services (with emphasis being put on services as an indication of diversification away from manufacturing). This is the case because many of these countries are jumping the manufacturing stage completely. It is also the case because the large role of natural resources in the economy has led to the development of a large non-competitive, highly protected, service sector. It would appear more appropriate to focus on the extent to which exports are diversified and competitive in relation to the size of the country, even though these exports could be in just one or two sectors and match the needs for specialization on the part of these small countries. (Appendix 1 gives some useful development indicators.)

Table 1:
Preference erosion vulnerability:
% exports covered by preferences