Issue:

July 17, 2009

SPECIAL
RNM UPDATE
Addressing the
Competitiveness of
Small Island
Developing States

The Caribbean Regional Negotiating Machinery, now Office of

Trade Negotiations (OTN), was invited to attend the Second
Quarterly Meeting of the Grenada Marketing and National Import
Board, held July 15 2009, to address regional agricultural issues
with a special focus on farmers.

In this Special RNM Update issue, we present the Meeting’s

Feature Address entitled “Positioning Farmers in Small Island
States for Global Competitiveness - An Economic and Trade
Perspective” which was delivered by the OTN(CRNM) Trade
Policy/Technical Advisor to the CARICOM LDCs, Vincent Atkins.

CRNM UPDATE is the flagship electronic trade newsletter of the Caribbean Regional Negotiating Machinery (CRNM). Published in English, it is a rich
source of probing research on and detailed analyses of international trade policy issues and developments germane to the Caribbean. Prepared by the
Information Unit of the CRNM, the newsletter focuses on the CRNM, trade negotiation issues within its mandate and related activities. Its intention is to
provide impetus for feedback by and awareness amongst a variety of stakeholders, as regards trade policy developments of currency and importance to
the Caribbean.
http://www.crnm.org
 Positioning Farmers in Small Island States for Global Competitiveness
An Economic and Trade Perspective

I wish first of all to thank the Marketing and National Importing Board for this opportunity to address you on the occasion of your
quarterly farmers’ meeting. I think the opportunity is an unique one to discuss some of the challenges faced by small farmers in
developing countries, in light of recent global economic circumstances. I do not , however, wish to dwell on only the challenges
which small island states face in these circumstances, but to look beyond that, and determine whether any opportunities present
themselves and how best small island states, such as Grenada and the rest of the Caribbean countries, can position themselves to
take advantage of such opportunities.

By way of introduction, permit me to say a little more than a few words about the organisation which I represent, although the views
which I express are solely my personal views and should not be ascribed to the organisation. The Office of Trade Negotiations
(OTN) was recently established, following a decision of the CARICOM Heads of Government, at their Inter-sessional meeting in
Belize in March 2009, to make what was formerly called the Caribbean Regional Negotiating Machinery (CRNM), a department of
the CARICOM Secretariat. That decision was re-affirmed at the recently concluded Conference of the Heads of Government in
Guyana, earlier this month and the new name of the organisation was adopted. A new Director General, in the person of Ms Gail
Mathurin, whom some of you may know as a former under-secretary of trade in Jamaica, has been appointed to head the
organisation, following the resignation of Mr Henry Gill, who demitted office at the end of June 2009.

Like its predecessor, the OTN has responsibility for negotiations of external trade agreements on behalf of CARICOM, and the
Heads of Government at the Guyana Conference affirmed that the new organisation will indeed have responsibility for ALL external
trade negotiations in which the Region is involved, including the WTO negotiations and bilateral arrangements such as the
CARICOM-DR Free trade Agreement. The remit of the OTN is also likely to include implementation of trade agreements, although,
as you may know, CARICOM has already established, within the Secretariat, a unit with responsibility for implementation of the
Economic Partnership Agreement (EPA) concluded in December 2007 and signed in October of 2008.

I have taken the time to tell you that much about the OTN both to apprise you of the activities of an organisation of which Grenada
is a fully participating Member State but also to point to the fact that increasingly the policies which affect you at the domestic level
are the outcomes of the decisions of both Regional and International institutions and that these institutions play a fundamental role
in formulating and promoting the implementation of trade and economic policies which shape national policy. As such, as well
intentioned as national governments may be, to a large measure what they can do is often circumscribed by commitments which
they may have made, sometimes quite inadvertently, by virtue of their member ship in extra-national entities. Yet, it is those very
policies which will to a large measure determine how well an economy responds to the challenges which it faces. In the absence
of suitable domestic policies conducive to the efficient operations of small farmers, the farming sector will be hard-pressed to
contribute to growth, development, food security, employment, poverty-alleviation, rural development and all the other laudable
objectives often associated to , rightly or wrongly, to the growth of agriculture in small island developing states.

CRNM UPDATE is the flagship electronic trade newsletter of the Caribbean Regional Negotiating Machinery (CRNM). Published in English, it is a rich
source of probing research on and detailed analyses of international trade policy issues and developments germane to the Caribbean. Prepared by the
Information Unit of the CRNM, the newsletter focuses on the CRNM, trade negotiation issues within its mandate and related activities. Its intention is to
provide impetus for feedback by and awareness amongst a variety of stakeholders, as regards trade policy developments of currency and importance to
the Caribbean.
http://www.crnm.org
Without venturing into the details of the phenomenon described as globalisation, it is safe to say that more and more, countries are
inter-dependent on each other and the development of one country cannot be undertaken in isolation of other countries, whether
one focuses on regional initiatives such as the CSME, hemispheric initiatives such as programmes pursued under the OAS, or
multilateral arrangements such as the decisions arrived at the level of the WTO. Small island developing states are even more
susceptible to the reaches of globalisation because by their very nature they are highly dependent on external markets for their
existence. By definition small developing countries lack a wide range of factors of production and therefore are openly dependent
on world markets for many of the products which they consume. At the same time, their severe lack of domestic production
capacity and economies of scale place them at a disadvantage to produce goods and services for world markets, and their
relatively small market sizes often make them unattractive to significant international capital investments-

That is not to say that farmers in small developing economies cannot be efficient. To the contrary, Theodore Schultz , the Nobel
prize winning economist who shared the prize with our own Sir Arthur Lewis, in his research demonstrated that small farmers are
just as rational in their decision making as large farm operators and that within the constraints of the resources which they have the
often allocate resources efficiently.

The factors which contribute to small economies being at a disadvantage relative to their large country counterparts are well
known and the literature on the economics of small open economies provide ample details on the economic vulnerabilities of small
states. I do not wish to dwell too much on that aspect of the challenge to small farmers. Rather, I wish to focus on the factors
which make one small economy more successful than another, notwithstanding the fact that they all face the same challenges. I
think in so doing we would offer better opportunities for us to understand how farmers in small island states can respond to the
challenges which they face in a manner which would allow them to become more competitive in the global economy.

One of the most relevant pieces of research on the determinants of competitiveness in small developing countries is the work of
Alvin Wint of the University of the West Indies contained in his publication ‘Competitiveness in Small Developing Economies –
insights from the Caribbean’, which I commend to your reading. In this study Wint sought to identify the factors which distinguish
successful small economies from other small economies. First, he identifies the key elements of competitiveness as (1) the
ability of enterprises to export to an array of countries without special government support (2) the ability of firms and enterprises to
engage in foreign direct investments based on skills and assets developed at home (3) the ability of enterprises to operate
according to internationally accepted norms of costs, service, operational standards and quality (4) the ability of firms to earn
above average returns in a market setting which includes domestic competitors and (relatively) unimpeded access for rival
enterprises from other countries. Of course all these factors may be considered relevant to determining how competitive small
farmers are on global and domestic markets.

Wint goes on to assess the competitiveness of small developing countries by testing five key hypotheses relating to the quality of
the physical and human infrastructure, the level of macroeconomic stability, the level of political and country risks, and the degree
of service orientation of the country. The study was said to be agnostic with respect to the impact of export orientation and it was
felt that there is sufficient evidence to suggest that countries which are more oriented to exporting do not necessarily outperform
their peers based simply on their export orientation.

CRNM UPDATE is the flagship electronic trade newsletter of the Caribbean Regional Negotiating Machinery (CRNM). Published in English, it is a rich
source of probing research on and detailed analyses of international trade policy issues and developments germane to the Caribbean. Prepared by the
Information Unit of the CRNM, the newsletter focuses on the CRNM, trade negotiation issues within its mandate and related activities. Its intention is to
provide impetus for feedback by and awareness amongst a variety of stakeholders, as regards trade policy developments of currency and importance to
the Caribbean.
http://www.crnm.org
The study concludes that small countries need to be cautious about conventional wisdom that suggest that the most important
factor in improving competitiveness in small economies is the extent to which the small economy can be shifted towards exports.
Instead, it is the extent to which exports add to national income and increase economic welfare through increases in the average
productivity in the economy which really matters. The study also cautions against the broad generalisation that increased service
orientation would improve a country’s competitiveness.

The key findings of the study however, had to do with the importance of reducing political and macroeconomic risks as well as
improving the provision of the physical and human infrastructure, for improving the competitiveness of small developing
economies. The statistical results of the study confirmed the hypotheses that the level of risks (political and macroeconomic) in a
small economy will be a significant factor in determining its relative economic performance, with lower risk economies
outperforming their peers. Similarly, the quality of infrastructure in a small economy will be an important factor in determining
relative economic performance, with economies with better infrastructure outperforming their peers.

The lessons for farmers in small island states such as Grenada are obvious. While it is true that it is firms which compete and not
countries, it is patently clear, as Wint himself affirms, that firms, including farming enterprises, operate within national systems that
provide incentives or disincentives for innovation, product development, human development and technological upgrading, all of
which are critical for the long-term economic wellbeing of a country. Moreover, the infrastructure necessary for achieving
competitiveness are generally of a public good nature which can only be provided by government. As such governments in small
economies play a crucial role in providing the climate which can assist small farmers in achieving the level of competitiveness
necessary to penetrate global markets and subsist on domestic markets. Unless there is clear recognition of that role either at the
national level or at the Regional level the efforts to improve the performance of agriculture in CARICOM will be misdirected.

Of course small farmers can do more to improve their own competitiveness on global markets. Reference has already been made
to the value of human infrastructure or education in improving competitiveness Small farmers need to apprise themselves of the
cutting edge information and findings in their individual fields of endeavour. They need to expose themselves to the research and
make use of the finding of that research wherever it is relevant. Similarly, they need to apprise themselves of cutting edge
technologies and skills which would enhance their productivity and the overall efficiency of their undertakings. The onus remains
on the farmer to seek that information and incorporate it into his farming or agribusiness operations.

The process of globalisation is driven primarily by the advances in information and communication technology and the ready
access to up-to-date information which these advances facilitate. Unless one is willing to invest in the necessary time and
resources, either individually or through organised groups, such as the Marketing and Import Board and various farmers and agri-
business associations, into sourcing and utilising the information to improve performance, no amount of government intervention
through conducive policies and adequate infrastructure will lead to improved competitiveness. As such, it is the partnership
between the private sector on the one hand and government on the other hand, working in concert with each other, which will yield
the kind of results which would increase national income and welfare and enhance the well-being of the farming community.

Time would not permit me to discuss some of the key global trade policies and programmes which affect the competitiveness of
farmers in small states. However, I wish to make reference to the most comprehensive trade agreement which CARICOM

CRNM UPDATE is the flagship electronic trade newsletter of the Caribbean Regional Negotiating Machinery (CRNM). Published in English, it is a rich
source of probing research on and detailed analyses of international trade policy issues and developments germane to the Caribbean. Prepared by the
Information Unit of the CRNM, the newsletter focuses on the CRNM, trade negotiation issues within its mandate and related activities. Its intention is to
provide impetus for feedback by and awareness amongst a variety of stakeholders, as regards trade policy developments of currency and importance to
the Caribbean.
http://www.crnm.org
countries have signed and point to some of the opportunities and challenges which such an agreement presents. The Economic
Partnership Agreement (EPA) between the CARIFORUM countries and the EU was signed in October 2008 and has been
provisionally applied since December of that year.

Among the key provisions of the agreement is the grant of duty-free, quota free market access for all products originating in
CARIFORUM countries into the EU market, with a limited exception pertaining to rice and sugar. This means that once a product
meets the Rules of origin agreed to under the agreement, it may be exported to Europe without incurring the payment of import
duties or other charges. This access however, is contingent on the agricultural products meeting the SPS requirement as well as
other technical requirements pertaining to grades, standards, and hygiene and food safety.

Arguably, the need to meet those requirements may be a more significant deterrent to market access than import duties. As such,
the presence of suitable policies, training, legislation and infrastructure to meet the SPS and TBT requirements are hugely
important to the ability of farmers to penetrate the EU market and take advantage of the concessions provided under the EPA. In
this regard, both the efforts of government, nationally and regionally, through the provision of the relevant infrastructure and the
initiative of private enterprise are integral to the successful implementation of the EPA arrangements.

Concomitant, with the market access opportunities presented by the EPA are the significant challenges it presents. Because of the
need to meet WTO compatibility requirements the agreement is reciprocal in nature, which means that CARIFORUM countries also
had to grant duty free access to the EU on their domestic markets. The grant of that access however was not symmetrical so that
in the case of agriculture almost 75 percent of EU imports into CARIFORUM will continue to face the same level of tariffs and
roughly 13% of all imports have been excluded from the requirement to liberalise tariffs. However, for those products not shielded
from liberalisation the existing import duties will be reduced over a period extending to 25 years for the most sensitive products.

Even for those products excluded from the reduction of the ordinary customs tariff, countries which apply other duties and charges
inconsistent with the agreement, such as stamp duties and service charges which do not reflect the real costs of the services
provided or applied only to imports, have to be removed in a period extending up to 10 years

The fact remains that whether now or in the future some imports from the EU will enter the CARIFORUM markets duty free or at
reduced rates of duty and will compete with both locally and regionally produced goods as well as products from non-EU countries.
This means that whether a firm or agricultural producer has an interest in exporting to the EU or simply in supplying the local
market, its ability to penetrate or sustain market share on local and regional markets may be adversely affected by the
arrangements negotiated under the EPA. It means also that the key to maintaining presence in the domestic and regional market
will be the competitiveness of the firm or producer concerned and hinges on several of the factors already alluded to in my
presentation.

CARIFORUM countries are not expected to begin the process of tariff liberalisation until January 2011, except for some nuisance
tariffs which they agree to eliminate from January 1, 2009. The delay in the implementation of their tariff reduction commitments
should propel firms in CARIFORUM to expedite the process of improving their competitiveness, so that when the full brunt of
liberalisation takes place they would be in a better position to adjust.

CRNM UPDATE is the flagship electronic trade newsletter of the Caribbean Regional Negotiating Machinery (CRNM). Published in English, it is a rich
source of probing research on and detailed analyses of international trade policy issues and developments germane to the Caribbean. Prepared by the
Information Unit of the CRNM, the newsletter focuses on the CRNM, trade negotiation issues within its mandate and related activities. Its intention is to
provide impetus for feedback by and awareness amongst a variety of stakeholders, as regards trade policy developments of currency and importance to
the Caribbean.
http://www.crnm.org
It is also worth noting that the CARIFORUM-EU EPA is only one of several free trade agreements which CARICOM countries are
likely to enter into over the next few years. Already discussions are ongoing towards the negotiations of a free trade agreement
with Canada. Although these negotiations have not started it is clear that the requirement of WTO compatibility and the
expectations of the Canadian articulated in their initial briefs to CARICOM suggest that tariff liberalisation will not be any less
onerous under that agreement than under the EPA, and that CARICOM countries will be required to grant access to Canadian
markets much in the same way as they have granted to the EU. This proposition underscores the need for producers in
CARICOM, including small farmers, to position themselves to compete with external firms on both the domestic and regional
markets if they are to remain viable.

The challenge to farmers and agri-business producers is to position themselves in the ever changing global environment. This
cannot be achieved through dwelling on a grim outlook about the foreseeable challenges but rather through an aggressive
response to those challenges through a mix of political and private sector initiatives, either to reverse adverse policy changes, or to
adjust to the new and emerging environment through careful planning, suitable investments in training, technology, infrastructure,
institutional arrangements and capital formation. I am sure with the right balance small farmers in Grenada will hold their own in
the same way that they have so resiliently bounced back from the ravages of Hurricane Ivan and Emily in two successive years. In
that endeavour I offer you my best wishes and as a regional civil servant I would be willing to provide whatever assistance that I
can.

In closing, let me say that challenges there will always be but for every challenge there is an opportunity to be had and so if all you
see are the challenges then someone else will be busy focusing on the opportunities. Thanks again for allowing me to sharing
those perspectives and for inviting me to your beautiful country.

******************

CRNM UPDATE is the flagship electronic trade newsletter of the Caribbean Regional Negotiating Machinery (CRNM). Published in English, it is a rich
source of probing research on and detailed analyses of international trade policy issues and developments germane to the Caribbean. Prepared by the
Information Unit of the CRNM, the newsletter focuses on the CRNM, trade negotiation issues within its mandate and related activities. Its intention is to
provide impetus for feedback by and awareness amongst a variety of stakeholders, as regards trade policy developments of currency and importance to
the Caribbean.
http://www.crnm.org