Report No. 566a

CasLJa, 1-% W.: a, uuy1 -%'%W%

Volume IV: Industry

June 9, 1975

Latin America and the Caribbean Region

Not for Public Use

Document of the International Bank for Reconstruction and DevelopmentInternational Development Assoriatinn

This report was prepared for official use only by the Bank Group. It may notbe pubiished, quoted or cited without Bank r-roup authorization. The Bank Group doesnot accept responsibility for the accuracy or completeness of the report.

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CURRTElNCY EQUIVALENTS

Exchange Rates Effective May, 1974

US$1.00 2.00 BDS$ (Barbados)

1.71 B$ (Belize)

= 2.18 G$ (Guyana)

= 0.91 J$ (Jamaica)

= 2.00 TT$ (Trinidad & Tobago)I,

= 2.00 EC$ (Eastern Caribbean-)

1 BDS$ = 0.50 US$

1 B$ = 0.58 uSs

1 G$ = o.46 us$

1 J$ = 1.10 US$

1 TT$ = 0.50 us$

1 EC.p = 0.50 us

Note: As of July 15, 1974, the currencies of Barbados,Belize, Eastern Caribbean, Guyana and Trinidad andTobaro were linked with sterling, Jamaica inaintainsa parity relationship with the US$.

1/ Antiuajn Dnininin Cr;ndq tsrrat; St. Kitts-Nevis-Anguilla, St. Lucia, and St. Vincent.

TAR1 F Or CrNTENTS

Page No.

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COMMONWEALTH CARIBBEAN . 1

The Scope and Structure of Manufacturing .... 1Industrialization Policies. . .... 2

_Li. THE _ INTEGRATIONEMrEIEC . . ..t.... . ...... 7

Tne CARIrTA Integration Mechanism .8The CARIFTA Experience .. 10The CARICOM Framework . .. 16

III. THE OPTIONS FOR INDUSTRIALIZATION IN CARICOM ..... 25

Prospects for Import Substitution .25Exports .31

The Development of CARICOM - The StrategicOptions .32

ANNEXES

I. CARIFTA LDCs: The Manufacturing SectorII. Prices and Competitiveness

III. Selected Bibliography

STATISTICAL APPENDIX

SUMM1ARY AND CONCLUSIONS

Introduction

1. The foundations of industrial development policy in the Caribbeanwere laid many years before the establishment of CARIFTA. During the decadeof the sixties industrialization was pursued not only as an instrument ofdevelopment but also as a vehicle for extending the independence movementfrom the political to the economic sphere. Import substitution became a focalpoint of industrial development policy in the belief that an expansion oflocal productive capacity would reduce the dependence of the region upon ex-ternal sources of supply. In keeping with this strategy a system of protectivetariff barriers and quantitative import restrictions was established by manyCaribbean countries and generous investment incentives were made available toindustry. CARIFTA inherited this structure of protection, and the movementtowards integration has not changed the basic framework of industrial policy.Integration has resulted, however, in a unification of many policy instruments.The adoption of a common external tariff and the harmonization of fiscal in-centives have constituted two of the most concrete achievements of the integra-tion movement to date. The impact of these developments has been felt byindustry more than by any other sector, and in this sense it is not unreason-able to regard industrial development as the .most important aspect of regionalintegration.

2. The manufacturing sector in the Commonwealth Caribbean consistslargely of those lighter industries which typify countries at an early stageof industrialization. In addition. Trinidad and Tobago. Jamaira and Guyanahave some limited heavy industry based upon their petroleum and bauxite re-sources, The linkage betwwen this heavv indusqtrv and th. rest nf the acon.omyis, however, minimal, and its development has been historically separate fromthat of liehter manufacturing. This senarate identitv in reflpetpd in thestructure of the integration movement. The harmonization of fiscal incentivesand the comnmon tariff policy ara cleanrlu Adirted at lighter manrufacturing

industry and they affect heavy industry only marginally if at all. Recentlythere h-ve beer 4it4nr4u&a to fnaosr regioranl co erhati4on in heavy industrybut this has been at a project level rather than at a general policy level.The -rreseant study etu,ebeAac heay m4ne-rl_-hanA 4iAnuatries fv^o -onsl4dA-tonr ~~~.Y ------- &- w -- - ---Sugar refining, being closely related to agriculture, has been considered inVolume III of tbis report.

T.h. Devlopalmer.t of Mnn..uf.,n.r4na in the Nair,a1 l Cntext

3.~~V~~F nufacturl-.g has developed ir. the Conamo,,nwealth Caribbtean with * ,Aa&_n.La l... AL .g L*U as -- -- a, - 4l -. %JUSLJUW .Ll t LU U Au~ i L. LaI

patterns and policies similar to those observed in many other developingcour.tries . As an ar.swer to the- forigr exha.g cor.stra-----int ar.d the chronicL.IJUILL ~O *r.5 11 G1DW . L.AJ LL LIJL.Lr61i VA1~1~ .;.JLLLO._LJL aii CL11U L-LILLF iL.

Caribbean unemployment problem, industrialization has been pursued largelyt hroug[h ±UporLL sUUbsL.LUL.UL oUL'cies ar.d LUsLered by L[he generUus Use of

incentives legislation and quota controls. Amongst the countries of CARICOMthree stages of industrialization can be identified as follows:

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(a) The seven LDCs of the Eastern Caribbean are the least industriallydeveloped, having achieved imnort substitution only in terhnologically 5imnle,small-scale activities which are often protected by high transport costs.Some, however, possess a small nmnOUnt of enelnve assemhlv ind,strieq for

export.

(b) Guyana, Barbados, and Belize have developed semi-mass-productionconsumer goods such as biscuits, cigarettes and ready-to-wear lthi4ng; aswell as industry of a mixing or packaging nature (e.g. paints, pharmaceuticals).GUylanla's- r*esource L-lase has led to a substantial propor-i.on of agricultural

processing, while Barbados -- lacking a similar base -- is gaining a speciali-zat4LoUio in export-orLienteU assembU'Ly operations anu Belze, thlough less developedthan both, has gone somewhat in both directions.

(c) Trinidad and Tobago and Jamaica are the largest Commonwealth coun-tries and have the olUdest manufactur'ing sectors. They have moved into a

narrow range of intermediate goods such as cement and textiles as well as theassembly of consumer durables. 'While the degree of industrialization reflectsthe size of the domestic market, it is also an indicator of competitivenessin manufactures within CARIFTA.

4. The industrial structure of the MDCs has been criticized frequentlyfor the "shallowness" of locally added value, the capital intensity of newinvestments and the inefficiency of production. It would appear that thesecharacteristics are to some extent a direct consequence of the protectionpolicies that have been pursued in the region. The shaliowness or valueadded is typical of many countries in an early stage of industrial develop-ment, but it also reflects a system of incentives which encourages the use ofimported inputs. Inefficiency and a growing level of capital intensity re-flect the problems of industrialization on the basis of very smail markets.Opportunities for further import substitution have become progressively feweras industry has developed, and recent investments have often been in areaswhich by virtue of their technology are capital intensive. In these casesincreasingly substantial protection has frequently been necessary.

The Integration Exe,rience

5. The Caribbean integration movement is not merely a response tothe liVitations imposed by small size, but also reflects a political commit-ment to bridging the gap between rich and poor member countries and to reducingthe region's dependence upon the outside world. CARIFTA was basically a free-trade area modelled on EFTA, with some built-in concessions for the LDCs. Itis difficult to determine with any certainty the effects of CARIFTA on theaggregate level of trade in manufactured goods because of the small size ofinter-regional trade during the whole period since the mid-1960s and becauseof the structural changes which have taken place in the Caribbean economies.

A close examination of the available data indicates, however, that CARIFTAwas responsible for a modest increase in the proportion of manufacturingoutput traded within the region. Whether this increasing trade was accompanied

by trade creation or diversion is more difficult to judge from the aggregatefigures. However, there are strong a priori reasons for arguing that theestablishment of the free trade area resulted in trade creation rather thantrade diversion. CARIFTA countries tend to give high protection (throughquota restrictions) to those manufactures that they produce while imposingonly modest tariffs on manufactures which are imported. The abolition of

internal trade barriers within the free trade area will therefore have pro-moted competition among Car4bbPan rnuntries for those locally produced manu-factures which were previously highly protected. Competitive imports fromoutside the regiorn continued to be excluded, while non-competitive imnorts

were admitted on essentially unchanged terms. Thus the tendency has beentowards increased ir.tra-regionl competiion (trade creation) rather thantowards trade diversion (which is characterized by an increase in relativelyhigh-cost imports from regional pt -a -t o texense of lower cost extra-

regional imports). This conclusion is supported by a demonstrable relationshipbetween the average level of protection in member countries and the increase inmanufactured imports from CARIFTA sources. On the other hand, there is littleevider.ce to suggest that C hlL L as ldo improved rates of capacity utiliza-

tion in manufacturing industry, or improved linkages between sectors.

6. Although the establishment of CARICOM has led to the adoption of acommon external tariff, the region will rema'in, nevertheless, a disguised freetrade area as long as independent national import quotas continue to exist.Within the Caribbean context import quotas constitute a much more powerfulprotective device than import tariffs and, as yet, there is no firm schedulefor the adoption of a common system of quotas. Until enis comes about, CARICOIwill fall far short of a unified market and the effect of the transition fromCARIFTA will be relatively marginal. To the extent that the movement towardsa true common market takes effect, however, the result may be more trade di-versionary than trade creative. The common external tariff is higher than thenational tariff it replaces in Barbados and the LDCs so that importers in theselatter countries may be encouraged to switch to relatively high-cost productsfrom within CARIFTA in cases where higher tariffs are imposed upon traditionalsources of supply from outside the region.

7. An important adjunct to CAIKCOM is an agreed harmonization of fiscalinvestment and export incentives with built-in preferential elements for theweaker countries. The investment incentives can be criticized, however, forbeing unnecessarily generous and for excessively favoring the creation ofsectoral linkages at the expense of efficiency. The export incentives, onthe other hand, are relatively weak and are unlikely to stimulate a majorexpansion of exports. Preferential treatment for the LDCs in terms of anoverall package of concessions is greater under CARICOM than under CARIFTA,but it is not immediately obvious that these concessions are sufficientlystrong to encourage the growth of manufactured exports from LDCs to MDCs.

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The Strategy Outlook

8. The Caribbean region is still a micro-unit in international termsand the factor of scale imposes a limit to gains from import substitution.The region should begin to pay more attention, therefore, to extra-regionalexporting as a basis for future industrial growth. At a certain point, importsubstitution and export promotion become incompatible. To the extent thatimport substitution involves relatively high levels of protection, it penalizesthe export sector by raising the local cost structure in general, it encouragesinefficiency in local production and it contributes to an over-valuation ofthe domestic currency by restricting the level of imports. All three of theseconsequences are prejudicial to the growth of an export-oriented industrialstructure. Thev mav be offset to some extent. however, by explicit exportincentives.

9. As far as the manufacturing sector is concerned, the main thrust ofthe CARICOM mechanism is undoubtedly directed at the continuation of importsubstitution. There is little evidence to the effect that this strategy hasimnrovpd {nter-npctoral linkages and reduced denendence on the outside worldin the past, however, and it would appear that a more appropriate balanceshould hp strutk hbtween these regional aims and the need to exnort. It isimportant to identify a structure of economic integration that is compatiblewith a monre agressive development of manufartured exnorts, and the followingrecommendations have been formulated with this in mind.

Regional Industrial Planning

10. Although the desirability of regional industrial programming hasbveen WidAely discussed , 4it wou%ldA not, Yf yta appes thant- irteraftion isa suf ficiena"t-been------ -0 Y- --r…-- 1CU-0-

ly advanced for comprehensive planning to be tackled at a supra-national level.Siome modest advan.ces in .,is Arectio e however, feaible a the presenttime. The coordination of industrial policies could be substantially improvedUy greater cooperatior. among thLI '&.ie natior.al. Idustrial D.evelopment 1o #- tpo ratior .s

Such cooperation could be particularly fruitful in avoiding over-investment in±udustrLes w`L Lere sufficient capaciLtLy already exiLsts withil. Ltihe regiLon, andU iLnavoiding a production structure that is irrational from a regional perspective.Over and above this Kind of' cooperatLorl beLween national ULg6iL.LzioaLsth Llee is

a need for more explicit consideration of alternative industrializationstrategies and for the economic evaluation of these strategies at a regionallevel. It would be desirable for a regional industrial office to be establishedwithin the CARICuri Kegional Secretariat to undertake tnis task.

Regional Protection Policy

ii. CARICOM has not yet explicitly determined just how protective agrouping it will be. The existing common external tariff is relatively modest.Tariffs would appear to constitute only a small element of the total apparatusof protection, however, while nationally administered quota systems still con-stitute the most powerful protective instruments. Only when some regional

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agreement is reached with respect to these quota systems will a common protec-tive framework be clearly defined. The present policy inclination towardsimport substitution would seem to imply a bias towards high levels of protec-tion. Such a policy stand would have two severe disadvantages, however, whichcould prove to be an encumbrance to the region's development effort. First,a hi8h common level of protection would impose a significant cost upon theindustrially weaker countries of the community as a result of trade diversion.Second, extra-regional exports are likely to be handicapned by a hi2her levelof protection and this too may fall particularly heavy upon the industriallyweaker countries. Insomuch as there is only limited srone for fiirther imnortsubstitution within the region, future industrial growth must be progressivelymore export-oriented; and notential handicanp to eytra-region-l exportingshould be avoided.

The Special Position of the LDCs

12. From its very inception the Caribbean integration movement hasrecognized the need for concesonary treatmen.t to the LDCs. Experiencesuggests, however, that the relative weakness of the smaller territories interms of the4l pote-ntial for industrial developme.t , us tifes even more con-cessionary treatment than has hitherto been extended to them. There is onlya small r.g of AL po c whichfl* LA the T tIC my realis-ti ----.ally h o proAuce

for export to the MDCs, and within this rangd it would be reasonable forCATRICOM to confir,e ir.vestment ircr.ie exlsvl o those fi.,, whichS.SJ'~SASJI-LS J-LIL.&1 .L UV LA LU Lb .Lncen.. i~Lve excl usLve.ly L.. &LLUV LLUL WLAL..L L

locate in the LDCs. A further recommendation that would promote the cohesive-rness ox the LDs s aa gr0up LS to ZstrtentLen tLle Eas CaribDean. Commonr-L r kLKe t

Secretariat as an independent sub-regional entity.

Investment Incentives

13. In view of the extensive use of non-tariff protection by CARICOMcountries, it appears that fiscal incentives to productLon for the localmarket are unnecessary. With quota protection new producers will not facecompetition from outside the region and are assured therefore of a gooa rateof return without resort to investment incentives. It is recommended that thepresent system of incentives be redesigned with a view to promoting twospecific policies. As a matter of general principle incentives should belimited only to export industries wnich aim to serve the extra-regionalmarket or to industries which invest in the industrial weaker countries.in addition, steps should be taken to gear all investment incentives moredirectly to economic efficiency. This has always been the intention of govern-ments within the region, but the effective implementation ot this objectivewill depend upon much more rigorous project appraisal by Industrial Develop-ment Corporations.

14. The present policy of permitting major industries to import inputsfree of duty should be reexamined. As in the case of investment incentivesthese concessions are unnecessary when industries are protected by quota

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restrictions on the importation of competitive products. It is not recom-mended that tariffs on imported inputs be fully reimposed across the board.There are some cases, however -- certain agricultural inputs come readilyto mindd =- w6here som,e modest tari4ff protection cou'ld bue expected to shiftsome of the demand from imported inputs to local products.

Export Promotion

15. The principal conclusion of the present study is that the best longtermn prospects for industrial growth lie in exporting outside the region. Onthis basis it appears the present export incentives are much too weak expecial-ly since the exchange rates in a numDer of instances are determined on thebasis of the most efficient sectors. Investment incentives should favorexport-oriented projects as recommended above, and the structure of an ap-propriate system of incentives would be a suitable topic for regional study.Tnere is no reason to suppose, however, that the same rate of export subsidyor export incentive would be appropriate for every Caribbean country, andstandardized incentives such as exist at present may not be the best approachto the problem. There are advantages to be gained from cooperation in thefield of export promotion, however. A regional export promotion agency maybe able to reap significant administrative economies of scale.

I. THE DEVELOPMENT OF MANUFACTURING IN THECOM?MONWEALTH CARIBBEAN

The Scope and Structure of Manufacturing

1. The development of manufacturing in the Commonwealth Caribbean isconditioned by the relatively small size of the national units though thepopulation of the largest, Jamaica, is 20 times that of the average LDC of theregion. Whilst there are resulting similarities in the pattern of industriali-zation, there have also been distinct differences in the timing and degree ofindustrialization, in large measure the result of the different sizes of mar-kets and consequent different opportunities for import substitution. Therange extends from the relatively developed manufacturing sectors of the MDCs,especially Jamaica and Trinidad, to the little developed manufacturing sectorsin the LDCs.

2. The MDCs, Jamaica, Trinidad and Tobago, Guyana and Barbados accountfor 86% of the population, 91% of the total gross national product of the re-gion and for 94% of the manufacturing gross domestic product of the region.The eight LDCs have 14% of the population and account for much a smaller pro-portion - 6% - of CARIFTA's manufacturing gross domestic product. Moreover,more than half the manufacturing gross domestic product of the least developedgroup is produced in the largest country in this category, Belize, with 20%of the population of the LDCs (Table 1.1).

3. In 1970. manufacturing accounted. on the average for more than 12%of the gross domestic product in the MDCs, the range extending from 10.8% inBarbados to 13.6% in Jamaica, the largest country in terms of Donulation andof manufacturing output. In the LDCs the average contribution of the manu-facturing sector to the gross domestic nrodurt was about 8% in 1970, buit- mnotof this is to be attributed to Belize, where the contribution of manufacturingto output was 15.6%, that is, more significant than in the rest of the rezion.In the remaining seven LDCs, manufacturing output equalled 5% of total grossdomert-ic nroduce-t (Tahle 1.2).

4. The deuelnpment and structu,re nf industrial nrondiutinn 4n theCARIFTA countries can be viewed in terms of three chronologically successive"1ayers' nf nrndiiucts 1! The firQt arniin nf nrnAoiii-t is mnade viablhe at an

early stage of industrialization by a combination of great labor intensity,

1/ Table 1.9, giving physical output of selected manufactures in the MDCs,n-A Table 1.2 I 14ti4ng p:oducts benefitir.g from prote^ior. are

illustrative.

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simple technology, small scale of production, and in many cases, high trans-port costs. Such items are garments, low-quality furniture, aerated drinks,cement blocks, and tyre retreads. By and large, the LDCs have reached thisstage of industrialization, though they are not self-sufficient in all theseproducts.

5. The second group consists largely of consumer goods typicallyrequiring greater scale and technology than the first group, for instance,semi-mass production shoes, margarine, beer and other alcoholic beverages,cigarettes, soap, and various mixing/packaging operations such as paints,fertilizers, cosmetics, pharmaceuticals, and paper products. Guyana andBarbados have reached this stage.

6. A final group of intermediate and consumer goods requiring somewhatlarger scale and greater technology can be divided into two sub-groups.Firstly, there are basic, mass-consumption intermediate products, such aswoven textiles, cement, bottles, tin cans, and some rolling of structuralsteel. Secondly, there is the assembly of consumer durables; these are theso-called screwdriver industries which range from bicycle assembly throughdomestic electric appliances to motorcar assembly. Jamaica and Trinidadhave reached this stage. They have not, by and large, proceeded to furtherstages which consist of activities which are more skill-intensive; for in-stance, light engineering, or more scale-intensive industry, such as pulp andpaper production or basic industrial chemicals.

7. Manufacturing tends to be highly dependent on imported inputs andon the whole the degree of local value that is added to the inputs and thelinkages generated within the economy are small. 1/ The explanation is foundin the lack of suitable local raw materials and of local intermediate indus-tries. It is also partly a problem of the effect of the incentive system inencouragin2 imnorted inputs (see next section). The available data indicatethat there has been little change over time in the import dependence of,m, nnfactur1n-g.

8= The smA11nPss of thp market inhihits the Pstahlishmpnt of inter-mediate manufactures, where economies of scale play a significant role inmnakng such maniifaftvrsa raonannbly efficient The offects of the ammll siza

of the market for a particular product are compounded by product differentiation.Many of the above --tivtieare of the "branch plant" type, in which variousmakes or brands of a product are assembled from imported components. The localassembly of 20 types of automobiles in an aannual market of only 2,000 units iTrinidad provides a striking example. Backward integrating import substitution

1/ Dee T1abl'es I.1 aL U I.2v Lor the shlare ofk .Lmportedu ar,d LocaUL materlalsand services in a sample of firms and industries in Guyana and Trinidad.

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in such products is inhibited not only by the small size of the market butalso the degree of product differentiation. since inputs are not standardized.Moreover, it should also be noted that the differentiation tends to lead tohigher cost imports. since it is unlikely that the least expensive package ofinputs required for a given output will be imported. The package of inputsimported to nroduce. sav. a certain make of car will he determined bv the makeof car.

9. Constraints of a limited domestic market can be eased by expansionof manufacturing through exnorts. ]4nwever expnnrts nf manufnt,iroe gnood aresmall in relation to the manufacturing gross domestic product rf most of theCARIFTA memhers. Tn 1970, the nerent ratin was 4.4 for the region. Among

the LDCs, only in St. Kitts (34.6) and in Dominica (9.7) is that ratio signif-4rant. Among the mnCa, RBrband atands noit. woHwever, it should be noted thatthese ratios disregard sugar milling, important in a number of the membercountries, and Trinidad's refjning ar. activrities re'ated to petroleum=basedchemicals (Tables 1.1 and 1.2).

10. Although most manufacturing output is for domestic sale, importsneverthelless constitute thle largest proportion of the manufLactUures so'ldUdomestically. Furthermore, the share of local production in domestic marketsfor manufactures Ias generally IL-een static or. even fa'llig This 's csULtLentwith a pattern of import-intensive industrialization where the replacement ofassembled by unassembed manu'actures ULports 'as l';le e'fect on the importbill.

Industrialization Policies

11. Manufacturing has been actively encouraged since the 1940s througha combination of government measures. The accent hss been on import substi-tution. Before the late 1960s, however, steps to promote industry did notassume a regional flavor. This section concentrates on domestic policies.CARIFTA and other regional arrangements are taken up in the next section.

12. The instruments used by the Commonwealth Caribbean to encouragemanufacturing include fiscal incentives. Quantitative restrictions piay asignificant role while import tariffs are also used. Moreover, tariff con-cessions are used to lower the cost of imported inputs. A number of indus-trial Development Corporations have been established to administer and guidethe process of industrialization.

13. As Table 1.26 suggests, the use of quotas on major manufactured itemshas been widespread. Indeed, it is fair to say that, with some exceptions,quota protection has been central to much industrial development in the Common-wealth Caribbean, and that tariff protection has been ancillary (i.e. used asthe means of protection on a smaller number of items) or redundant. However,except for Belize, the LDCs have established relatively few quantitativerestrictions on industrial imports.

14. In all the MDCs, negative lists were originally established on anad hoe hasis bv ministries of trade as sDecific new nroducts came to he nro-duced in these countries. In principle, the criteria governing their imposi-tion and continuation are the availability of local sunnlies in sufficient

quantity and quality and at an acceptable price. In practice, the quantityof local supplies has nrovud th iTmnortant critprion. Although nrotert-inninitially had an "infant industry" flavor, quota protection has been continuedon a discretionrary basis, either because local producers have never been ableto achieve cost levels that would be competitive with world prices, or becausethey have been able to pressure governments since, so their argument runs, the

alternative would be politically unacceptable unemployment. Most of the con-trols have taken tbhe fo.u of dis.retionary issuin,g f import licenses formarginal foreign imports. Alternatives have been a system of price minima,e.g. on many c'LotbiLng J.ems,1, or, Ln t'he case of Guyar.a, the admission ofimports of certain products only through certain designated governmentorganizations (mainly the E IxternaL L Trade B1dureau).

15. ~ Irt Tabl 1.26 iniae -le a' valorem tariff rates in the r.ational

schedules in force until the advent of the CARICOM common external tariffin 1973. These were, for the most part, muodest in comparison -with those ofmany other developing countries. 2/ However, the few specific rates, parti-cularly on beverages, cigarettes and cement, tended to have a higher aduvalorem equivalent. In many cases, various consumption taxes have alsocontained a protective element, particularly in tne case of Guyana whichalso had the highest protective tariff. The LDCs and Barbados had the lowestprotective tariff whilst Jamaica and Trinidad occupied a middle position. TheCommonwealth Caribbean countries also offered substantial Commonwealth pref-erential margins consisting, for the most part, of some five percentage pointson general rates up to 20%, some ten percentage points on general ratesbetween 25% and 35%, and some 20 percentage points thereafter. 3/

16. The Industrial Development Companies have been credited with animportant role in fostering Caribbean industrial growth. Apart from theiradministrative role in the incentive system and their general role in identi-fying industrial possibilities and attracting local and foreign investors,they are responsible for developing industrial sites and building factoryshells for subsequent lease to private firms. In a number of cases, rentals

1/ Price minima assure that the only imports allowed (and allowed freely) arethose-- who --4i prace -- henrce quali4ty -- 4i too -hig- -t pro,v4 sub-LALJMlC- WL&LJOC U L-. FLp. ~Lt_ *f.&*.. *..*.-.L*.t. j- A.V- -% L C

stantial direct competition for local production.

2/ National rates for LDCs, not given in Table E-1, are comparable tothe common external tariff rate adopted by the ECCM in 1972 and presentedin Table 1.26.

3/ See para. 3 of Notes to 'Table I.2.

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have been at subsidized rates. A great number of new establishments in the1960s which were typically of the light manufacturing variety has thus beenhoused in government-built factories.

17. Governments have seldom provided capital free or at preferentialrates to promote industry. On the other hand, fiscal investment incentiveshave been common. The salient details of fiscal investment incentives (priorto CARICOM harmonization) are set out in Table 1.27. For approved ("pioneer")antivtities the aeneral rule has been to grant inrome tax holidays averagingfive to ten years with provision for carry-over of losses, and liberal allow-ances fnr du,ty-frep imnnrts of inuv mTnant goo4s and, in many cases, of inter-mediate inputs. The only substantial export-incentives legislation, that ofBarbados and jamaica, consisted in effect of iam4 lar fiscal incentive packagesawarded to 100% exporting industries such as garments (which would not neces-sarily be granted pioneer status if theywere producing for the domestic mar-ket). 1/

18. Over and above fiscal incentives to pioneer industries, Trinidad andTobago began the practice i4 the earily 1960s of alown i.,ot of duty-free - -~-I

,.J'a6J U5OI LLC j, a.. ~t.C *fl .LU CC . JUt.J 'J C&X±tJWX&*5 *!UjJJWL LO Ut ~uILY I- L CC

intermediate imports to approved firms in approved industries, not necessarilypior.eer, asc a mLeans oA. promoting industria.l 6r-WLLI. _/ Si.LLL%.C Lt.Lh time.LLU, JCVUaiLd.

has followed suit extensively and Barbados and Guyana more selectively. ForLr'LnidLUau andiu Tobuago ar.U Jamaica, andU to a 'Lesser extent Barbados, this con-cession has come to be extended to the majority of manufacturing establishmentsLn the "organized" sector. The UaJor exceptions are thUse specific industrieswhere an existing major local input has been identified, e.g. some food itemssuch as processed milk products and some cotton textile fabrics.

19. it has not been possblDe to examine wnether this approach has actual-ly inhibited linkages, i.e. the greater use of domestically produced inputs bymanufacturers. But it appears that this is likely to have occurred. More-over, duty-free importation of capital goods tends to promote the use ofcapital-intensive techniques and the production of goods best produced withsuch techniques. Certainly, since it is desired that employment and linkagesbe maximized within the constraints of reasonable productive efficiency, it isof great importance that good judgment be used in managing these incentives.It could be argued that in view of these complications, where quantitativerestrictions in any case guarantee the local market, further subsidizationthrough special provisions for the duty-tree importation ot inputs and capitalgoods is redundant unless the intention is to promote exports.

1/ Tn recent years, Trinidad has offered a small tax cnneession on exportprofits, based on a complicated formula, but the provision has hardlybeen uead.

2/ Under prvuisions of the cusatoms code.

20. As pointed out earlier, the import-substituting industrializationassociLatedu with these policies has beer., with some exceptiLons, 'mport intensive.Linkages have been few and employment effects less than hoped for. The emphasison import substitution anid thnze i z oL the i.arKet no doubt are signifi-cant constraints to an expansion of output where economies of scale matter forreasonably efficient production. Yet linkages do not appear to be signifi-cant in activities such as agriculture where the scale of operations need notbe an impediment to expansion.

2i. Wnilst there is of course not one regional view, this analysis bearssimilarities to that made by many economists in the region. The CommonwealthCaribbean Regional Secretariat (CCRS) puts the probiem as foliows: i/

the rapid growth of the manufacturing sector which hastaken place in the last decade or two in the four independentcountries has been accompanied by certain undesirable teatures:too heavy a dependence on foreign capital, foreign technologyand foreign inputs (that is, raw materials and components), theexcessive capital-intensity (and therefore the limited impact onemployment) of the foreign technologies used; the creation ofinsufficient "linkages" between this sector and other sectors ofthe economy (particularly agriculture); a drain abroad of profits,dividends, interest, royalties, lffcence fees, and managementcharges because of heavy dependence on foreign capital and foreignenterprise; and insufficient expansion of exports of manufacturesto countries in the outside world -- a very important objectivefor small countries such as those in the Caribbean.

All of this has occurred in the context of heavy direct andindirect subsidization and protection . . . relatively to theGovernmental encouagement given to agriculture, particularlyDomestic Agriculture."

22. Since the CARIFTA countries are of small size, they may choose toencourage manufacturing activities in which scale is not important, tostimulate manufacturing through participation in regional or foreign exportmarkets, or a combination of these. The region's own analysis lends heavyemphasis to regional market enlargement, not only as a means of achievingeconomies of scale in industry, but also as a means of creating the linkageson which economic development is seen to be based, though regional commentatorsdo not shut the door on extra-regional exporting.

23. AA discussed in the next section. the Commonwealth Caribbean iscommitted to regional industrial integration. Policies for regional industrialintegration can hp divided into two apnroaches: industrial programming andtrade liberalization. The CARIFTA regional integration experience, whichhas so far largelv followed thp trade liberalization annroach; is examined inSection II, whilst regional and extra-regional options are examined in

Section ptI.

1/ pp. 12-13, CCRS, from CARIFTA to Caribbean Community, 1972.

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II. THE INTEGRATION EXPERIENCE

24. The origins of the regional movement in the Commonwealth Caribbeanare to be found in a strong sense of cultural identity which, if translatedinto a more functional form of unity, could provide a means of overcoming thefragmentation of Commonwealth Caribbean economies and achieving greater politi-cal and economic viability. Formal governmental attempts to establish regionalgroupings began at the end of the colonial period. 1/ The regional movementpursued a pattern broadly parallel to that of the earlier West European unitymovement. The first unification attempt, the Federation experimnent of1958-1962. was political rather than economic. It was followed by lessambitious functional and economic approaches.

25. In 1965, Antigua, Barbados and Guyana, on the initiative of thelatter- were able to agree on the text of A Cnrahhcnn F'rp Trndp Aarppmpnt

(CARIFTA) which was largely modeled on the EFTA agreement. Meanwhile, theEast Caribbean LDCs were moving to eloser formQ of cnoperation which wereto culminate, by 1968, in an East Caribbean Common Market (ECCM). By late1967; the Commonwealth rarihhpan oniintrlae wer labl to agree conllectivly

on the formation of a free trade area, based largely on the 1965 text. Thisnmie into affec-t 4n 196R 4Uiat nftert tho f Emo,. ^f 4-ha vrYm Tn 196Q

the countries of the region established the Caribbean Development Bank (CDB)which was to serve, in 4i-a 4n4t-4al years at least, as the means of channelingloan funds to the LDCs. In 1972, CARIFTA member countries agreed to proceedto the formatior. of a Caribbear. C-o aity -Ar Co-or. uMrket (C^ICOM) whichCI

came into existence amongst the MDCs in 1973. At the same time, the MDCsagreeA t-o harmon4ze f-iscal Incentiv1es to- iu_rZ to create ---rbbaL. L L LU IJa J..A. A...a J.A~ .V~Q L' ~LL%AuaLOLLY , 6LI a V=&Aa.LUU~-MLL

Investment Corporation (CARINCO) to channel equity funds to LDCs, and toestablish double taxation aud tax=sparig a rrangemUerL; withinL the Com,-unity.The LDCs agreed to acceed to the Community in May 1974. 2/

26. The major objectives of CARIFTA and CARICOM are:

(i) to improve efficiency through greater competition and specialization…-l -- - A. fjj,. -- - JJin a LargeL maLrLk, (.LiJ Lto pLrVi a 4 arke; sufficiently Large to ruake new

industries viable, (iii) to achieve greater national or regional linkagesetwetn sectors s" part'Lcu'far, iLnCrCeasUed ubC Ul regiunal naLurl resoures),aiJ(iv) to provide a common stance on relevant policy matters concerning non-member countries (e.g. foreign investment, preferences, snipping, etc.),(v) to provide for the equitable sharing in the fruits of development.

1/ For a chronology of events, see ChaDter III of Caribbean CommunitySecretariat, The Caribbean Community: A Guide, 1973.

2/ Antigua has reserved its position on this.

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27. In this section, the CARIFTA mechanism is outlined and its impactevaluated. The final part describes the COMICON framework.

The CARIFTA Intearation Mechanism

28. The CARIFTA agreement which came into effect in 1968, immediatelyfreed trade between member countries from import and export duties and quotaswith rertain exceptions. 1/ National tariff and quota regimes vis-a-visthird countries remained untouched. To qualify for area treatment, exportsfrom one member rouintrv to another had to consist of at least 50 area valueadded. Given the lack of area production of many raw materials and inter-mediatp inpnuts somp 200 imnorted items incornorated in a Basic MaterialsList, were considered as of regional origin. 2/

29. The first group of exclusions consisted of a small number of pro-ducts in whlch4.' the co-ontracrtuai1 obligations of individual member rountiries(i.e. undertakings to protect) did not allow them to offer free trade. Mostof these items concerned the MCs and Belize. 3! The second grnon of exe-tions constituted a Reserve List stipulating a phased elimination of tariffson inter-regional tr_ade for~ c~er.tair4. "ser.si-tive" ltems. Fo st 1 poucs

important in local production, ranging from processed fruits through paintsanA radiauos and TVs -o- shoes A clothing, Lhe- mrs hLad f4v yastop

out their tariffs and the LDCs 10 years. Member countries were obliged toplhase out the pro,LecLv element in revenue duties on a1c"holic beverages andpetroleum product imports from within the region according to a similart'LILetaUe. .IL±LrUdy, mpos;tLon oL quotas against meb.er countries was allowein the case of balance-of-payment problems, sharp deterioration in revenuesor sharp disruption oL domLestic production. Products falling under theAgricultural Marketing Protocol and the Oil and Fats Protocol were subjectto trade regulations beyond those stipulated in the trade liberalizationclauses of the CARIFTA agreement. 4/

1/ The agreement came into effect on May 1, for Antigua, Barbados, Guyana,and Trinidad; on July 1 for Dominica, Grenada, St. Lucia, St. Vincent,and St. Kitts; on August 1, for Jamaica and Montserrat. Belize did notjoin until 1971.

2/ Provision was made to remove items from this list as local suppliesbecame available. An additional means of qualification for area treat-ment by means of a Process List, which would stipulate various productionprocesses justifying area treatment, remains inoperative until such alist is drawn up.

3/ The only item excluded in all five countries is wheat flour, whilstevaporated and condensed milk were excluded in the MDCs except Guyana,tires i and Trinidad- rertain stock feeds in Barbados. St. Lucia,St. Vincent; coconut products in St. Vincent. In all little more than20 -iem.s a aff.cted.

4/ See Chapter I on Agriculture.

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30- The nagreempnt nlso took some stepns towards fiscal harmonization.

Newly introduced incentives were not to be more generous than those existing.Intra-regior.al exports were not allowed to benefit from direct tax concs40nsor subsidies, duty drawbacks on inputs, or discrimination in internal taxation(except excise duties).4 1/

31.* ,.here were several. specit.sal , *.concessional elements for ,-.,he LDa&sJ.CThe Reserve List provisions as mentioned above favored the LDCs in that they

were allwe a longer period to phase out- im,port duties. Moeve uteWeLt CI.L±UWCU a J.UL1rt=L jJtL.LUU LU IJUL. ±LILWUJ Ltp UUL.J.O * LL U C L

Reserve List did not need to be applied in intra-LDC trade. Furthermore, theLDCs could, with the major'ty agreemien…t of the memer countr…es 'r..pose infant

industry tariffs against imports from MDCs. These provisions were necessaryconcess'ions to enable tl[e frULaidLnul of t Le ECrl which Just pre-dateu tlLdlt ofCARIFTA. The ECCM created complete free trade among member countries (theEast Caribbean LDCs); it committed them to an eventual common external tariff(which was instituted in 1972); it established free movement in the commonmarket of capital and labor (a feature notably absent in the CARIFTA Agreement).

32. Among the exceptions in the CARIFTA Agreement, the rules of origin,requiring that 50% of value added be of regional origin, except for th2 itemsin the Basic Materials List, constitute a major barrier to trade. A closerlook at the list reveals, by and large, that the following are the majorend-products to benefit by the inclusion in the List of their major importedinputs and, therefore, almost certainly to qualify according to the rulesof origin:

Canned apples (and juices)Bakery productsCocoa productsBeerGarmentsShoes and travel goodsPaintsPlastic productsPaper productsJewelryBasic metal products (e.g. aluminum windows,

structural steel)Petroleum refiningRubber products (from synthetic rubber)

1/ Whilst drawbacks were prohibited, it should be noted that tariffexemptions on inputs for production of goods for local and CARIFTAexport markets were not affected.

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While these products benefit, a large number of industrial activities do notbenefit from the Basic Material List. Some products such as many cannedmeat, fruit, and vegetable items, rum, wood and furniture products, tend toqualify according to the rules of origin on the basis of sufficient regionalinputs. Other products such as animal feeds and cigarettes do not, becauseof the high ratio of imported inputs. For many products, however, the verystructure of protection, allowing, in many MDCs at least, high levels oflocal value added, helps meet the rules of origin criteria.

The CARIFTA Experience

33. In judging the effects of CARIFTA on trade patterns, it should beemphasized that there are several elements working to dampen regional trade.Firstly, it is well known that entrepreneurs require some time to react fullyto new trading situations and that there is a time lag between the timeinvestment decisions affecting trade are made and the time they come tofruition. It is therefore early to gauge the effects, if any, of the inte-gration mechanism. Secondly, there are, as described above, a number ofexceptions built into the CARIFTA Agreement.

34. Regarding the relative importance df manufactures in the trade ofthe CARIFTA countries with the whole world, the share of manufactures intotal imports has tended to be static or slowly rising whilst the share ofmanufactured exports in total exports has been more markedly static. Onthe nther hand, the comnosition of intra-CARIFTA trade shows- with Romeexceptions, a marked and steady rise in the share of manufactures in importsand expnrtA hpfnrp as well as after the Pstahlighment of rARTFTA= 1/ Therelative move to trade in manufactures cannot therefore be associated ex-clusively with the advent of rARIFTA-

35 Throughout the Deriod the share of the various CARIFTA countriesin intra-CARIFTA trade in manufactures had shown a highly skewed patternwhich nprtlv reflprt-s relative sizes (see Table below). Exports are dominatedby Trinidad and to a lesser extent Jamaica, whilst the LDCs are hardlyrepresented. The pattern is also lonsided in imnorting. but in the opnositedirection, with the smallest group, the LDCs, accounting for almost one-thirdof the total. The third coui,mn, whirh exnresses the share of earh countrv'sCARIFTA manufactured exports going to the LDCs, demonstrates the high relianceof Barbados and Trinidad on tho small T.T)C markets.

1; Witn the exception ouf growth in export of1 petroleum-based productsfrom Trinidad.

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Shares in Regional Trade in Manufactures(SITC 5-8), 1971

(percent)

Share of Share of TotalRegional Exports Exports goina

Imports Exports going to LDCs to Region

LDCs 31 1 29 14

Barbados 18 6 59 35

Guyana 16 8 22 96

Jamaica 18 23 14 35

Trinidad 17 62 35 76

Total 100 100 31 56

Source: Table 1.10.

36. The principle means of measuring the effects of CARIFTA on levelsz,.A Alre Atio's ": t-raAe ar.d of9 estl-tir.g the4r poss4ible effects on domes-ic

levels of manufacturing activity are contained in Tables 1.3 and 1.4. Theseshow manLufacturLing production and trade by _AR.ILFA an[IU 1n=CIFT.Ar1,MA LtaInUgL

partners as well as the share of local and regional production in localmarkUets, the share ofL export4 s iLn output, the ra. 4.io of L t he Llradle bUa.Lance tooutput and the ratio of imports to exports for 1963, 1967 and 1971. The dataare subJect to tule usua. caveats, iL part'cular, it should ue poiLnteU out tilatthe assumption of "normalcy" in the development of the manufacturing sectoris that aLt will contLnue to satiLsfLy a constant share of the market fLor maniu-factures and manufactured exports will continue to satisfy a constant shareof manufacturing output.

37. Since a country opening up to foreign trade can expect changes inits exports and competing imports that affect domestic levels of activity,the ratios reflecting tne course of the intra-CARIFTA trade balance relativeto manufacturing GDP give an indication of the effects of changes in tradepatterns on various countries. l/ As shown below, the ratios do not change

1/ The larger the growth in the ratio of imports and exports to productionthe greater, pari passu, the trade creation effect (the maximization ofcomparative advantage). Of course, this is not necessarily so in thepresent situation where growing CARIFTA trade ratios may simply representdiversion from lower cost world sources.

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much in the case of the MDCs while those of the LDCs increase markedly priorto CARIFTA'a etaQblishment in 19AR and afterwards. Tho lattaers' negativeintra-CARIFTA trade balance worsened appreciably as imports increased inrelation to exports and in relation to the output of mnanufac-tures. Fr *he

LDCs, imports from the MDCs, mostly from Trinidad, became more important inrelation to (a) LDC exports to CARIFTA, (b) the non-exported output or manu=factures of the LDCs, (c) the domestic market for manufactured goods of theLDCrs. lowever, an increasing proportion of -le output of the LDCs was soldLilJ%V, , au LL .k J. %_,~ 4JJ L&J LL.h. LIL L. LJU 3. L IZ L IJ,~. V %ULU

extra-regionally. But in intra-CARIFTA trade, the MDCs can be considered toh-ave been the "gainers."'.

1LV~Ut~ LIA ,±L I IL

Percent Ratio of Intra-CARIFTA Trade Balanceto Manufacturing Output

1963 1967 1971

ECCM -100 -176 -228Barbados - 14 - 17 - 17Guyana - 14 - 20 - 16Jamaica 0 + 2 + 1Trinidad + 18 + 17 + 19

(+ indicates positive trade balance)(- indicates negative trade balance)

Source: Table 1.4.

38. Whilst the position of the MDCs in LDC markets improved in compari-son with that of the latter in the markets of the MDCs, this cannot beattributed exclusively to the establishment of CARIFTA. The trend was quitenoticeable prior to 1967, and 1967-71 developments represent a continuationof a pre-existing tendency. Apparently, in the early 1960's the MDCs (inparticular Trinidad) were becoming sufficiently industrialized to takeadvantage of a modest margin of Commonwealth preference and distinct loca-tional advantage vis-a-vis LDC markets. It would appear, nevertheless, thatCARIFT4 gave a further impulse to intra-regional trade after 1967. The share

1/ The size of the trade balances also shows the importance of the whole ofthe Commonwealth Eastern Caribbean, throughout the period, as a marketfor Trinidad manufactures. The relative importance of the decline ofthe LDC trade balance and unimportance of changes in the MDC tradebalances are to be explained by the different sizes and output growthrates of trading partners. Thus, for instance, in the period 1967-71very modest gains in the Guyanian and Trinidadian trade balance ratiosare the complement of the decline in the LDC ratios.

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of regional imports in CARIFTA's manufacturing output grew from 2.3% in 1963to 2.7% in 1967 and accelerated to 4.0% in 1971 (see Table 1.4).

Commodity Composition of Intra-CARIFTA Trade

39. A more disaggregated look at the pattern of intra-CARIFTA isobtained from Tables 1.11 to 1.14, which give details on total trade inmanufactures by maior product group, and by individual CARIFTA tradingpartners (the LDCs counting as one trading partner) for the latest yearavailable. Table 1.24, using the data of Tables 1.11 to 1.14, gives indi-cators of the advantage as shown by significant positive trade balances ofdifferent MDCs in selected nroducts important in intra-CARTFTA tradpe 1/

40. Overall. intra-CARIFTA trade takes place in a broad range of pro-ducts. In contrast, extra-CARIFTA exports are relatively few. 2/ In general,those nrodiuts least rpnresented in trade tpnrto eh amongst the more imnnrt-intensive items, such as cigarettes, animal feeds, and assembly products,whirh nre unablp to cnmply with rARTFTA ruile of oeriin. There is a markedabsence of trade in resource-based manufactures. These are limited to manu-factu-rod fertilizr epnnrts fnom Trinidad, simple wood products (not furniture)and some flat glass from Guyana, agricultural lime from Barbados, and a smallamour.t of alumi.n- i.n primar- form from T-c.

41. Not surprisingly, there is a group of products which is only pro-Auced in and exported from more industrially advanced MDCs i.e. Jamaica andTrinidad. These ore, for the most part, heavier-industry intermediate pro-ducts where only the market size of Jamaica and Trinidad has been able tojustify minimal scale. Products illustrative of this category are classifiedin Table 1.24 as "monopolistically available products". They are nearly allproduced in Trinidad and Jamaica. Amongst the most important products arecement, glass bottles, cans, crown corks, and some assembly items such asrefrigerators and TVs.

42. In spite of the broad base of intra-CARIFTA trade, there is a con-siderable degree of product concentration. In particular, two product groups,clothing and perfumes/cosmetics/ cleansing products, account for at least 30%of each MDC's intra-CARIFTA trade in manufactures. In addition, s smallnumber of other product groups account for much of the remainder, in particularpaper articles, paints, medicinal and pharmaceutical products, textile fabrics(either locally woven or finished) and footwear.

1/ Based on significant positive trade balances in specific products.

2/ An interesting corollary to this is the tendency for intra-CARIFTAtrade to be the result of marginal exporting by firms principally servingdomestic markets. Extra-CARIFTA exports on the other hand, are heavilyconcentrated in establishments specializing in exports, often to onecountry.

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43. Several factors help explain the pattern of trade that has developed.First, not surprisingly, the variety and type of products exported correlateswith the level of iTidustrial development. Secondly, transportation costs andinformation barriers constrain trade between jamaica and the East Caribbean.This is one reason why Trinidad has been better able than Jamaica to profitfrom the exports of items such as cement, giass botties. and cans wnicn arenot produced in the rest of CARIFTA. 1/

44. Thirdly, tariff protection and quota regimes that result in largedifferences in protection against third country imports play a role. Someitems can be identified to be cases where trade tends to be heavily concen-trated on countries giving quota protection to that product. Amongst themost prominent examples are canned meat, processed vegetables, sugar confec-tionary, perfumes and cosmetics, tires, cotton fabrics and refrigerators.Quotas no doubt affect the level of trade in many other items, in particularclothing, footwear, processed foods, but the existence of MDC exports tounprotected markets is evidence of a certain degree of competitiveness.

45. Some quantitative support is given to the hypothesis that relativelevels of protection have played an important part in generating regionaltrade by the table below. These figures express the degree of change inimport penetration and the growth in export dependence with respect to tradewith CARIFTA and non-CARIFTA countries for the period 1967 to 1971. The growthin penetration of imports from CARIFTA sources exhibits a progression whichcorresponds in ranking closely with the mission's perception of the degree ofprotection afforded to local (and CARIFTA) producers against third countryimports. The growth of non-CARIFTA import penetration, as well as CARIFTAand non-CARIFTA export dependance, does not follow this pattern, however.This suggests that whilst the marginal propensity to import from CARIFTA isclosely correlated with levels of protection, both non-CARIFTA import depend-ency and overall export dependency are related to overall competitiveness.

1/ Some of these items and other items such; as processed milk and paintsare produced r.ot or.ly oligopolistical-y or mor r.opolisticallybut also

by a small number of foreign firms. The extent of intra-CARIFTAtraAe ir. tb.ese -rod-uct i s clarly, related too the dec4i 4sior.s oF thmultinational corporations.

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Index of Growth in Impact of CARIFTA Trade inManufactures. 1967-71

(1967 = 100)

Growth in Share of Imports Growth in Share of Exportsin lnmpeti4 MArket in Domestic Oiitnuit

rARTITA Nnn-flARTVTA rARTFTA Nnn-rARTFTA

ECCM 113 99 65 420Barbados 112 103 190 938Guyanra 159 95 464 15Jamaica 300 106 155 94Trinidad 28 99 143 66

Source: Table 1.4

46. It is difficult to discern a systematic pattern to comparativead-vantage iLn traded m-anufactures. .LL e r.L eaCLr es-t situation - to a "cascl versior. -- _--- I-- -4UV4L1L4~ .LIA L4U~U U1LIULd~LU~. J~U~ L~4L~L LL,U4LL.LUL L.U 41 L;.LaZ0±L1a.L V 'L Z±ULV1

of comparative advantage where exports embodying the abundant factor are tradedlor L ULL tmUoUY.Ly'ng tLI sr4LLe faLc , is LthLa UL sULUm of Jamaica s tradUe

where, for instance, it imports clothing and shoes from the other MDCs in re-turn for such items as razor blades, cables and other metal and mechanicalproducts. The tendency is not pronounced however and there are cases wherecountries have export strength outside, but not within, CARIFTA (e.g. jewelryin Barbados, clothing and processed fruit in Jamaica). This situation is notsurprising and essentially reflects the lack of substantial differences infactor endowments in the region.

47. Much of intra-CARIFTA trade, rather than being of a compensatorynature (trade incorporating an exchange of scarce and abundant factors ofproduction), has been complementary in the sense that many products are con-sumed in all -MCs and are produced and traded by virtue of accidents of loca-tion and differentiation, rather than because of lower costs and prices perse. The economic advantages arising from such trade flows may be ephemeral.In many cases, it is likely that greater production efficiency could beobtained by sub-specializations within product groups (in effect economiesof scale based on longer runs) or simply by increased competition. In clothing,for instance, it is likely that gains have been secured in both ways, but incosmetics/soaps, etc. -- the other major traded product group -- the gainsmay be more ephemeral in the sense that consumers are merely offered an in-creased choice. In classical terms this may represent a welfare gain, butan important negative feature of product differentiation may be a reductionin the region's ability to achieve backward linkages is not taken into account.

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48. From this brief review of evidence on the development of regionaltrade in manufactures, the following major conclusions emerge:

i) the MDCs, particularly Trinidad, took an increasing shareof the LDC market for manufactures:

ii) there is some evidence that the advent of CARIFTA hanaccellerated the growth of regional trade in manufactures(whirh wnas arnwinv ~redndilv hbfore 1967Y h.ir it doPe nor

appear to have changed the pattern of investment significantly;

iii) a significant proportion of regional trade has beendominated by consumer goods, typically associated withsignificant amounts of product differentiation and poor

IAF__1 14 TE1 hnt

Th-e CARICOM Fra..ework

49. The LeorgetownL Accord of April 1973 was a I.roa-. d.eclaral-on ofintention to proceed with the Caribbean Community (CARICOM) and, within it,t-hLe transfporm,ation from,. OADTV'TA to the Cari bbean Comm,on, larlet (rr,-M). Th-eLt~ A CIi . 'L IOL A.JIL ii -Lll It X E L At L L. ll LL % LW 0lL '.AL IJ'L aLO l'- L \,4I t_ ILL

Accord spelt out the package of intended measures to be contained in thecori-ualon ri,iark1-let agree.erLt andU agreemenLts on fiscal harm.onlzation, double taxa-tion and the Caribbean Investment Corporation, among others. The sum of thesemeasures, as Lar as LndUustry iS concernedU, can e cLassi.LedU LILU LLo tr Lgoups

comprising trade,-fiscal and financial measures. The financial measures havebeen rainly designed, for the short term at least, to encourage capital ilowsto the LDCs and are discussed separately.

A. Provisions on Trade

50. The essential substantive step of the Common Market Treaty was toagree to a common external tariff and new concessions for the LDCs. Theother trading provisions on the whole remain in conformity with the CARIFTAagreement. Rules of origin and contractual exclusions to the agreement haveremained thie same, whilst the transitional period for the MDCs having elapsed,bU)C trade no longer faces Reserve List restrictions. Last but not least,national quota regimes remain intact, for the interim period up to 1981 atleast, and, significantly, these are only applicable against third countries.

1/ The bulk of the trade measures and declarations of intent on trade andindustrial programmIng, ic contained in the Treatv Establishing theCaribbean Community: Annex: The Caribbean Common Market. It was signedby the MrCs concurrently with the- eoargeto.nn Acord and t-he TDCs igna-tory to the Georgetown Accord (all LDCs except Antigua) agreed to accedeto the Treat- by May 1, 1974. Th- at-eMia4-u t-ha rnmmrnExternalS. .L T_7 n Ag r kent w-External Tariff for the_Caribbean Common Market was signed in July 1973.

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51. the Common External Tarirr (CLT) came into effect between the zwCsin August 1973. For sensitive products in certain countries, however, aphasing-in period is to take place, mostly over the period 19/4-/8 with someextensions up to 1982 for Barbados. The number of items affected are: twofor Trinidad, 59 for Jamaica, 127 for Guyana, and 51 for Barbados. The LDCsbenefit from a special phasing in period and other concessions.

52. The CARICOM CET is to some extent based on the ECCM CET which wentinto effect in October, 1972, though it tends to be significantly more pro-tective. It remains, however, a moderate tariff with a moderate degree oftariff escalation designed to protect local industries. The tariff itselfapproximates to an average of the individual national MDC tariffs that pre-ceded it. Whilst in fact some 60% of the tariff headings are the same asin the ECCM schedule, the difference between the two schedules tends to occurin the more important items in trade. The higher rates in the CARICOM CET arelargely on those products important in CARIFTA trade, in particular cannedgoods, alcohol and cigarettes 1/, fabrics and garments, furniture, paper arti-cles, bottles, cement and tires. There are, in addition, some high CARICOM rateson items which do not figure significantly in regional trade, such as, bricks,motorcars, cycles and TVs. An estimate of the average difference between theCARICOM and ECCM CETs is provided in Table 1.28. Weighted by the currentpattern of LDC imports (St. Kitts' trade is assumed to be typical), the ECCMtariff averages some 14% ad valorem as against 19% for the CARICOM tariff. 2/

53. A particular problem was posed for the CET by the existence ofwidespread, but differing, national practices of exempting certain industrialinputs from import duties noted earlier. To overcome this, the CET agreementestablished an Exemptions List detailing those industries where member coun-tries would continue to be allowed, on a discretionary basis, to exempt im-ported inputs from duties. This List is in fact a consolidated list of allthe nationally exempted industries and covers almost every existing industrialactivity in the Commonwealth Caribbean.

54. The Common Market Treaty involves no immediate, concrete undertakingswith regard to the harmonization of national quantitative restrictions. Theseare applicable to third countries. Member countries undertake to administertheir quota regimes and to consult on the harmonization of these with a viewto attaining a Communitv quota svstem as soon as possible after 1981. The

1/ Alcohol and cigarettes are amongst the principal items facing specifictariffs. The ad valorem equivalent of CARICOM's specific tariffs isa good deal higher than most of the ad valorem tariffs (see Table 1.26,particularly para. 4 of notes).

2/ This comparison, which includes the effect of duty-free CARIFTA imports,exrludsp SITC 1 (beverages anei e-nhqrrn nrntduct-s)- hbernimp nf the veryhigh specific CARICOM rate associated with this section. If SITC 1 isincluded, the averages become 15% for the ECCM tariff and 22% for theCARICOM tariff.

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undertaking does not, however, appear to be very strong. Whilst this is tobe expected in view of the very large differences in national quota regimes,it makes for a trade situation that falls far short of a customs union.Discretionary national exemptions on inputs on the one hand, and differentdegrees of quantitative protection on output on the other. clearlv mean thatthere is common protection neither of inputs nor of output.

55. One of the important results of this situation is that trade islimited by the continued need for rules of origin which, upon examination,are based on questionable criteria. Such rates are not required in a bonafide rommon market where, nnre a nroduct hag entered any part of the commnonmarket and paid the CET duty, it is allowed to circulate freely thereafter.Rules nf oricin constiitute an adminiqtrrtivp .r_ot hot-h tn the governmentsand to private firms and, therefore, a barrier to trade. More important,they renreseQnt A some.hat arbitrarv priterinn of eliaihilitv for e-omnmon markettreatment. It will be recalled that, allowing for exceptions. the rulesreqiuire that reinonal value added be SOY This is high by the aeprage vnlueadded in MDC industries, which is some 30% to 40% of final output value(Tabe1- 1 10 -A 1 9An Mreover, e ir. ries ading less than 57 of

value can be presumed to add this value efficiently whilst many of those adding50%O or more are o.ly, able to do so b,cu,se of blgh levell,s oaff effective pro-tection (i.e. protection allowing domestic value added to exceed world valueaAA-AN I 'Thus Ahe rules of oig pu r.o 4 - - l- s- on efficiency -indeed theycould conceivably promote inefficiency inasmuch as, the higher the rate ofprotection, the more likely goodAs are to qual4ify for area treatment. 2/1 Onthe other hand, it is argued in the region that the 50% rule of origin ispart OL4 an1 effort to move the pattern oL. industrialization away lrom IiigLLt

processing activities with few sectoral linkages. It would appear, however,that th'ere ma-y bue somie conflict between effc'nc -n ne.ie opo.t

LLI4 LI1Lt~1114' UC~UU~ LUIJ...LL U~L~~L AtLiL.LUA.U1L)' 411U iL1Lk__1LL.VUb LU P,LUIUULt

high-value-added industries or create sectoral linkages.

Fiscal Incentives

56. The Agreement on the Harmonization of Fiscal Incentives toIndustry was signed in July 1973, by aii tne MDCs. Tne signatories undertookto offer fiscal concessions to industrial investment and exports only in

1/ The new harmonized fiscal incentives system, which offers differentiali11.~LL.L~adI.LULU.L1~LU LAM~ %Ar4.t Wk ULdi VJ.UC LU"u~u LA. L.d Jincensvesaccordir,g to1 ~t-. dere - of--- local valu ade,ratsprallel

problems. A numerical example illustrating these in para. 63 below isequally applicable to the present prob)Leu. ILn thiLs examp'le produc; Awould qualify for area tariff treatment purely by virtue of the greaterprotection it receives than product B. Hence, although DroUuct B savedforeign exchange more efficiently, it would not be able to compete withextra-regional imports on the markets of other countries of the regionwhilst product A would.

2/ It is difficult to see how administratively feasible rules of origincould take account of efficiency. This problem seems to provide a goodexample of the problems inherent in taking over tested trade liberaliza-tion mechanisms from other sources: in EFTA, rules-of-origin criteriaare limited in their tolerance of inefficiency by virtue of the moremodest prevailing levels of protection.

- 19 -

accordance with the conditions laid out in the Agreement. The Agreementallows a "standard" package of concessions on investment similar to thevarious national legislations that were being replaced; tax holidays andduty-free imports of capital goods in particular. Moreover, provision ismade for special income tax concessions for exports. Finally, the conclusionin July 1973, of a series of CARICOM double-taxation agreements ensures thatinvestments by CARICOM nationals in other CARICOM countries will not be dis-couraged by unfavorable treatment of repatriated income.

57. A major feature of the investment incentives is a variation in thelength of tax holidays offered according to (i) the level of industrializationof the country, and (ii) the degree of local/regional value added in theactivity qualified for incentives. A weighting formula increases the nationalshare of local value added in total sales according to the degree of use oflocal labor. 1/ The table below spells out differences in the maximum lengthof tax holidays according to country and to degree of local value added.Enclave exporting industries (i.e. industries exporting 100% of their output)constitute a sDecial case receivin2 a maximum tax holiday. MDCG can offerincentives for investment in activities which are not 100% exporting (cate-2ories I to III hplowl onlv in the caRs of "nionper" indtirtrie hist thp LDC'mdo not face this constraint. 2/

MAvim-tiT Numbeor of Yeanrs Tncome Tav 14^1dAnu

Local Value Guyana, Jamaica ECCM Member State,Added, (Percent) I/a Trini4AdA Thaan BavhrAbado Belize

Group T (50%X and over) 9 10 15

Gr-oup T IrI (2Z o 50'0) 81

Group III (1OX t-51

Enclave nAdustry Il in in IC

/a Percentage of the amount realized from the sales of an approved product.

/b Industry producing exclusively for export to countries outside theUUUMUnrLI Yre .L

Source: Agreement on the Harmonization of Fiscal Incentives to Industry,Community Secretariat, Georgetown, 1973.

1/ Actual value added share is multiplied by the proportion of the wage billfor nationals to total sales.

2/ Pioneer status is given to industries where local production accountsfor no more than 49% of the national market in Guyana, Jamaica, andTrinidad, and 10% in Barbados.

- 20 -

58. The introduction of tax concessions on exports is a significantnew dTe p LArSt Af F1Ar thme Commoneat h1r 4.bean c torioes . _ 4rep 4 - - - - - -: 4_

export-incentive laws in the case of Barbados and Jamaica, and minor con-cession.s in th.e .ase of Trinidad. T-e new export concession, whLAtic is LAUCsame for all CARICOM member countries, consists of a partial rebate of taxpaid on iLncome froL exports in proportion to thLe sLlare of exports Lin totaLLprofits. The rates are set out below.

rFiscal Incentives to Exporting

Export Profits as Rebate ol Income Tax aspercent of total percent of Tax on Export

Profits Profits

10 - 20 % 25 %

21 - 40 /% 35 %

41 - 60 % 45 %

Over 60 % 50 %

59. The agreement to harmonize fiscal incentives represents a hard-fought compromise and an undoubted achievement in terms of removal of arbitrarydistortions and the systematization of differentials between countries andindustries (and, subsidiarily, the introduction of a formula to provide amodest incentive to labor use). However, fundamental problems remain re-garding, firstly their appropriateness and duration, and secondly, withrespect to the extent to which they encourage efficient and appropriateforms of industrialization.

60. Firstly, investment incentives are a means of encouraging exports,but their use can be fundamentally questioned in the case of industries intendedsolely for import substitution where quantitative restrictions assure inves-tors of viability. Moreover, the necessity of introducing a substantialspread in the length of tax holidays between countries means that the LDCsmay be foregoing government revenue for periods of 10-15 years, though, theextent to which the advantage conferred by longer tax holiday periods in theLDCs represents a significant incentive is questionable. Since many inves-tors' time perspective is not that long, the impact of the extra years oftax holiday on entrepreneurial decision making may be significantly lessened.From this point of view, a stronger inducement to invest in the LDCs mighthave been provided by tax concession periods of equal length in all CARICOMcountries that ranged, however, from full tax holidays in the LDCs to onlypartial tax concessions in the most advanced industrial countries (taxliability on, say, only 20-40% of income).

- 21 -

61, Secondlvy the incentives do not sufficiently take into account theneed to encourage a reasonably efficient use of resources. The introductionof differential tax holidays according to the level of local/regional valueadded is aimed at promoting industries with substantial proportions of valueadded, on the one hand, an enorai. local/regional sectoral linkages onthe other. However, as was noted in connection with the discussion of therulles=of=origiln criteria, the.-re is a notable abusence of emphasis on effi.iecyThe effect of high levels of protection may be to inflate the level of localvalue auueu to a point whL &ere maxiLu.LU t-ax holidays buecome JustifiLAed, thoughvery little value is indeed being added at world prices. A hypotheticalnumerical exau.iplee cai 'Lustrate tLiLs. Ihe tWo prodUUcLt L' LLIt L eDt be-LOW,A and B, have, in terms of world prices, identical cost structures in whichvalue added is only 37-1 /2% Of the total value of output. The protection onproduct A permits local production at 25% above world prices and local valueauded at 67% above world value aaded (assuming no duty on inputs which arefully imported). The "excess" value added in turn makes product A eligibleto receive the maximum rate of tax holiday since, in local prices, value addedconstitutes 50% of output value (Group I). Product B, with only a 12% levelof protection, is only allowed 33% "excess!! value added; this in turn onlyqualifies it for Group II tax holiday treatment as value added in local pricesis only 44% of output. Thus product B gets less favorable treatment becauseit saves foreign exchange more efficiently than A (i.e. the rate of effectiveprotection for B is half that for A).

Unit Production Costs for Two HypotheticalProducts

Product A Product B

World price: inputs $ 50 $ 50value added $ 30 $ 30world price $ 80 $ 80tariff 25 % 12-1/2 %landed price $ 100 $ 90

Local price: inputs (tariff free,all imported) $ 50 $ 50

value added $ 50 $ 40local price $ 100 $ 90

Effective protection (excess oflocal over world value added) 67 % 33 %

- 22 -

62. In the longer term, CARICOM apparently has the intention of re-viewing the agreement with a view to introducing efficiency criteria byrelating local value-added to world value added levels. Meanwhile, thesanction on efficiency remains, as it has been in the past, the judgementof the individual governments. particularly the IDCs which continue to decideon the granting of incentives on the basis of various criteria, one of whichis efficiency, however defined. 1/

63- The ahove noints have been made. not so much to denyv as to qualifythe expected effectiveness of the new incentives system to encourage linkages.The nnint should however, alo hpe m.ade that other asperts of the overallsystem, notably the concessions on imported inputs in the agreement tohnvmnrni7a ficrnl inn ntivec anA the Fxremntinns List otit-ifde it, wi11 rontinuie

to encourage the use of imported inputs.

64. The tax holidays are to encourage not only manufacturing for exportbut for the domestic market. The Agreement, in additinn nrouides for Qnecinlfiscal incentives for exports. Whilst these new export incentives representa laudable step, the eorcessiors are of limited value. They are rcession while firms enjoy tax holidays with investment incentives unlesscertai export performance conditions are attached to the grantfng of invest-ment incentives (which is not disallowed). Secondly, the maximum value oft.bLe tax creuitL may Uot, n, man.y cases, re ----- a very 0,fr.La ra.esubsidy. According to the formula for the calculation of the tax credit, afL.Lrm ULer'LvLIng more than 'U'U. 0 ofL iLts profits firom exportlLs woulAUd, wth a pre-taxreturn on sales of 20% at a corporation tax rate of 50%, receive a tax creditequivalent to 5%1f oL the value of export sal'es. Oun labor-intensive prodJucts --and for "infant" exporting activities in general -- 20% may be considered avery hign rate of return on export sales aid the effecti-ve subsidy rate wouldbe even lower. For a firm deriving only 10-20% of its sales from exports, a20% return on sales would yieid the equivalent of only 2-1/2% of the value ofexport sales. In other developing countries which are beginning to promoteindustrial exports rates of subsidy tend to be higher. Tne CARICOM formulaalso encourages firms to export a greater rather than a lesser proportion ofthe total output. This is a curious feature of the system since, by the sametoken, it does not give much of an incentive for marginal exporting, in parti-cular exporting on the basis of spare capacity. For firms other than the 100%enclave exporting firms, this is precisely the way in which a great number ofnewly exporting firms would begin to export.

1/ Nonetheless, the distortion will remaiti as a result of different levelsof effctv PF.n>proetion (uSnless CgoUrnments c.hooCP to gV;U 1PCC than themaximum permissible incentive to industries they feel to be over pro-t.ected).

- 23 -

Concessions to the LDCs

65. In many of the new measures drawn up in connection with CARICOM,the LDCs have received significantly greater concessions than they enjoyedunder CARIFTA. A number of these have been referred to above. They canbe summarized as follows:

i) more favorable rules of origin for LDCs than MDCs;

ii) an extension for LDCs of the Reserve List period(fnr oliminatino t-ar4ff nrntectinn on onsitive 4te-ma

against MDCs);

iii) the additional possibility-of quota, as well as tariff,protctio4 agaionst coa nmpeting

4mnr*,f-r-nr. fll

,,'% ro t4an nnar*e4

an,,ornmonh-TaZmnF n4 c n r .nr.. *.

iv) t.he use of certainJ - -------- nt aids for -expor-ts to

MDCs;

v) a longer phasing-in period for the CET (up to 1981)thar, for 'Is8;

vi)% more ger.erous 'r.vestuLent ir.cer.tives than rCs-C

Vii) rMUI moratOriUU on grant'ng incentives to certainindustries suitable for LDCs; and

viii) the channelling of MDC investment funds to LDCsthrough the Caribbean Investment Corporation.

Industrial Programming

66. At the end of the last section, it was suggested that regionaltrade liberalization and regional industrial programming were differentapproaches to regional industrialization. The concept of industrial pro-gramming has clearly been subordinate (though not absent) in the progresstowards regional integration. The Georgetown Accord itself is notably silenton industrial programming (whilst emphasizing trade liberalization on the onehand, and the special position of the LDCs on the other). However, a sectionof the Common Market Treaty is devoted to the coordination of economic policyand development planning and, within this, Article 46 is devoted to regionalprogramming. This Article agrees to the principle of regional industrialprogramming -- though it goes no further than this -- based on the followingaims:

(a) Greater use of local raw materials.

(b) National and regional linkages.

- 24 -

(c) Minimization of product differentiation and achievement ofproduction on a large scale.

(d) Greater efficiency.

(e) Promotion of regional and extra-regional exports.

(f) The equitable distribution of benefits (this particularly refersto LDCs).

67. Whilst Article 10 of the Common Market Treaty permits the CARICOMRegional Secretariat to undertake industrial programming studies, inter alia,on its own initiative, it is clear that the national governments of the region--and particularly the MDC governments who are industrially the most strong--have not given a very strong mandate for regional emphasis on industrialprogramming.

III. THE OPTIONS FOR INDUSTRIALIZATION IN CARICOM

68. This section discusses the strategy options open to the CICAKIOUUcountries and consequent appropriate policies. The presentation of optionsis based on the experience of the CARIFTA countries and on various regionalstudies.

69. The major aims ascribable to industrialization consist in employ-ment generation (the most emphasized aim in the Caribbean region), contribu-tion to growth in output, and contribution to foreign exchange earnings(the least emphasized aim in the region). In addition, a strong strain ofeconomic thought in the Commonwealth Caribbean has been that industrializationof the right kind has an important dynamic role in economic development:industrialization which creates sectoral linkages -- national or regional --has external economies in the sense that it will bring into use previously un-or under-employed resources and reduce dependence on the outside world.

70. Regional integration may be seen as an aim based on political andcultural as well as economic interests. Indeed, it is difficult to separatethe politics from the economics: the search of Caribbean economies forstrength in unity has both political and economic objectives. A particzular,immediate and specific politico-economic objective is that of spreadingequitably the fruits of growth within the region. There is a commitment tointegrate although the strength of this commitment varies between nationalgovernments. The economic options have to be viewed in this context.

Prospects for Import Substitution

71. In this part the possibilities of expanding industry through importsubstitution are examined from the standpoint of maximizing linkages withinthe industrial sector and with other parts of the economy. Due considerationis given to the need for a reasonable degree of efficiency and to the problemof attaining an adequate scale of operations in the relatively small Common-wealth Caribbean market.

72. ImDort substitution in manufacturing has been accompanied byrelatively few linkages with other sectors of the economy. Instead, it hasbeen imnort intensive. But. since import-substituting industry is protected,the non-industrial sectors in effect subsidize industrial development, eitherby buvine hi'h-nriced industrial goods; or through nrice controls on non-industrial products, or by paying taxes at higher rates than tax-exemptindus~tries

73 The problem is nnt merelv nne nf incsiffiripnt linkage, buit alsnof inter-sectoral distortions. What we shall call the Brewster-Thomasstrategy, which cuives the anpperannc nf hoing laraely a hea'Uv-inddustry

strategy, contributes to the creation of linkages, but at a high cost to

- 26 -

the rest of the -economy because import substitution, evlen An an regiona-l basis,does not allow for sufficiently large scale production. 1/ It has been arguedthat the presence of heay, industries nin Lat4n Amaverjn economies lays the

basis for the subsequent transformation of the economy. Yet the historicalverdict of many ec.onom4StS m4ght be that suh industries --- inhibit -rns-formation because of their high cost (seen in credit, incentives and protectionpo.iWcies) whLJcLL Ls paid for Lby othler sectors. t i s to ue feared that Caribbean

import substitution in a number of such heavy industries, in a region of only11' I/Lm o babL4LZ Wu.iU Ut: V-_Ly =ApLL&&.LVt= CLLU FJJ.LCL%r a LLtaVy UU U~

'-Ijo m±±.L±uu ±lnlau±Lants, wu evr xc.veaupaeaLev uuno

the rest of the economy. If mature economies are able to display the fullrange of heavy industries, it Ls by reason OL size or of iLneiLLaLLonal

specialization.

74. The benefits of linkages may be outweighed by the high costs oflarge scale production. There is, however, an additional problem with thelinkages suggested in the industries which Brewster and Thomas examine indetail. They suggest that the more important linkages wouIld De Dackwardrather than forward linkages. However, an examination of the integrationindustries in Table 1.30 gives a sense of insufficient linkages with tneprimary sector. Some key industries, in particular steel and automobiles,remain import dependent, wnilst others rely on domestic inputs to a greaterdegree, but not from agriculture.

75. A strategy of linkage-creation could be founded far more directlyon the agricultural sector by emphasizing agricultural processing, eitherfor local or for export markets. Thus, the analysis of structural disinte-gration in a developing economy need not and, in the presence of extremediseconomies of scale, should not automatically lead to a strategy of heavy-industry-based import substitution. The case for heavy industry should dependon a case-by-case review of feasibility. It is not the intention here tocarry out any such detailed reviews. However, some of the major areas tohave figured in discussions of regional import substitution will be brieflymentioned.

76. Processed agricultural products figure prominently in the importbills of the countries of the region and appear to offer important importsubstitution opportunities in industry and agriculture. The greater part ofpresent regional capacity in processing of dairy, meat, vegetable and fruitproducts is located in Jamaica and Trinidad. It is characterized by smallscales of operation and a broad variety of products per plant that inhibits

1/ In a 1967 study entitled The Dynamics of West Indian Integration,n. Brewster and C.Y. Tnomas argued that the region should moVe towardseconomic integration through production of those key intermediategoods, steel, textiles, paper, chemicals, etc., characterizing theoutput of mature economies. Their major summary findings are repro-duced as Table 1.30.

- 27 -

specialization. However, the salient problem of the industry is to obtainagricultural inputs from local sources in acceptable quantity, quality andprice. As a result the food industry is largely import-dependent. 1/

77. There are undoubtedly ample opportunities for import substitutionin the region that would justify a sufficient number of new plants to enablethe development of specializations by plant (based on local agriculturalspecializations). However, the supply problem remains a formidable obstacle:it is particularly critical in the LDCs and obstructs the development of apromising industry. 2/

78. Two mills in Jamaica and Trinidad, each over 20 years old, consti-tute the region's existing capacity in textile production. 3/ With modernintegrated mills of an acceptable scale producing some 15 to 30 millionsq. yds. of fabrics annually, a forecast market for woven cotton and man-madefiber textiles in the late 1970s of some 140 m. sq. yds. would seem tojustify substantial extra capacity. However, the Caribbean market has tradi-tionally been furnished with fabrics from all over the world with no restric-tions and consumers have developed sophisticated and varied tastes. Productioncosts escalate substantially as mills produce a broader range of goods and.for this reason, a 1969 UNIDO study recommended that the region invest intwo integrated mills. a cotton mill Droducine 25 m. sa. vds. annually in sixbasic product lines and a polyester/cotton mill producing 15 m. sq. yds. infive lines . 4/ In fart- the investment plans of individual MDGs may alreadygo beyond this.

79. The UNIDO recommendations would generate a demand for cotton of some14 m- lha :ntn fnr nnliuator nf 4i,at nuer I m lhc nvr nnniim Tf hnth

.- -, - -11 --- - j -5- -,-- -, - P -1 - ~ . f b tTrinidad and Jamaica invest in a polyester/cotton mill, demand for polyesterfibers might approach asmme 4,000 tor. per a.nntm Th 4 s might 4ustify a smallpolyester extrusion/spinning plant which could eventually be fed by the localPetrochemi…al indust-r

1/ Moreover, consumers have acquired tastes for foods not locally available,in particular temperate zone foods.

2/ A pre-feasibility study of the canning industry carried out by the EIUfound local agrIcultural prices to be a princIpal proble.

See, Economist Intelligence Unit, Eastern Caribbean and British HondurasIndustrial Survey, 1972.

3/ Brewster an.U ThomU-0- ks VIJ (1967L)LL4. CtUmt z LdLdtio.a LregL%L. cLaacLLLy Lreuire-

ments in integrated cotton and synthetic mills. This was followed up by- TMVr?T P. J IJ .... ... 2 _.1. 1lnzl A . . -... ~J .

a ULID.ZJV pre-feasib.LL±Ly sLUUy .LLI 1969. M recent survey ofi the textiL'Leand garment industry is contained in E. Baccus and G. Shepherd, A Protec-tive Regime for the Textile IUnustry irL LLLth %U-UL1WtaLLh CrLibUean, 1973.

4/ Brewster and Thomas, on the other hand, had suggested that the regioncould become self-sufficient in cotton textiles with four integratedmills and a substantial narrowing of the range of products that consumerscould buy.

- 28 -

80. Further regional import substitution possibilities in shoes wereidentified both by Brewster and Thomas and by the EIU Survey: the former alsopointed out the possibilities of backward integration by adding to the region'ssingle tannery (in Jamnica) on the hasis of a regional maet comnpex. Plantscale is not as critical as in textiles and the region could probably supporta numhobr of eytra chno nprnodceprs Aanin hwowevr- and nprticuilarly in theccase of tanneries, there arises the conflicting claims of broad consumertastes and efficient specialization in n limiteA n,iwnlr nf f4rmns I/ As intextiles, the achievement of a greater degree of import substitution has tobe weighed against the restriction of consumer tastes or the escalation ofcosts as product variety grows.

81. Past studies have given little attention to the wood industry.GIuyana and Belize lave substan-al forestry rese-rves= lg t alhardwoods unsuitable for some construction uses- that could well substitutefLor present regi'ona'l ir.ports to ir.dustries such as furniture.

L_ V.L Fis 4.LLte Li T a, Lr.ore recentl-Ly., Ih 4t I.UN .

organizations have given some attention to a possible pulp and paper industrywhich does riot exist at preser,t for the regior. Lt coulU Ue Uaseu on tLe Lor-estry resources of Guyana or Belize and/or on bagasse from the sugar industry.ror newsprLint thlere would be a L.LULLL ILIrLLoaL U bUlC .f sJoU 2,L0 l to CL per ILLu

in 1975, according to estimates of Brewster and Thomas. Estimates of scaleeffects in modern integrated mills suggest a substantial cost penalty forsuch a small size. 2/ UNIDO concludes that a regional paper mill only beviable with additionai export markets. Tne best possibilities appear to beimport substitution in packaging paper.

83. The regional cement market is already characterized by greaterdemand than supply as Table 1.32 shows. By the late 1970s there wiii prob-ably be room for considerable extra capacity. Whilst the scale effects incement production are strong (the whole regional market would not justifyan "optimally"-sized plant) in many cases these are offset by high transportcosts.

1/ TeaedA the t-t-tite of Tamaicnn chno mar.uf ctrrer to the lnocl tanneru

mirrors that of Jamaican and Trinidadian garment manufacturers to thelocal textile..mills: the comp1 aint is that thbe lol product is ov…er-priced, under-designed and low-quality.

2/ Data from Asia Industrial Survey for Regional Co-operation suggest thatu,Lit costs iLn a m,L'L. ofJ 5:0,000 TAPY capacity are some 66 percer.t high.er

than in a mill of 500,000 TPY. The CARICOM region would also face ashortage of suitable sof;L woodu.

- 29 -

84. Brewster and Thomas estimated that the regional market would iustifva plant producing some 6,000 tons of glass sheets by 1975. 1/ Recent estimatesof economies of scale in zlass Droduction suggest that the cost nenaltv wouldbe large, 2/ even with the substantial transport cost advantage that a regionalnroducer could exnect to have. nartirularlv in its home market.

85. Economies of scale assume nprticrilarly large proportions in manychemicals. Petrochemical production could not, for instance, be based solelyon the regional market in spite of the Trin44aan resource base. A feasi-bility study for caustic soda production (principally used in the region as

ar.input to al-n.a- .smeltlng by De Catro and Dolly (1972) founA that pro=

duction was justified if a large enough market for the accompanying by-product,ch.lorine, could be lf-ound. MUi woul mostI likel 4bI. e four.d in th podcto~~_ U_ -4.L%A W%J~~~LJ. NM~.Ly u ~ .L LLU JLL LLLM j1JA. .UUUL; UL

of polyvinylchloride (which would also require inputs of ethylene from the

86. The production of steel from imported iron ore was buggested byBrewster and Thomas on the basis of a 300,000 ton steel-making and 200,000ton steel-rolling capacity. It is likely that, with the suDstaneial productdiversification at the rolling stage, this would prove far more costly thanthle f orumer stage. 3/ it is currently reported tnat riniaaad is consiaeringelectric arc furnace steel production on the basis of imported iron pellets.

87. The motor vehicle industry of the region consists of the presentTrinidadian assembly of some 6,000 units (out of a regional market of some25,000 units), none of which are exported. In addition Jamaica and Trinidadproduce tires and batteries and other minor accessories. Jamaica has recentlygiven some consideration to the possibility of local motor vehicle assembly.As with many other consumer-oriented industries, product diversity presentsan obstacle to import substitution. There are, however, additional seriousobstacles posed by the nature of the international motor industry. Whilstlocal motor vehicle assembly can often be fairly efficient in developingcountries, progressive import substitution is trequently hindered becausethe foreign manufacturer deletes the component in question from the CKD (com-pletely-knocked-down) kit he exports, subtracting from the price of the CKDkit a "deletion allowance" which is less than his average cost of production

1/ Thfis represents only part of the total market since product varietypAIOCinata I-f act-Al n

2/ Asca Tnduistrial t urvey Ante- . ct-4 ma that gla p ,st--when associated with a 10,000 TPY capacity, results in unit costs 40percent in excess of 25,000 TPY and 100 percent ir excess of 100,000 TPY.

'A According to P, r a50 t. infn ; Ling

incurs a unit cost penalty of some 25 percent over 1 m. tons and 33percent over 21 m ........ tons.

- 30 -

for that comDonent: thus the cost of import substitution in motor vehiclesescalates irrespective of whether the import-substituting country can be aneffirient nrodniipr 1/

88. Rarkward intecgration across a broad range of "qr'rwdrivpr" indusl-

tries (of which automobile assembly is one) is inhibited by two features ofthp "hrqnrh-n1,nt" syndrome, namely, tiedi siuliers and nrodict eifferantia-

tion. However, past studies have failed to emphasize the engineering industrynnecihi1it-iD@ that r-n,lr a ha hwc-ti nnrtlv nn hnIlmin-rA 4"te.av=t 4n- 4 n thnc-

industries. The engineering industry does not face the same scale problemsas manny of the industries that have so far been mentioned and the develop-entof engineering skills has important external economies for industrial develop-ment- in generall anA for aAapti4ng technologies to local conditior.s_ inpriclr&u.~tn. *n a~ a,,.. J.SJ A Ot .j `J.** 1. 1_ L Jta L. UL~ L J.4_ JU0L *LL jACk t.L..J .LU OL.

If engineering is to be developed, in part at least, through backward inte-,;. C>L JJLI ALL LILX WL=W~L LV%L ~LLLUU&LA.0u 1 , J.D 6 LUUULL UA. L&XCLLtL L lLLUUL L L X

must become more standardized. In this respect it seems best to start withthe least oi4gopolistic fand least product=differer.tiateud) .LnUustrLes.Bicycle assembly has been suggested by the EIU Survey as a potential industryfor the LDCs; othe, n aLL,iLates couIL be elec tric fCans, gas anu eleLcLtr oUoeLrs.

7 The most LreLurrer Lt eatrL of th abUVe LJ.LU r dULrvey of somUle L.IL-u

substitution possibilities has been the substantial barriers provided by scale.'wHi.Lst th iLs sh o u'LU come as nio surprLjs Se 'n1u uI A a smlUl.JI L KC L, it should be

emphasized that these crude scale comparisons have been based largely on ad-vanced country data, and nave not always fuliy considered tne efrects or iocairaw materials or transport costs on regional viability. A further importantfeature has been the extent to which product differentiation compounds thescale effect. In some products, such as shoes, textiles, or motor vehicles,a certain degree of product homogeneity can be imposed on the market whilstin others, such as steel and paper products, production runs are inevitablylimited by the nature of demand. In addition, the distinction might be drawn,following a recent CARICOM document, between import substitution, that islocal production of previously imported items, and import replacement, thatis local production of items more appropriate than the imports they replace,for instance mango juice instead of apple juice. Whilst the potential forimport replacement is strongest in processed foods, it also exists in suchitems as local soaps based on the coconut industry.

90. The summary conclusion of this brief review is that by far thegreatest long-run, import-substitution (and replacement) opportunities, as

1/ But for this, a broad range of ancillary, light engineering items wouldbe -Aron cniates for impor--t- subs"tituio. So.ue of the central items,

such as the body, engine block and gearbox require substantial scale ofprod1uctiLon.

- 31 -

well as sectoral linkage opportunities exist in processed agricultural pro-ducts. In addition, judicious import substitution, on the basis, of regionalspecializations should be possible in textiles, leather/shoes and engineeringgoods. The heavier intermediate industry goods that have been discussed seemto provide far more fundamental scale problems.

91. An additional point might be made about methods of identifyingimport-substitution possibilities. In the past the standard method has beenbased largely on scrutiny of the import bill. By this time the more obviousitems in the import bill have already been accounted for, and the EIU Surveywas able to come up with only a surprisingly short list of possible exportsfrom LDCs to MDCs. One way of overcoming this problem- and also of dealingwith the problem of product differentiation- is to undertake in-depth studiesof product groups at the regional level. For instance, the domestic electricappliance industry might be the subject of a study to examine strategies forproiect standardization and subsequent backward integration.

Exports

92. Exnortina outside of the region cannot be iTnored in an industriali-zation strategy because the size of the market places a severe limitation onthe exnansion of manufacturlng through reasonablv Pffirient imnnrt su,hbtsti-tion. Moreover, if a strategy of creating seoctoral linkages is to be pursued,it shniild hp kept in mind that these will hp nprtially denanAor on eavnArtilng-- even in the case of some of the more promising forms of regional importsubstitution.. Thus, the regaon might eventually be exporting garments madeof locally produced polyester fibers and polyester/cotton fabrics, or locallynrnA,.na ni naF4 e n foflor ov4.4 pl no2 TFo~ snavAY.nt FA_r4 1 4 #7A. ksr ^1 Cem w-nn!1e. 1A,r-d-ed -lati or paper --riie.i a-, J --- r ferilze but also co_ -um

part of the output produced in the region.

93. The region can also benefit from enclave-type exporting even thoughthi a ia oft.n unAdrt-anker by "fly-by-r.ight" fir.ms, and little value is addedlocally. As long as un- and under-employment results in a low opportunity

these activities are justified. At the same time, of course, government canpursue policies requirin enclave firms to pay taxes and train local labor ifthey judge the contribution of such industries to be too small. Encouragementof enclave exporLs r.eelU rot prov.Lue an obstacle to the r.ecessar-y-, lor.gter t'ermsteps to assure a future structural transformation of the economy in thedirectior ofL greater irnternaal linkages.

94. There is a strong ,Leeing in some countries of Lthe region of export-pessimism", based on a feeling that production and marketing costs are toohigh and that foreign traue barriers may somel.e-ime be too greae. However,in terms of wage levels and proximity (and language), the countries of theregion are fairly well placed to compete on markets of the North Americaneastern seaboard with other low-wage countries. The modest export success ofBarbados (and of St. Kitts, and St. Lucia) lends support to this as well as

- 32 -

to the fact that developed country markets are not impenetrable by viture ofprotectLon. Ec,xport- pessiMism. may in som.e cases bue tbhe result of high 'leve"lsof domestic protection that give little incentive to export. The increasedemphasLs o0i export incentives sh'louldU b e help ul Lrom thWLs standpoint.

95. in th'e case ol BDaradUos andU tle Cs, exports are likely to continue

to be enclave industry products, in particular garments and electronic assem-bly items. Trinidad anua jamaica seeum less likely to attract m-ore enclaveexporters, not only because of an attitude of suspicion toward these indus-tries but also because other CARICOM, or indeed other Caribbean, locationsmay prove more attractive because of lower wage costs. Exports from thelarger and industrially more advanced countries are more likely to De resourcebased including petroleum based products, supplying both regional and extra-regional markets.

The Development of CARICOM - The Strategic Options

96. In this section the implications of CARICOM reliance on tradeliberalization, as was the case under CARIFTA, are briefly assessed. Thisis followed by a discussion of industrial programming as a means of promotinggrowth and of improvements in the system of incentives.

a. Trade liberalization under CARICOM

97. Unharmonized tariff treatment of inputs and differential quotaregimes for outputs in effect mean that CARICOM is a "disguised" free tradearea rather than a common market or customs union. Until there is substantialharmonization of quota regimes (and this is unlikely before the end of the

transitional period in 1981), it is likely that the CARICOM experience will

differ little from that of CARIFTA: by and large the same products will be

traded, there will not be significant moves toward the establishment of

regionally based industries and the problems of "superficial" industrialization

and insufficient linkages will not, at the regional level at least, be tackled.

98. There are, however, likely to be several subordinate changes. The

effect of the CET will be essentially to increase levels of tariff protec-

tion in the previously low-tariff areas, Barbados and the LDCs, to the levels

of the other MDCs. Consequently, we should expect a relative acceleration in

the diversion of Barbados and LDC imports from extra-regional to CARICOM

sources. This tender might be expected to be strongest in those items such

as cosmetics, clothing and alcoholic beverages, where the CET is high and

the NlDCs are strong regional exporters. This will result in an increase inthe landed prices of both regional and non-regional imports in Barbados and

the LDCs.

99. Of course, significant new mechanisms to favor industrial develop-ment in the LDsC were built into the new CARICOM arrangements. However, thenew incentives for exporting to MDCs are less than they may appear. The LDCs

are not very competitive with MDCs on costs and the industries, such asgarments, where they might be the most competitive are also those bestdeveloped in the MDCs. The combined effect of preferential incentives forLDCs and moratoria on the granting of incentives to certain industries in theMDCs is not likely to be sufficient to counter thi in most cases.

100. Furthermore, it is unlikely that an investor, who was perfectly freeto choose a location in CARICOM from which to serve the region, would as yetchoose an LDC. The politics of regional integration are still quite risky inthe eyes of businessmen. Other things being equal, they will choose to locatein the larger countries where, in the event of a complete or partial failureof the regional movement, the local market will represent a fallback.

101. Some of the above comments apply, though to a lesser extent, toGuyana and Barbados. Economic size and the level of industrial developmentrepresent powerful advantages, particularly if investments are to be made ina small number of regionally based industries, advantages which trade liberali-zation will help sustain rather than counter.

102. The other major question is the likely changes in the pattern ofinvestment. Will the CARICOM trade liberalization mechanism be instrumentalin promoting investments in regionally based industries? This is improbableand at best only likely at the margin since the CET remains essentially modest,particularly for intermediate goods. On the whole such investments are un-likely in the absence of regional quantitative restrictions.

103. While the Dresent trade liberalization Drovisions are not likely toencourage the establishment of regionally based industries, the indicationsare that the MDCs are develonina new and large industrial proierts that wouldclearly profit from a regionally integrated approach but appear to be designedon the basis of national markets, with smAll amnountn of possible reoinnalexports as a marginal consideration only. Some examples are given below.

104. In textiles, Guyana is proceeding with plans for an integratedcotton textile Tni 1 1 aimed at subhtitutiing for a very wide ran of imports

whilst Jamaica and Trinidad are both reportedly considering the feasibilityof similnr inxYctmontQ to satiQfy the national market for polyester/cottonfabrics and Barbados is considering a smaller investment to weave polyester/cotton fahrics. Tahlo 1.31 collntec tho hunnthatirnl rnn:rit4 nf nrniortcAand existing mills in the region. The figures suggest that about 40% of theconsumption of cotton goods could be expected to come from regional capacity.These proportions in themselves are not at odds with the UNIDO recommendations,but planning on a nation-l basis will v pouctio a larger varietyof fabrics in each mill than need be the case with a regionally plannedapproach and costs w4ll ---------- l be" high In-1 thi case, - t may be- U.

OjJj k~O..L C~ltL ~.J ~O A. S ~U_ LLA.5Lr . AUL LLJO t.a S.uty LCU LSJ.

than likely that Guyana and the LDCs, both non-producers of polyester/cottonfablrics, WoUlA contir,ue to purchase lalrlcs from non-regional sources even

- 34 -

thou-h they were sub,ect to- a 5 CErT 1/ Th,_ the opnportunity for rocionna

cooperation in textiles may already be lost.

105. The need for regional cooperation in cement may be equally pressing.P_Fresen r nal cment podtir.tn 4e e 1on- a er

4n,rFl,,

x.3 O L LLw. A. 5

LtJUfa.LS ..ZtG1 .F~ JAf scusz .t.J*LXv w_ JUt fulCO¢ vL w L.... , F'.'_J

because neighboring Caribbean countries, such as Venezuela and Puerto Rico,are competitive suppliers. Table 1.32 constructs the hypothetical capacityof the region towards the end of the 1970s on the basis of presently reportedintentions. IL adl thlese 'LntentLoriLs are carr'Leu out there w±il bUe substan-tial over-capacity in the region by the end of the decade.

106. Jamaica is currently considering the possibility of domestic motor-vehicle assembly whilst Trinidad is reportedly considering production of steelfrom imported iron ore pellets. Enough was said in the section above on import-substitution possibilities to underline the scale problems sucn investmentsmight encounter, the more so if they are designed to serve national ratherthan regional markets. In effect, in the kind of sectors described above,investments, once made, cannot be unmade and are highly likely to kill thechances for future regional rationalization in the sector where they takeplace.

107. It is to be expected that since such investments proceed on anational, rather than regional basis, tensions will be created within CAKICUMbecause of the present distortions in the protective structure. Two importantexamples of tensions already exist. The first is in textiles. Jamaica andTrinidad, in an effort to protect their existing mills, deny their own garmentmanufacturers the concession of duty-free imports of competing fabrics. Othercountries of the region, however, are allowed by the rules of CARICOM (theExemptions List) to export competing garments to Jamaica and Trinidad incor-porating these same fabrics that were previously imported duty-exempt intoJamaica and Trinidad. A second example is in Jamaica, where a similar situa-tion between leather tanning and shoe production exists. These tensions havenot been important in the past for the reason that the region has producedfew intermediate goods.

b. Industrial Programming

108. Based on the experience of CARIFTA/CARICOM so far, it would seemthat the region has to make far more serious efforts than is presently thecase at coordinated regional planning. Such planning should seek the rationalexploitation of the region's industrial potential for regional import substi-tution and exporting on the basis of regional agreement covering the timing,location and capacity of new investments requiring part or all of the market.

1/ Meanwhile, regional trade in textile fabrics would only occur betweennrnodiers nf thesp items since only they would introduce quantitativerestrictions.

- 35 -

Regional industrial programming is, of course, not a new concept, though itban been nbsprvpd mnre in nrineinlp than in nractice. The fundamnental problem

with this approach is that regional planning represents a significant com-pounding of the problems of national planning in developl geco..r.ies. Effortsso far at industrial programming in developing country regional groupingshave not been. conrspicuously successful. 1 /

1091. T h,e lack of successful exaumples makes poliy rsoitirs oregional programming difficult and dangerous. The central problem is thatof sharir.g out thL1-e new capaci'Lty that the regi'onal -Lmarket wouLdU Justify.Various "methods" have been employed to this end, ranging from integration"rounds" i.L the Ce.;Lral A eriCan, C,UWon MarIket in.whc countrWies took± L nLew

industries more or less in turn, to compulsory consultation (in the CentralLALL .rican ClustoLs anIlU rAULIUcoLom Un-ionL, lUL o inLaLliflJ LU CUUPULKL.±UU .14 Lftl aLVD

(between Pakistan, Turkey, and Iran), Probably the best approach is to avoidrigiu rules ardIU to rely on a spirit of cooperation. This spirit stiJl nas tobe forged in CARICOM.

110. The region could attempt to find common ground for regional planningin a number of ways. Tne national IDCs could improve communications amongsteach other, possibly by means of regular meetings or obligatory forms ofconsultation. Tne Community Secretariat is currently initiating work on a long-term prospective plan for industry but the resources it is able to devote tothis effort are marginal compared with the tasks it has of administering theimplementation of CARICOM trade measures. Up till now, as Brewster and Thomashave pointed out, the region's favorate method of dealing with a problem hasconsisted in the "ad hoc meeting of experts" approach (whether these expertsare from within the region or trom outside). The result is a manifest failureof the region to study its problems with any continuity -- and there thuscontinue to be a very strong argument for supporting the suggestion, both ofthe Brewster/Thomas study and of the UNIDO regional mission, for a regionalbody that could undertake such a planning function. 2/ This body, which couldbe a part of the present Secretariat or separate from it, is seen as the onlyefficient means of the region acquiring an informed regional view (as opposedto the summation of national views) on the complicated technical and economicproblems that successful regional programming would entail.

1/ The trade liberalization approach, in contrast, offers the lesser line ofresistance in terms of the problems and pressures created by the existingindustrial structure on the one hand, and the fundamental decisions thatwould be required for planning on the other.

eeCouressioe fanA Ecoomlc dt..ion.L- o n a Caribbean; the CommunityCommission for Economic Integration of the Caribbean; the CommunitySecretarilat 'as sir.ce acqui4reA some of tbe proose functions of the

Commission, notably those dealing with trade matters. See also UNIDO,Op . e.Lt, p . J5 o. a proposa'l fLor a CAURIFTA LLLUUstLrL.L. DeveLUpULerL1L Cer

- 36 -

111. Such a body, which would not limit itself to industry alone if itwere to exnlnit tbehp nnsihilitis nf sprenra1 linkages, wnmild be initiallyconcerned with the study of markets and feasible capacity in specific sectorsof relnoA tdat4irties. Thrniigh tho tiuidu nf s pvral aspecrsra stiffici-nt

number of regional projects could perhaps be generated to justify a "package-deal" approach allow4ng a maxvimum number of reg-ional participants to deriveadvantages in the various sectors. Such "package deals" would need to beaccompanied by sector-by-sector arranaem.ents where, for instance, a reggionalquota regime was judged necessary for the viability of a given regional in-dustry_. The e4stence of a -reg-1 4-A-..aj r4 1 -1-4- 1-A- -... 1. -A -F

Y-.. ... s ---.. W Cz .1_b. -_g.a Ms..a.h _5_ -- y ^-v, _,

course, solve the political problems of cooperation overnight but it wouldexau.ir.e thi'e exter.t to -whicha t-echr.ical sollut40r,s couIA assure a co,-uni ty ofinterests and it would provide a regional counter-weight to the national'r.terests thlat governments perforce represenr.;

1 )n, --- -- -- A ------- . 4_ & 1 ____ r_w__s.U . U_ _ , 1 _

liberalization mechanism should not proceed faster than the progress ofregional' plannaing. If it does, it i8 likCely that the indUs;'lly weakermembers of CARICOM may have their position further weakened. It is probablyinievitable thnat "perflect'Lon" of thle muechlanisum will i nvo'Lve higher leve'ls of

protection than are commensurate with the needs of the most industrializedcountries. However, it is by no means cLear that increased regional protectionis in the interests of the LDCs without stronger measures to provide exportmarkets for the LDCs in nCs.

c. incentives

113. There are, however, other areas where CARICOM might make some pro-gress, even in the absence of more serious attempts at regional planning. Thefirst is that of efficiency. The point has been made above that the harmonizedfiscal incentives put no onus on efficiency and could even be anti-efficientin terms of the type of industrial activities they encourage. For this reason,some consideration should be given to the introduction of more formal criteriafor efficiency in the incentives system.

114. Secondly, it was suggested above that the harmonized fiscal incen-tives to exporters were weakened, because they could not be used as long asa firm was enjoying an investment incentive tax holiday, because they werenot likely to be very significant in their quantitative impact on exportprices and because they fail to encourage firms who wished to export only asmall proportion of their output. The first objection could be overcome ifnewly investing firms which were capable of undertaking some exporting, wereawarded investment incentives contingent on a certain export performance.The second and third objections could be met by regional consideration ofhigher rates of income tax rebates on profits that, moreover, did not dis-criminate between different ratios of exports to total sales. The meetingof these latter objections would of course entail a partial re-writing ofthe harmonization agreement; in view of the difficulties in arriving at theoriginal agreements, this might be politically difficult.

- 37 -

115. The third area for potential progress consists in a revision of thepresent incentive system's clear encouragement of imported rather than localinputs into industrial proauctLion. it woula proDaDly maKe little adrierenceto withdraw concessions on some capital goods imports such as machinery thatcannot be produced in the region. The national exemptions lists, on the otherhand, permit the import of many products for which regional substitutes could,in the medium term at least, be available. The most obvious case is the foodindustry which is highly import-dependent. The mere removal of the foodindustry from the exemptions list would not solve many of the supply problemsof agriculture but it would provide part of the solution. The longer termdevelopment of regional industries in textiles, paper packaging materials andleather will also require the removal of the present strong incentives toimport.

ANNEX IPage 1

CARIFTA LDCs: The Manufacturing Sector

1. Although the levels of individual purchasing power in the LDCs arehigh relative to those in other developing countries, the basic constraintto industrialization has been that of scale. The total domestic market forLDC manufactures is little more than US$100 million, and the average sizedmarket for manufactures in any one of the Eastern Caribbean LDCs (aboutUS$10 to 15 million) is equivalent to the sales of one average sized spinn-ing and weaving plant in the US cotton industry.

2. Since the mid-1960s, the LDCs have pursued the path of regionalmarket enlargement both at the level of their own mini-region (the ECCM) andthat of the larger Commonwealth Caribbean (CARIFTA). So far this hasproduced almost nothing for them in tangible benefits from trade in manu-factures, but there is hope that the terms of CARICOM will prove moreadvantageous. Under any such regional trade arrangement, however, it can beargued that late starters in the industrialization process are unlikely toderive much benefit from what is in any case a very small regional market.A more recently stressed alternative, or at very least complement, to theregional approach is the strategy of exporting to the outside world,particularly within preferential arrangements. There is some agreementamong proponents of this strategy that, given the as yet underdevelopedskills and entrepreneurship of the LDCs, such export ventures would necessi-tate a heavy iniection of foreign entrepreneurship and investment.

3. Even in the context of the world market, however, sheer smallnessmay place severe limitations on the extent and nature of industrialization.The LDCs may simnlv be too small to get the external economies necessary forbalanced industrial growth--for instance from the education and trainingsystem or the service sector--and may thus have to rely on the very lightestof manufacturers or on foreign-dominated enclave export operations.

Structure and Organization of Industry

4. Although the small size of the domestic market is the largest con-strnint tn inAt,ntrv- nther alemente of factor--ndowment alsn bear mention.Outside the agricultural sector, the LDCs are poorly endowed with rawmaterials. There are few m.etallir minprals or rnnsrrnrtinn matpria1sqApart from Belize with its substantial forestry resources, only St. Vincenthas small a.mounts of usable- timbeor reounirpcs w.hilat literrac rates nrehigh, education has stressed the liberal arts in che British tradition.Technical education is gainin.g some ground but, by and large, the work forclacks industrial skills and attitudes. In some cases, notably Antigua, therudimer.ts of ir,dustrial and er.gir.eeringskll seem to* have bee fost'ere

by the growth of the tourism industry and associated construction activities.ILn the case ofL 'at. Kitts declir,ing .Levels of acLtvity iII teLI s Our dus-try

have led one of the companies to sell its engineering skills to the rest

ANNRY T

Page 2

of industr. Gi van the emo 1 acvl e of the rovr 1emin ma;or to of ma- --facturing activities entrepreneurial talents have not developed much.Whilst 1

-thae underAde-1--l-m-nt of industry ar.d of h,-n capjt-l -is c4rcular incausation, it is important to recognize the lack of appropriate skills as aconstraint to thLe develloprernt of m.an,ufacturing 4i; the meA.tue term. 'ruebasic infrastructure facilities seem on the whole to provide no majorconstraint to thLe dUeve'lopm-ent of light manufa ctur . ing alhog certainJcon~LLd±LL U LI~ UV~.LJjJII~LL IL ±±11LUC~LLU.L.L.LUL.LL%P, CL. LIIUU6LL CLC.L

aspects of the internal and external transport system are less than perfect.

5. The pattern of local manufacturing production is largely explainedby the constraints of small size on the one hand, and the protective elementof transport costs on the other. Apart from the resource-based industries,local production is dominated by semi- and nontradable goods whicn arecharacterized by a high-weight-to-value (such as cement blocks, low-costfurniture and bottled drinks) rather than by the more labor-intensive low-weight-to-value goods such as clothing. These undertakings are typicallyvery small scale (5-20 empioyees). Otner establisnments, some or themcomparatively large, are engaged in the processing of agricultural rawmaterials, for instance, extraction of lime Juice, coconut oil processingand the manufacture of coconut by-products. Since the late 1960s, a smallnumber of enclave exporting firms have been established in some countries.Promiment among these are a workwear garment firm in Belize, a TV assemblyplant in St. Kitts, as well as a display materials assembly and an electroniccomponent assembly firm in St. Lucia.

6. The estimates below illustrate the very small share of the LDCsin the manufacturing activity of CARIFTA and the small share of manufactur-ing in total LDC economic activity (Belize provides the most importantexceptions):

Share in CARIFTA Total Share in National EconomyManufacturing

Market for Manufactu- Manufacturing Employment +Population Manufactures ing GDP GDP + GDP Total Emplymt.

ECCM 11 7 2 5 10

Belize 3 3 3 8

MDCs 86 90 95 13 17

CARIFTA:Total 100 100 100 average: 12 17

Source: Tables 1.1 and 1.2.

ANNEX IPage 3

7. No reliable series exist on the evolution of manufacturing acti-vity in the LDCs. Sluggishness in GDP growth in the 1960s, together withevidence from census data for the ECCM countries that manufacturing employ-ment was stagnant, suggest that manufacturing contributed little to growthin the 1960s.

8. A complementary feature of small average establishment size isrelative labor intensity. This is borne out by the figures of GDP peremployee in manufacturing that are calculated in Table 1.2. Indeed, contraryto experience in many other developing countries, GDP per employee in theLDC manufacturing sector tends to be well below the average for the economyas a whole. Whilst this may be partly due to capital intensity in leadingsectors of the economy, e.g. hotels, it essentially reflects the almostcomplete absence of medium-to-large capital-intensive establishments.

9. It appears that the few instances of public ownership of LDCindustry, e.g. coconut oil and soap manufacture in Antigua, have notproven successful because governments have no more entrepreneurial exper-ience than the private sector. There is little systematic information aboutthe nature of private ownership. The enclave industries are of courseforeign owned and managed and, as a result of the fairly high past rates ofmigration within the region, there are also some enterprises owned and runby CARIFTA non-nationals.

10. The smallness of the LDCs, together with the nature of theireolonial historyv results in several notabte features of the distributionsystem for manufactures which affect the prospects for local manufacturing.Mnot of the imnorts of mnanufartures; eonsiumer and intprmpdiatp (mnotlv

construction-related) goods, are accounted for by large trading houseswhi…h …f…tn retail directl-y Mnr…novr- these tratdino houses ma have

foreign ownership and usually have some foreign management. The nature ofthe managemnent and the oligopolistir nosition of the tradinp housesA leadsto a preference for traditional sources of imports (mostly UK and Canada)over newer and probably chea-er sources, e.g. EEC nA Jaan, semoi-induictri-

alized, low-cost exporters. As a result, the LDCs tend to pay higher pricesfor 4mports thar the mCs pay. This may reflect both a higher reliance ontraditional sources and a lesser ability to obtain good prices from thesetrad4t4onal source. At the same t 4 m., 4i i likely that such trading ho,uses

may discriminate against local and CARIFTA sources of supply because of therellativ-e ea-se of contir.i-4- -with -rsn ----- traAe ct3annels .Past TnAustri1aliza-ion Po-icies

A. 3L L&LLLOL. L A. L J. L . ~

11. T'me governments of th-e LDCsl sufe ------- dieonme byvituI I . J. IA ~IV A UI& ~ IA. L.1 A l~ , OUS _L %A~ A.~IJ OU La _ IIUMLa . Y~ S. U

of their smallness. Thus, though industrialization has been an importantpoicLy objective iX nomIlndI teLrs silnce the 1950s to early 19v0s (whenvarious pioneer industry laws were passed), it has rarely been pursued in aconcerted or coherent manner.. This mlay be changing as most of the LDCs

rANEX I

Page 4

formally pass responsibility for industrial promotion from trade ministries(whose comparative advantage has traditionally lain in the regulation ofinternal and external trade) to especially created industrialization bodies.Of course, the lack of an industrialization policy has been as much thelack of obvious industrialization opportunities as of inadequate administra-tive resources.

12. Nominally, the package of incentive prevalent in the LDCs ispotentially as powerful as those offered in the MDCs and other developingcountries. The incentives legislation offers tax holidays from five toten years. There are few formal controls on foreign investment. Tariffconcessions on imported inputs have become the rule in recent years formany manufacturing firms in operation, whether they have tax incentivestatus or not. Tariff protection on output is, by the standards of develop-ing countries, modest. The LDCs follow the negative list system of non-tariff protection of certain activities. Manufactured goods do not figureprominently on these lists though it seems that the few domestic market-oriented industries which do not enjoy considerable natural protection fromtransport costs have generally received such protection.

CARIFTA and the ECCM

13. The CARIFTA agreement that came into effect in 1967 was a conven-tional free-trade agreement based largely on the EFTA model. Its majorprinciple was the immediate introduction of internal trade free of tariffsand quotas for those goods of its member countries, satisfying area origincriteria (basically at least 50% area value added, in which a long specifiedlist of raw materials not available in the area could be counted as areavalue added). Qualifying this basic principle were "reserve lists" ofsensitive items for which member countries required longer phasing-inperiods for their internal tariff abolition (quotas all went immediately).One of the major concessions to the LDCs came in this area since they wereallowed a slightly greater number of products on this list than the MDCsand were given a 10-year phasing-in period (as against five years for theMDCs). The other imDortant concession to the LDCs in the Agreement was theprovision allowing the LDCs to introduce tariff protection against the MDCson infant LDC industries already existing in MDCs. It is important to StreSS

the limited potential impact that CARIFTA might be expected to have on MDCimnort patterns. The IDTGsC were allwed to retain the-ir e.sentiallu m.odest

external tariffs and since they were not making extensive use of QRs tocnntrnl mjn,,fnftireaA irmnn-rte th evtonet, nf trnAp A4z,era-brnn f-rn, yj,-rld toe

CARIFTA sources was limited by the modesty of the tariff and the rules ofori-in. On the other hand, the higher 1evels of 4-14 ipct 4 theextensive quota systems of the MDCs provided much better ground, a priori,for trade diversior.. The standa-r incer.tive package d- A,ot, -produce the extensive import substitution that it produced in the MDCs.

ANNEX IPage i

14. The East Caribbean LDCs (the LDCs less Belize which, in any case,did not join CARuFTA until 1971) formed the ECCM in 1968 to provide a slightlvlarger market for countries of comparatively low levels of industrial com-petitiveness and to be able to face the MDCs as one unit. The ECCMregulations mirrored those of CARIFTA with the major exceptions that internalfree trade was absolute and immediate, an eventual common external tariff(CET) was agreed in principle, the free movement of capital and labor wasalso agreed on. The CET was introduced on October 1, 1972, among all theECCM members except Antigua and Montserrat. This CET, based to some extenton its national predecessors is modest in giving higher rates of protection--in the range of 20-40% ad valorem--to products potentially or dctuallyproducible locally and to luxury items. The ECCM provisions thus createda common market equivalent in size to Barbados which has experiencedsubstantial light industrialization. There are, however, three characteris-tics of the ECCM agreement that may limit its effectiveness: the first isthat there is no common QR policy as yet and QRs have been the backbone ofindustrialization elsewhere; 1/ the second is that the rules of originseverely limit the amount of light manufacturing that can qualify for areatreatment; the third is that the LDCs have contractual obligations, withinthe limitations of Article 39 of CARIFTA, succeeded by Article 56 of CARlCOMto extend free trade treatment to MDC goods.

15. The LDCs need some form of strong institutional support toregional industrialization in the manner of the MDC Industrial DevelopmentCorporations. Various reports, notably the Tripartite Survey and the EIUreport, have stressed the need for such a regional body. The ECCMSecretariat has recently set up an Industrial Evaluation and Promotion Unitwhich is intended to fulfill this role and to provide technical assistanceto LDCs. The Unit is small, consisting presently in effect of a UN advisorwhose main task is the elaboration of projects flowing from the EIU study.This smallness is a constraint to its effectiveness in promoting the sub-regional industrialization effort.

16. LDC trade statistics for the period up to 1971 show no evidenceof a Dositive effect of either CARIFTA or ECCM on trade. The summary tablebelow indicates that, over the first four years of CARIFTA and the firstthree years of the ECCM. LDC trade was characterized by (i) a large andgrowing overall deficit, (ii) a negligible and possibly declining share ofLDC trade in total trade, (iii) a comparativelv large and increasing shareof MDC manufactured goods in LDC imports, (iv) a small share of MDCs in LDCexport markets (the 19Q increase in c-urrent dollar terms over the four-yearperiod hardly constitutes dynamic growth) and (v) a rapidly growing tradedeficit with the MnCs. The trade figures do not suggest that either thpECCM or CARIFTA have made a positive contribution to the growth of LDC trade

of/ EM extrnler.t policyts M.th.ber ronvtiesi ts worel tiwvrtl a hk.rmontionof external QR policy but the provision is relatively weak.

ANNEX IPage 6

unless we assume that the situation would have been worse without it. Itis possible, however, that the important tiLu-e lags -which characterize tradeliberalization and changing patterns of trade may have delayed the effec-tiveness of the trade agreements beyond 1971 (the most recent year for wnicncomprehensive statistics are available).

Trade of Selected ECCM Countries (Dominica, Grenada,

St. Lucia, Montserrat, St. Kitts), 1967 and 1971

1967 1971ECt m7._ _ ECA m. Z_

Imports:

from ECCM 0.9 ( 1.0) 1.1 ( 0.6)from other CARIFTA 16.5 ( 17.5) 36.6 ( 19.6)

Total 94.1 (100.0) 186.7 (100.0)

Exports:

to ECCM 0.7 ( 1.8) 0.6 ( 1.6)to other CARIFTA 2.6 ( 6.7) 3.1 ( 8.1)

Total 38.7 (100.0) 38.2 (100.0)

Source: National trade returns and Marshall trade figures.

17. Fragmentary evidence suggests that the product composition of LDCimports from MUCs may have undergone some change. The share of manufacturesin total imports from MDCs seems to have grown from around 30% in 1967 toaround 45% in 1971. This development is consistent with the differentialeffects of trade liberalization on generally higher tariff manufactures andlower tariff raw materials. There is also some evidence that a mild degree

ANNEX IPage 7

of trade diversion, affecting an estimated 3% of the total LDC import bill,was accompanied by higher relativc import prices.) 1/

18. The tentative conclusion is that CARIFTA and the ECCM have been,and may continue to remain, relatively marginal in promoting, industrializa-tion in the LDCs. The potential costs and benefits for the LDCs in thepackage of measures associated with CARICOM appear more important, however.The costs are associated with the need to adopt a common protective policywhilst the benefits result from a broad array of newly introduced measures.

CARICOM

19. The Georgetown Accord of April 1973, signed by all the CARIFTAcountries except Antigua and Montserrat, was a broad declaration of inten-tion to proceed witlh the Caribbean Community and, within it, the CaribbeanCommon Market. The Accord spelt out the broad lines of the package ofmeasures to help the LDCs, some of them contained in the Common Marketprovisions, others to be contained in subsequent agreements on fiscalharmonization, double taxation and a Caribbean Investment Corporation. Themeasures taken can be classified into three groups comprising trade, fiscaland financial measures. The separate, though coordinated, activities jfthe Caribbean Develonment Bank (CDB). founded in 1970, are discussed underthe third heading.

20. The trade measures are all contained in the Treaty Establishingthe raribhhen rnmmiiy4-v: Annpye The C2arihbpan Commnn Market> Thisq

document was signed at the same time as the Georgetown Accord. Thesigni-nrao I TCs of tho GCororetjnn Acrnrd agoreao i accedoe tn the Troatyi hv

May 1. 1974. It is not known whether Antigua and Montserrat will join. 2/There are fourb provisions cf

major consequence for LDC industrialization prospects:

1/ The 3% figure was calculated simply by expressing the increased shareof manufactures in imports from MDCs (30 to 45%) as a percent of thetotal import bill. If, in turn, we assume that the LDC tariffs allowedc.i.f. prices of MDC products to be no more than 20% of that of importsfrom other sources (an upper estimate), we would further say that thisttade diversion entailed a rise in the import bill of the LDCs of lessthan 1% (i.e. 20% of 3%). The rising price would be reflected in afall in customs revenues rather than an increase in prices to theconsumer. The example is illustrative in the sense that we are notsure of the precise extent, if any, of the increasing share of manu-factures from MDCs in LDC imports but we are confident in concludingthat the price effect has been small.

2/ Montserrat, as the smallest and weakest of the LDCs, has been offereda more liberal period than the other LDCs for the phasing-in of itstariffs.

ANNEX I

Page 8

(i) the elimination of internal traffic on products appearingon the CARIFTA reserve list is extended by five years; i.e.LDCs have until 1981 to eliminate tariffs on imports ofcertain sensitive items from the MDCs;

(ii) whilst MDCs will continue to need 50% local content for areatreatment of their exports, the LDCs will require only 40%;

(iii) as well as the continued provision of tariff protection forLDC infant industries against imports from MDCs, LDCs cannow give temporary quantitative protection in certain circum-stances; the Georgetown Accord specified criteria--basicallythe need of the total LDC market for viability---that wouldjustify such treatment:

(iv) LDCs are for the first time allowed to give certain governmentaids, including direct subsidies, to exports to the MDCsexcept Barbados; inasmuch as such aids were fiscal theywould be governed by the Fiscal Harmonization Agreement.

21. The treaty also contains minor provisions allowing LDC governments,unlike the MDCs, to discriminate in procurement policies for public enter-prises and to make use of MDC research facilities. Undoubtedly, the majornew trade provisions are those concerning LDC quota protection against MDCsand LDC export subsidies to MDCs.

22. The conditions governing the establishment of the CARICOM CET arecontained in the Treaty, as well as in the Agreement Establishing the CET.The MDCs were to phase in their own tariffs immediately, with the exceptionof certain sensitive articles which were to be phased in over differentperiods no later than 1977 (up to 1981 for some Barbados products). Forthose items where the CARICOM and ECCM CETs differed- a schedule would besubsequently established according to which the LDCs would finish phasing inby 1q1 (1985 for Mnntserrat),

947 The Agrppmpnt nn thp lHarmnni7ntinn nf Ficrnl TnrPntiToQ ft Tndtictrv

provides tax holidays on industrial investment for which the length isdetermined by the proportion of loca value added to total value the speJficproject will generate. 1/ The LDCs receive notably longer tax holidays asthe table bel, shows:

'. A Cgi formu...ormula lncreases .local value-added share by uA..ulply,ng

actual value-added share by the proportion of the wage bill fornationals to total sale.

ANNEX I

Maximum length of tax holiday_l. . .' _ _

Percentage of JamaicaLocal Value Aduueu Lr.Ln.LUaU DarbadosLD

I. 50% an' over 90

II. 25 to 40% 7 8 12!II. 10 to 24% 5 6 10

Industries exporting all outputoutside the region 10 10 15

W-hilst the MDC can offer the first three categories of incentive only to'pioneer" industries, the LDCs do not face this constraint. A list of 29product groups was stipulated in the Georgetown Accord (Annex Il: Industriesfor Promotion in the Less Developed Countries) as qualifying only in theLDCs for fiscal incentives in the first five years at least.. 1/ The vastmajority of these constitute established non-pioneer industries in the MDCs.

24. So far the CDB has lent almost exclusively to LDCs. In the area ofindustry, apart from general infrastructural projects, the CDB is financingthe construction of industrial estates as well as providing lines of creditfor small-scale industries. It is currently 'considering the possibilities ofestablishing an export credit insurance scheme for the LDCs. The CaribbeanInvestment Corporation (CARINCO) was created in July 1973 as a means of comple-menting CDB by providing a channel for the flow of share capital from MDCs toLDCs. So far it has not made any investments. The conclusion of a doubletaxation agreement between the LDCs as a group and the MDCs as a group inJuly 1973, whilst ensuring that tax laws would not provide a disincentive toMDC investments in LDCs, also provided concessions on the taxation of incomesof MDC residents earned by their investments in LDCs.

25. The common market mechanism represents an approach to the industrialdevelopment of the region largely by means of the price mechanism. Anattempt has been made (a) to place the context of LDC development in a commonmarket of developing countries, and (b) to build in mechanisms to compensatefor the acknowledged uncompetitiveness of the LDCs.

Future Directions for Industrial Development

26. The prospective costs and benefits of CARICOM depend on the natureof the comparative advantage of the LDCs. The elements of this have alreadybeen discussed and it is clear that, until agriculture can produce at lowercost, there is likely to be little competitive advantage in resource-basedproducts. The small size of local markets obliges manufacturers to turn to

1/ These are the asterisked industries in Table 1.3 which gives the EIUSurvey classification of industries for promotion in the LDCs.

ANNEX IPage 10

foreign markets and this places an onus on the ability of the LDCs to betnmnfe,rtiivP A cnmpnarison of the cost structure of the LDGs with that of the

MDCs or the outside world is difficult because the absence of an establishedianufacturninc setor mens that siirl a cnmn.ari-son must h hvnot-hetica1 and

based on elusive notions such as the cost of entrepreneurship and the levelnf prnAioutrivityv 1/

9 7 .6 Ihilt thea wna"e of the~ TDCs are Iow by tho standards_ of Trinidadf

and Jamaica, they are not particularly low by the standards of other develop-ingC ries t is probable that the-t comparativel good labr relationc

prevalent in the LDCs would constitute an equally important advantage to thefLDCsb v J a...aica andt. Tir. i.d.ad. B-arbados and Guyar.a, however, are

closely comparable in both wage levels and industrial relations. At thesk'.i.Led 'labUor level and all. level.s of. .anagemer,tneL. L DC JsIJO OUfLfL di

disadvantages that may outweigh advantages in operative labor wages. For mostindustries the required skilled and managerial inputs are sufflciently importantthat the higher costs of filling these positions with expatriates (or alterna-tively of1 Jeopardizing productivity Lby em.plo-ying u-qualifi-e -locals wll

affect production costs significantly. 2/

28. Whilst basic infrastructural costs (factory shell rentals, electri-

city, communications) are similar in all the CARIFTA countries, the LDCswould face high costs in many of the external services associated withmanufacturing, for instance, engineering and accountancy services. Thisresults from the basic lack of a modern commercial and industrial sector inLDCs. In conclusion, it is probable that only the most 'raw" labor-intensiveindustries in the LDCs would prove competitive in exporting.

29. The ECCM market offers some limited industrialization possibilitiesas the EIU Survey has pointed out. Some of these, for instance a foundryindustry, may prove very important in providing services to other infantindustries as well as in fostering entrepreneurship. Apart from obviouslinkage possibilities with the tourism industry, in such activities asfurniture for hotels and handicrafts for tourists, the market will remainsmall and relatively slow-growing.

1/ Ihe E1i costings were hypothetical in this sense and thus based on tenuousassumptions. The assumptions are easiest for enclave industries wherepractically the only local input is raw labor which can be costed withrelative ease.

2/ The prospectus industries of the EIU study require largely expatriate

management and skills and, as a result, these two categories of labor inmost cases account for a greater cost than operative labor.

Page 11

30. '.Cost differences Detween ECCM member countries are smail. There isa tendency for higher-wage countries to be at the same time industrially themost experienced (e.g. Antigua). Moreover, tne incidence of transport costswould be such as to provide a degree of national protection to each country.Under these circumstances, it appears that measures to promote trade liberaii-zation within the ECCMI are worthwhile in terms of their effect on trade andof increasing the solidarity ot the ECKM.

31. CARICOM;s advantage, in brief, is that it presents a larger, well-protected market in which the LDCs' export marketing problems may be eased byexisting well-established channels of trade and communications. Exporting toCARICOM may provide vital practice for subsequent export marketing in theworld at large. An evaluation of CARICOM prospects will take the form of abrief examination of (i) the prospects for LDC manufactured exports to theMDCs (benefits), and (ii) the trade diversion effects of CARICOM, particularlyin manufactures (costs).

32. Without a strong cost advantage, investments oriented to the CARICOMmarket will a priori tend to be located in one of the larger MDC markets sinceinvestors will want the secure fall-back position of a larger market in theevent that regional arrangements should run into difficulties. Possibleexceptions to this are investments that may be made in LDCs to circumventtrade restrictions in MDCs. It is believed, for instance, that one or twoinvestments in the garment industry have been made in LDCs because garmentproducers in Trinidad fear increasing restrictions on duty-free fabric importsaimed at protecting Trinidadian textile production.

33. There is reason to believe that the major concessionary mcchanismsfor LDCs built into CARICOM agreements may be less effective than would appearon the surface. The provisions for protection of LDC industries againstcompetition from MDCs on LDC markets appear to be adequate as long as theMDCs are favorably disposed towards LDC requests for such protection. Invest-ment and export incentives are less satisfactory, however. I'he maximum LOCtax holiday of 15 years, compared to nine in the 1DCs (10 in Barbados), doesnot provide a very significant impact on production costs. The typicalproject has a life of 10 years, and this together with the short-term view ofthe developing country entrepreneur (i.e. his high discount rate), lessen theimDact of the extra vears of tax holidav. These tax holidavs are in any casegenerous and suggest that manufacturing in the LDCs may not contributesignificantlv to tax revenue for many years to come.

34. Whilst LDCs are allowed to zive certain 2overnment assistance toexporters to MDCs, they are unable to give fiscal incentives -f exporting firmsalready henefit from a tax holiday. Alternative forms of exnort aid; such asdirect subsidies, inasmuch as they are consistent with the fiscal harmonizationagreement, may prove too great a fiscal burden for LDG couernments to consider.

ANNEX IPage 12

35ci- The Annex TT nrovisions of the Gnorgerntwn Arcord whirh rFetrirt

investment incentive status in certain industries to LDCs only (in the firstfive vears of CARGTrM) are not apparently aimoe at imnroving tho expo rts ofthe LDCs to the MDCs. Most of the products in Annex II were identified byEIU Study as having pronset-s forr nnn,i4 ny, orstabelshmentt within the ECCM

market and tend to have ample existing capacity in the MDCs. More telling isthe fact that none of the five industries identified by EIU as h exportprospects to the MDCs is given this status. Thus, it would appear thatAnnex TT has ceded very little to th1e LDCrs.

36. Thrie 4r,uedia-e costs to t-be LCof,.vnfrmteEC to CADTRICO-~jv .LLL~ LIM=UUIU LE.~ CO*.A L~ L.. UL.L "LJ'... %J 11VVVV LL1 I A-LULL L.Lt~ IS~,ArAL LVL\L.J ktDLUUI

can be considered in terms of the effects of changes in the level of thecoronexerna .. ri ff (_T_ Ao the.exntL at t rAnT'o1A 'V' Is I gerI.AJUWItJII t:zAL~La.L LeA. LLJ. \'. .L.J. * u JU LI1 s t:LsLLI. L1LoL LLIs ~t:: Ll.vrl '"lL ±n LIALh11L

than that of the ECCM, the effects may consist of a combination of (i) increa-sing tariff revenues inasm.,uch as there is no trade diversion; (ii) hilgherforeign exchange costs of imports inasmuch as imports are diverted to higher-cost duty-free sources;- ( iii) chningI_UL coULI --- p e of--- -S. Ls inreaction to the effect of different rises in landed prices and demand elasti-cities, and kiv) import suDstitution. in some cases, notably beverages,

tobacco products and petroleum products, changes in tariff levels are likelyto be compensated for by changes in levels of consumption taxes.

37. The mission estimates that if the pattern of trade were to remainunchanged, the landed cost of LDC imports would be 5% higher on average(although the foreign exchange cost would remain the same) and LDC tariffrevenues would increase by 40 to 50%. In practice, there is likely to be amoderate degree of trade diversion, so that the total import bill may riseby no more than 3% and tariff revenues by some 20 to 25%. In these circum-stances, however, the total foreign exchange cost of imports to tne LDCswould rise by at least 3%.

38. A more disaggregated view of the impact of the CARIROM CET suggestssharp differences between products. There will probably be a minimal effecton stable food items: low tariffs on flour, fresh meat and canned milk, forinstance, remain unchanged whilst a higher CARICOM tariff on rice will onlybecome significant if Guyana ceases to be the principal supplier or raisesits prices. A more or less across-the-board tariff rise on processed foods,for instance, canned goods, refined sugar, margarine, reflects the need ofthe MDCs to protect domestic processing industries. Thus landed prices canbe expected to rise by some 10% for many such items, even if there are atpresent some competitive MDC suppliers under the present low-tariff situation. 1/In the face of the scale considerations and input costs associated with LDCfood processing, it unlikely that the new CE'T would lead to significant localproduction of processed foods.

1/ Barbados is at present a competitive supplier of margarine to the LDCsacross a low (5% ECCM CET) tariff wall. it is unlikely that there issufficient competition among Community margarine producers to preventexporters from taking advantage of at ieast some of tne new 30%i (I0Aprefer,ential) CET.

ANNEX IPage 13

39. It is in the area of non-food consumer goods that the ECCM andCARICOM tariffs are most different. The latter tend to range from 10 to20% above the former. Again, this reflects the existence of many industriesproducing these goods in the MDCs. Examples are as follows:

CARICOM ECCM

Cosmetics 55 45Toothpaste 35 20Tires 35 25Cotton fabrics 45 25Furniture 45 30Clothing 45 30Footwear 25 15

In view of the way in which the CARICOM tariff reinforces the tendency ofthe ECCM tariff to protect finished articles more highly than semi-finished,we can expect the future pattern of trade diversion to continue along thepath that has already been observed in CARIFTA. That is to say the productmix will continue to move towards more highly manufactured articles andaway from raw materials.

40. The preceding initial and crude estimate of costs and benefits tothe ECCM manufacturing sector is discouraging. There will be a definite risein the foreign exchange costs of imports, concentrated in the area of lightmanufactures, though this rise need not be disruptive since it will proceedonly as fast as the LDCs phase the ECCM CET into the CARICOM CET and as fastas MDC producers take advantage of new opportunities. On the other hand, itcannot be said that a substantial groundwork has been laid for LDC exportsof manufactures to MDCs. Whilst the cost-benefit picture has to be completedby looking at other sectors of the economy, it may be concluded that theparticipation of LDCs in CARICOM is likely to prove negative. Acknowledgingthat regional integration is, nevertheless, vital to the long-term develop-ment of the LDCs. it is recommended that the LDCs negotiate improved accessto MDC markets whilst taking care to pursue policies that will limit thecosts of trade diversion.

41. The limitations of the regional market make exporting to the outsideworld an important part of LDC industrial strategy. Given the high levelsof nrotection in nei2hboring Latin America markets, the most promisingmarkets are likely to be found in North America and Western Europe. NorthAmerica hac the advantage not only of language; but also of excellent communi-cations with the East Caribbean. Moreover, it is possible to argue thatdevelopment might "filter" down in the Northwest Atlantic area in a similarmanner to that observed in East Asia where Japan in contracting out pro-tressively m.ore ndetio-inn tn neighboring lower-wage rountri-e. in the EECsome advantages are likely to derive from the replacement of present Common-wealth preferences wi4th t 1t hu b nmom form of preferential asson LAtiorn 'Lit'

the EEC. It must be recognized, however, that the margin of suCn Drfr - ccE:

ANNEX IPage 14

may prove a less useful advantage than that of market proximitv to the Eastf'_ F Ni or' F A_.er-- - 4-_._ F4 .1 ..- 4- ..;w o. 1 -- -- -- 4 - - t__ ca_r, _le

wuadZn U. * .v A L 1. LUt 1. L-CL , CL L .LLU±at l.y A.LI V Asw u- 1L % L J £ L J.LU. LL It< Waii U-

expected from other developing countries.

42. Apart from considerations of cost competitiveness, two importantprobler.is of exporting LO thle outsiue worLU are product choice andU niarkleting

ability. The constraints in both cases are such that enclave-type industriesare likely to be most successful. The LDCs would earn little more thianoperative wages from such undertalkings and there are probably few practicalsteps Lnat can be taken to ilmit the "fly-by-nignt5 quaiity oI some enclaveoperations. Even if such firms leave the country when their tax holidayexpires, however, policies for the training of some iocai manageriai sKiiismight constitute one permanent contribution to industrial development.

43. Typical of possible enclave industry products would be thoseidentified in thle £IU Survey but it should be emphasized that there is a wholerange of products that, at some stage in their manufacture, require assemblyoperations that might profitably be carried out in low-wage countrles. Suchproduct opportunities will not, however, be identified in trade statisticsor even in the current operations of multinational corporations. instead,they will need uncovering through some judicious organization of exportintelligence, probably on the basis of permanent foreign export promotionoffices which may employ local experts conversant with local market oppor-tunities.

The Future Policy Framework

44. Most policy requirements can be separated into regional -- andnon-regional -- related elements. An important policy related to both areas,however, concerns the function of an Industrial Development Corporation atthe ECCM level. The strengthening of such a body has already been recom-mended by thle Ell) Survey. The existing industrial promotion unit in thleECCM Secretariat should be strengthened and encouraged to play a role moreindependent of CARICOM than has been the case in the past. At present, thereis little scope for serious planning of concerted LDC attitudes towardsCARICOM. There seems, for instance, to have been little formal effort toconsider the costs and benefits of CARICOM membership. For the future, theECCM Secretariat seems the logical focus of such activities.

45. One task for consideration is the extent to which the LDCs can andshould move towards closer integration within ECCM. In spite of the CET,there is at present no harmonized protective regime since (i) the rating ofduty-free concessions on imports of materials for user industries is dis-cretionary and (ii) national quota protection is likewise discretionary.The achievement of harmonized protection levels on inputs and a common quotaregime would allow rules of origin to be scrapped within ECCM, and thiswould increase internal trade possibilities and possibly increase competitionbetween inporters.

ANNEX IPage 15

46. There may be considerable pressure to agree to a common CARICOMquota regime that is likely to be highly restrictive (reflecting presentnational regimes in MDCs). Such a regime could increase the level of LDCimport prices significantly. LDC acceptance of some common QR regimes mightbe negotiated on the basis of increased market opportunities being madeavailable for LDC products on MDC markets. The LDCs have a case for askingthat the five CARIFTA-oriented 'prospectus" industries identified in the EIUsurvey be added to Annex II of the Georgetown Accord (i.e. that CARICOMincentive status for these industries be reserved for the LDCs). It shouldbe a guiding principle for the LDCs that they do not make specific concessionson the common protective policy front without specific MDC measures tofurther encourage imports from LDCs.

47. The LDCs could consider suggesting to their MDC partners that thepresent margin of Commonwealth preference on imports be diminished or elimi-nated. This could raise tariff revenues and encourage importers to seekmore competitive sources of supply or better prices from the same sources.

48. Policy prescriptions for extra-regional exporting are more difficultsince the necessary entrepreneurial ability cannot be created overnight.A start can be made through institution building, however. The industrialpromotion unit of the ECCM Secretariat will need to consider how the effortto attract foreign entrepreneurs can best be organized. Consideration couldbe given to the establishment of small overseas hranches of the Unit whichcould seek to make-contracts with foreign department stores and industrieswith a view to sub-rontrarting assembly onerations=

49. In this rpqnpet there is considprnhlp merit in the finAing of the

EIU Survey that the institutional approach may prove more important than anannro a ch ditre0t ly relatAed to- t-ho nprice mechacnism. Tt mustQ n-f-1c ba

concluded that existing investment incentives appear to be overgenerousunlpes thev are linked to extra-regional export nnriviriea It- could prove

wise to make export performance a condition of incentive status for thosefirm.s only planning to export part of their output.

ANNEX 11

?age 1

Prices and Competitiveness

1. As might be expected, the overwhelming problem in discussin-' comnpeoi-tiveness is the lack of data. Useful data on cost structure are beginninla .t

emerge in the IDCs with an increasing amouiit of results from industrialsurveys. 1/ Unfortunately, the time lags involved between the collection andappearance of these data combine with the present rapid rate of inflation tomake these statistics less useful than they might otherwise be. 11owever,this survey combines these data with data from private company sources oncosts and prices and unit cost data calculated from trade statistics, inorder to attempt to put together a partial picture of industrial costs. Thefigures are, therefore, to be taken with caution tliough they nrovide sqcmcguidance to the cost situation.

2. International price comparisons are difficult to r,;ake ;umder mostcircumstances but they are particularly difficult in the case of the dif-ferentiated consumer goods that characterize the production of countries inthe initial stages of industrialization where local production almost alwaysbegins at the bottom end of the market. In garments and furniture, forinstance, price comparisons are virtually impossible without very detailedmarket data. Moreover, the differentiation of goods through brand names,whicih is very characteristic of Commonwealth Caribbean markets, hkardly allowsa satisfactory basis for price comparisons. Thnus, the number of items foundin trade statistics which are canable of vielding acceotable orice comnarisons

is limited. Some limited price comparisons were made for 1972, largely on

1I) See th-e nole on statistical source at 1-4-ning of rho ttsia

Appendix. The Trinidad data, in particular, promise an abundance ofinput/output information.

ANNEX IIPage 2

the basis of trade statistics, and are presented in Table 1.23. 1/ Table 1.24represents a less rigorous approach to the question of competitiveness betweenthe major CARIFTA countries by examining which countries exhibited significantpositive trade balances in their 1972 intra-CARIFTA trade in selected productsand which were significant exporters of manufactures to non-CommonwealthCaribbean destinations.

3. The small sample of prices in Table 1.23 suggests that in someitems, most notably woven garments, the MDCs achieve comparable cost withimports but in the majority imports are cheaper, often significantly so.This is particularly true of non-food items and may be typical of many otherproducts.

4. In processed-food nroducts (which dominate the sample) the priceexamples suggest that the MDCs may be most competitive, on the one hand,in nrodtictn whprp rplativplv large-Rralp lonal farming nrovideR rpa.onahlvpriced inputs (processed milk products and traditional exports, viz processedcitrus nroductq), on the nther hand, in some manq-rcnnumption items ,itrh 2smargarine, beer and biscuits. Most of the food processing industry relieson large anints" of im.prted inputt but is not notireably nricr rnmpptitivpbecause production runs are short. Certain intermediate goods such as glassbottles, cement, and ti.J cnsn rare abl to meet prices nnt too fnr aboveworld prices by virtue of the high incidence-of transport costs in imports.The more "footloose" intermediates, such as cotton fabrics, and automobiletires, are a good deal less competitive. 2/

5. The light consumer non-durable industries, typically consistingofL assemubly, mixing or pacrlXagin.g operat-ions which are found in al"l the 'Cs,

1972 was prefLerredU to earLiLer years as it saw a Larger amountL ofL intra-CARIFTA trade and the data could be related to recent ex-factory priceuata coLULectelu Llrom private sources anL pnices contoLL ffces -

specific advantages of comparing prices between regional trading coun-trLes are the following: 'LrstLy, 'L aspec'LLc prouct Ls quantiLta-tively restricted in one country to the extent that residual importsare not representative of the average local product, import data foranother country not producing the item in question will, with suitableadjustments ror dirferences in Lransport cUsbts, serveVC d prUoy iot Lleimports price of the first country; secondly, since CARIFTA trade in mostproducts is duty and quota-free, we can expect the c.i.f. price of animport from one CARIFTA country to approximate the local ex-factoryprice of the importing country. In the case of tne products in Tabie1.23, some confidence can be assigned to the derived price comparisonby virtue of the "well-behavedness' of the statistics, i.e. preferentialnon-CARIFTA imports are usually lower priced, by modest margins, thannon-preferential imports. Where protection is by tariff only, theprice advantages of CARIFTA sources of supply reflect the size of thetariff more or less; they are only significantly higher in some cases,where non-CARIFTA imports are also restricted by quotas.

2/ Reliable estimates cannot be made from trade statistics of cotton fabricsprices. However, it is estimntod that in recent years lorcl prices havebeen some 30-50% above world prices.

tiNLEX II

Page 3

produce differentiated items which it is difficult to price. Wnile domesticprotection allows local producers to charge relatively high prices they areoften able to price exports to the LDCs at little-above world prices. 1/The same problem of estimating prices arises in the case of consumer durables.The indications are that the larger scale requirements of these industriesmake local production significantly high priced by world standards. As aresult, there are very few exports from the MDCs to each other or to theLDCs.

6. Since local industry typically adds only part of the value of aproduct, and since its success in adding this value may be determined byvarious government measures such as the protective system, the comparisonof prices alone is not necessarily a very accurate reflection of relativeeconomic costs. Effective protection, which expresses the excess of localover "world" value added provides a measure of the "efficiency" of under-taking a certain productive activity in the sense that it establishes thecost in local resources of saving a given amount of foreign exchange. 2/Of course, entrepreneurs may make privately efficient (i.e. profit-maximizing)choices which may be more or less "inefficient" for the economy of a wholebecause of biases imparted by the structure of the incentives.

7. Effective protection calculations require detailed knowledge ofa broad range of industrial cost structures and local and foreign prices ofinputs and outputs, the collection of which is a lengthy process. Forillustrative purposes, a very small number of effective protective rates

1/ Tyical4~ products in thisn category ar shoes, fur.ture ,, paper articles,

cleansing products, cosmetics, matches, and paints.

2/ "World" value added is defined here in the specific sense of thediffr1erence b-etween the c.i.f.4--- --or p4ces of a final proluct ar.d -le

.LL.L L. import price f it t iLLLadab. iputL

c.i.f. import price of its tradable input.

ANNEX IIPa-ge 4

"Lave bueen c aIL cul ated , usin.g* Lh,e pr i ce atd ataJof ITPable 1 . 23J , thbe c.o s ata of

Table 1.20 and some simplifying assumptions. 1/ These rates are represented1 Ln l he following table:

if If protection in CARIFTA countries were only Dy means of tariffs andlocal producers were assumed to pitch their selling price more or lessat the level of c.i.f. import price plus tariff, tariffs could be usedto calculate the ratio of world to local prices. Widespread quantitativerestrictions render this method invalid. The major assumptions in theeffective protection calculations are (i) that, since industries areby-and-large import-dependent, the use of local material inputs usuallydenotes that such materials are obtainable as cheaply as imports and,therefore, at world prices (in general the use of local inputs is smalland negligible tariffs are paid on imported inputs); (ii) that tradablegoods consist of all material inputs and imported service inputs (andnon-tradables consist of local services and fuel and electricity); and(iii) that, in calculating effective protection for countries for whichthere is no adequate cost data (Guyana, Jamaica, and for some products,Trinidad), the cost data of other countries can be adjusted by assumingthat the size and structure of input costs remains the same but thatthe local sales price varies according to the data of Table 1.23. Itneed hardly be emphasized that the third assumption is fraught withdanger. The formula for calculation is as follows:

(1 ) EP =VA -

WVA

where EP is effective protection;LVA is value added at local Drices:

and WVA is value added at world prices;

(2) LVA = LP - (IMS 4 TIM + LLM)

where LP is local price of output (net of sales tax);TMR iS npurchAss nf imnnrted materialQ and serv4oes;

TIM is tariffs on imported inputs;and LLM is purchase of ncnal marial innpits;

(3) LWA UD - (TM 4 T T M)

where e". s wrl Aprice of output.

ANNEX IIPage 5

Estimates of Effective Protection /a(npercrent

Barhbados IV ana Jamaica Tr t nidad

M-acar-oni 15 100 240 n.a.Processed vegetables n.p. n.p. 120 140Beer 30 40 n.a. OPaint 230 250 150 120T14 res n.p. n.p. ----- Ion -Woven garments 0 0 80 /c 0

rn.p.: no product'Onn.a.: not available

/a Excess of local over world value added/bD ia-m-aican prices applied to Trinidad costs/c According to Trinidad costs (60% using Barbados cost structure)

8. The small sample provides little basis for generalization but. itdoes illustrate, through the larger variations that are observed in effectiveprotection rates between products than in their final prices, that there arevery large variations in the efficiency with which various activities saveforeign exchange. Thus woven garments are, at one extreme, relatively effi-cient and paints, at the other relatively inefficient, Paints, characterizedby a high share of inputs (largely imported) in output and negligible dutieson these inputs, are probably typical of many of the "final-touch" activitiesof the MDCs and demonstrate the potential high cost of import substitutioneven with seemingly modest protection. The tendency for higher rates ofeffective protection in Jamaica than in the other MDCs provides fragmentarysupport to the evidence of intra-MDC competitiveness given in Table 1.24.

9. In some cases, none of which are represented in the above table,the extreme situation can arise that the import price of the input is greaterthan the import price of the final product. This situation, which is aparticular case of negative effective protection, could typically arise incases where firms are tied to foreign sources of supply and the cost oftheir imported inputs does not reflect the cheapest trade opportunities.One suggested example of negative effective protection is the production ofgalvanized iron sheets in Trinidad. According to 1972 imnort nrices; thecost per ton of flat sheets (for corrugation) imported into Trinidad wasenqial tn nr anove the cost of corrugated sheet imnorts into nther CARTFTAcountries. Some of the branch-plant assembly industries may well provideadditional examples.

ANNEX IPage 6

10. High rates of effective protection could reflect high profits,inefficiencies- or the cost nenalties associated with small-scale nroductionof local products. That there are some cases of high profits (or alternative-lv nf high fi{xd nverhe2ds) is Aiggesrtd hv thp fart that some MMC nrnoductRenjoying high rates of protection on domestic markets, such as paints andtires, are exported to LDr markets to face competition with world pricesacross only a low tariff barrier. By this test, it is to be assumed thatm-nny other products face cost penalties associated -4th, small scale prrAd,,,ctioor other sources of inefficiency.

Costs

11. The sparseness of direct evidence on prices and competitiveness,particularly as regardUs compeLitiun between tbLe counLries of' thte region,prompts a more basic approach to costs which attempts to isolate those costeleiuents liklely to create differences in competitive ability. A basic deter-minant of regional competitiveness is the incidence of transport costs.Table 1.15 compares intra-regional shipping transport costs to those of majorextra-regional markets for major manufactured products. Whilst West IndiesShipping Company rates are the same for all regional destinations, there areminor differences in port handling charges., although these are not significantwhen total transport cost is computed as a percentage of the c.i.f. value ofproducts. 1/ As a general rule, the shipping costs of regional CARIFTA tradeis about one-third to one-fifth of shipping costs between the region and NorthAmerica or Europe. Thus the protective impact for the region rises sharply asthe weight-to-value ratio of the product increases.

12. Table 1.16 gives data on selective regional non-wage costs; Tables1.17 and 1.18 give various indicators of regional, then international, wagelevels. The largest single cost item is raw materials, much of which areimported. The comparative absence of local raw materials on the one hand,and the comparability of transport costs on the other, lead us to concludethat variations in the c.i.f. price of raw materials will not differ signifi-cantly between CARIFTA countries. 2/

13. The wage bill provides the second largest element of typical manu-facturing costs. As Table 1.17 indicates, the share of employers paymentsto labor other than direct production wages -- i.e. payments for holidaysand sick leave, employers' contributions, and other fringe benefits -- rangesfrom about ten to slightly above 20%. This is not excessive by the standardsof other developing countries (c.f. an estimated 50% for Mexico). A comparisonof wage levels is made difficult by large variations within countries anddifferences in average skill levels between countries. Some of the rangesof wages given in Table 1.17 are too broad to allow a meaningful calculationof the wage nremium on skills in different countries- Rezional differencesfor semi-skilled factory operatives, an important category in view of the

1/ See notes to Table 1.15.

2/ However, the smaller islands where shipping services are less frequent,may not acquire imported inputs with the same facility.

ANNEX IIPage 7

likely industrial activities to be undertaken by the LDCs, reveal a rangenf $20 to nver $100 per wppk in thp LTDGls anti a n rrAw.pr ranpe nf 440-70in the MDCs. If the extremely high figures for Antigua and Belize arevr1IIAe,i t-he sacllent- featuire nf the wcage structure is the lac-k nf differaencs:

particularly relative to the much higher equivalent wages in industrializedcountri_ s_

14. ThoIe wear 4ng apparel Industry is chosen in Table 1.18 as a labor=intensive industry where skill requirements are fairly homogeneous and wherethere 'is keer.n coVmp etitiLo.t31 betWeer.n developinr-,gCOu c.tLLL ri Aes on the world mark-t &.Unfortunately, inflation and exchange rate changes have distorted the picturesince 1969-70,VbUUL Lthe LU4L.Ln stiA.'.L hlas some vaLiAdity. UIn thLe TLatiLnAmerican context, Trinidad and Barbados are in a middling position, thoughif other labor income were taken into account, their position might wellimprove. A comparison cast further afield suggests that they are much lesscompetitive with Asian developing countries. in tne context of tne NortnAtlantic market, where South America has distinct communications advantagesover Asia, the conclusion is that the CARIFTA countries are moderately well-placed in terms of competitiveness.

15. Levels of management and labor efficiency are practically impossibleto establish on a meaningful, broad basis. Caribbean labor is, of course,capable of reaching high productivity levels: managers of enclave exportingfirms typically report levels of labor productivity in the range of 70-100%of that achieved id parent-company plants. In practice, in the large majorityof locally-managed firms, it is probable that labor and management efficiencyvary -- though how systematically we do not know -- with a given country'sindustrial experience. Trinidad and Jamaica have generally achieved thehighest efficiency levels. Barbados and Guyana, with their lesser experience,seem to be acquiring similar levels of experience in the smaller, technolo-gically more simple and more labor-intensive operations such as garments.It is in this area that the LDCs have the most obvious opportunities todevelop some expertise.

16. The selective non-wage cost elements of Table 1.16 constitute, evencollectively, a small element of total costs. However, MDCs tend to havea distinct advantage over LDCs in such elements as utilities and rental offactory space. Trinidad's position is particularly strong. The cost ofcapital is on the whole similar across the region. The more industriallydeveloped countries probably demonstrate significant external economies interms of the cost of local services they can acquire.

17. In an attempt to give one summary measure of the various regionalcost differences that have been discussed in isolation above, Table 1.25constructs hvDothetical costs for countries of the reeion of a labor-intensiveproduct, i.e. the type of product in which the LDCs are, a priori, mostlikely to become comnetitive. 1/ Two hvnothetical LDC situations, "Iow-rnst"

1/ The examnle is based on the structure of costs in the garment industryin Trinidad (Table 1.20).

ANNEX IIPage 8

and 'high cost", are compared to costs in MDCs. The results of theseestimates are that, without incentives, the "low-cost" LDC has only thebarest of cost advantages in competing with MDCs on MDC markets, whilstthe "high-cost" LDC is not even comnetitive on its own domestir marketPreferential tax holiday incentives for the LDCs would raise the "low-cost"TDC.'s rnct aduvntap in thp MDC markpt to somp AT Tf thp situantinn were

to arise that MDCs pay tariffs on inputs whilst LDC continued to be exemptfrom this, the cost effect would be signficant, alloing eventhe "hih-cost"LDC to achieve a modest cost advantage on MDC markets. It may be concludedtherefore, thatl t-he TDCs would hav grea difficulty ir. competingo MTr

markets, and often on their own domestic markets. even in the most favorablecases andAwi Wh Aiferential incent4ves.

AMNWY TTT

Page 1

~ IJ~LJ..A.LJr,&LFIJ&J WJLL -a.LULACL%U kL,.-9LL- LLAL..LL%

Legislation OandC1 -1 R egior-,aJlO- Ir.ustia -Intga'ni~±~.L4LLI& ~L1L1IX~,±UIA.L LIUUU i L .C.L4 LLILCrLCLL±UI ILLL

thLe CUmmonwealth Caribbean

Armstrong, E. (1967), An Evaluation of Incentive Legislation in Trinidadand Tobago, Institute of Social and Economic Research, Universityof the West Indies, Mona.

Brewster, H., and C. Y. Thomas (1967), The Dynamics of West IndianEconomic Integration, Institute ot Social and Economic Research,University of the West Indies, Mona.

Caribbean Economic Development Corporation (1970), Investing in theCaribbean; Volume 1, "Legal and Financial Factors Affecting theEstablishment of a Private Investment Company in the Caribbean";Volumes 2 and 3, "A Guide to the Corporation, Tax and IncentivesLaws of Various Islands and Countries in the Caribbean (CountryStudies)", San Juan.

Carrington, E. (1971), "Industrialization in Trinidad and Tobago since1950", in ed. N. Girvan, and 0. Jefferson (1971).

Chen-Young, P. H. (1967), "A Study of Tax Incentives in Jamaica", NationalTax Journal, Vol. XX, No. 3, Lancaster, Pa.

Chen-Young, P. H. (1973), Report on Private Investment in the Caribbean,Atlas Publishing Co., Kingston.

de Castro. S. (1973). Tax Holidays for Industry: Why we have to Abolishthem and how to do it, New World, Pamphlet No. 8, Kingston.

de Castro, S. and M. Dolly (1972), The Feasibility of Caustic Soda/ChlorinePrnducptinn in Trinidad and Tohago, Sonial and Eronomir Sttudipe,

Mona.

Economist Intelligence Unit, Ltd. (1972), Eastern Caribbean and BritishHornduras Industrial Survey, prepardA for tha rCr4ihan" Development

Bank, (15 volumes, "Final Report", "Annex: Background Informationon tl.e Survey Area", 13 individual proJect VolMes), LTondon.

V.LL van, 1' . anlU 0%. Je.JLeru&son e4 . \ ' l 2 * , Reading s6 in L-llCe PuXl-ial | bUIliaofLVLL,ii. .. j I Itj Caribbean, NLe WrdGuLt.Knsoof the Caribbean, New World Group Ltd., Kingston.

ANNEX IIIPage 2

Jefferson. 0. (1972). Post-War Economic Develonment of Jamaica TnAtittitpof Social and Economic Research, University of the West Indies,Mona4

LePwis, WA A. (1950), TIndu t-ri a Iization in t-he British West. Tndiips",Caribbean Economic Review, Vol. II, No. 1.

McFarlane, D. (1964), A Comparative Study of Incentive Legislation in theTLeewavrA Tcl-enAc LI4,nlwnor Tcl onnA RovhnAnoc :nnA Tnmnirn qn,olio

and Economic Studies, ISER, Mona, Vol. 13, Supplement to No. 3.

McIntyre, A. and B. Watson (1970), Studies in Foreign Investment in theov..mLIi.JtLonweal*u Car.ibbA-ean No.1 .TrinidaA -an Toba , TnstiAute oI

Social and Economic Research, Mona.

Report of the Tripartite Economic Survey of the Eastern Caribbean January-~A.LL I 'UO, I-UO_pril_1966", (1966),

TTZ A A I A' rT I4,1 r7L. …1 T..J ¶-

W.IuGLcoJmue, a. n. 1972I-), 1&e 'rerLorLmance_ uo IndustrLLiLl 1JeVeUlou111ntL

Corporations: The Case for Jamaica, Pall Mall Press, London.

C'r ATTCTTAT ADDL'TihTV

The Statistical Sources on Manufacturing

Table No.

1.1 CARIFTA: Manufacturing Sector. Basic Indicators, 1970.

1.2 CARIFTA: Manufacturing Sector. Basic Ratios, 1970.

1.3 CARIFTA: Manufacturing Sector. Production, Trade andMarket for Manufactures, 1963, 1967, 1971.

1.4 CARIFTA: Manufacturing Sector. Basic Ratios in Tradeand Production, 1963, 1967, and 1971.

1.5 MDCs: GDP in Manufacturing, 1966-72.

1.6 CARIFTA: Employment in Manufacturing, 1960 and 1970 (Censusdata).

1.7 MDCs: Employment in Manufacturing (Establishment Survey Data),1966-72.

1.8 MDCs: Structure of Employment and Output by Major ManufacturingIndustry.

1.9 MDCs: Physical Output of Selected Manufactures, 1971.

1.10 CARIFTA: Trade in Manufactures (SITC 5-8 at f.o.b.values), 1971.

1.11 Barbados: Estimated Trade in Selected Manufactures by Major Products,1972.

1.12 Guyana: Trade in Manufactures by Major Project, 1972.

1.13 Jamaica: Trade in Manufactures by Major Product, 1972.

1.14 Trinidad: Trade in Manufacturing byN'jor Product, 1971.

1.15 CARIFTA Countries: Estimated Share of Transport Costs inc.i.f. Import Values.

1.16 CARIFTA: Selected Nonwage Costs, 1973.

1.17 CARIFTA: Selected Waee Levels. 1973.

- ii -

1.18 Average Annual Wage per Worker in Wearing Apparel (ISIC 322),1969-70.

1.19 Guyana, 1971: Cost Structure for a Sample of Industries.

1.20 Trinidad and Tobago. 1970: Cost Structure for a Sample ofIndustries.

1.21 Selected Countries: Value Added per Employee in Manufacturing,1970.

1-22 MDCR: Investment ner Emniovee under Incentives Schemes.

1l23 M{flfl Selerted Comnarisons of Local Market Prices and r-i-f=

non-CARIFTA Imports.

1.24 MDCs: Indicators of Competitiveness by Major Product inintra-CA-RIFTA Trade.

1.25 CARIFTA: Cost Indices for a Labor-Intensive Manufacture.

1.26 Co----',-!, Caiben Tar-ffs and TrAde Rtctions.

1.27 A r o.mprison of Indust-i ialIn-etives in the Caribbe

1 .28.tJ J t .matct m.pa.t of C^.IC and ECCM Tar on -verag T-4iff.

on Average Tariff Levels.

1.29 Classification of Industries for Promotion in LDCs.

1.30 Summary of Main Aggregates in Regional Industrial Programming.

1.31 CARIFTA/CARICOM: Actual and Potential Production andConsumption of TextiLe Fabrics.

1.32 CARIFTA/CARICOM: Actuai and Potentiai Production andConsumption of Cement.

The Statistical Sources on Manufacturing -/

BARBADOS

i) With only about 150 identified firms. Barbados has run a survey(full enumeration) of industrial establishments since 1970. 1/Results for 1970 and 1971 have been fully pro.essed whilst thosefor 1972 are available in preliminary form. 1972 returns arebeing collected.

ii) Physical production figures for a small nuimher of maniifacrtures

are available in the Quarterly Digest of Statistics.

iii) Lists of manufactures and their products have been made, both bytho Rtmticeoafi-l Qovw4rc> an,; f-ha Ua-hnAna Tnr

iv) .. aw. 3 data from the !DC o.. ton he --ar.r.e- oetifor.s (capial

investment, raw material costs, value of sales, employment) offirms granted incentive status are available.

%YU LZUIL1

i) Guyana has held an annua'l industrial survey of establishmentssince 1965 (complete enumeration of firms identified with five ormore workers -- somewhat less than 100 in number). Tne resultsof this are not published and are used to estimate industrial GDPand employment. 2/

ii) The Quarterly Digest of Statistics contains data on physical outputof selected products.

iii) The Guyana Development Corporation has collected data on applica-tions for incentives for the period 1964-70 and 1972 which givefigures on firms' planned capital structure, cost of inputs andwages, value of sales and number of employees.

1/ Much of the data referred to is summarized in statistical appendices ofcurrent Bank Economic Reports.

2/ For some results for the period 1965-71, see Table 8.9 of the latestCountry; Economic Report (242a-GUA).

-2-

JAMAICA

i) Since the mid-1960s Jamaica has not conducted censuses or surveysof manufacturing. A 1964 census of manufacturing gave extremelydetailed cost data. This was published in 1970 by the Departmentof Statistics as Production Costs and Output in Large Establishments:Manufacturing (Provisional Report) 1964 (Establishments with 10 ormore Employees). Since then, annual estimates of manufacturing GDPby industrial branch have appeared (see Economic Survey).

ii) For detailed figures of physical output see Department of Statis-tics, Production Statistics, 1972.

iii) The Jamaica IDC provides various lists of firms receiving incentivesand some summary statistics on the operations of these firms.

TRINIDAD AND TOBAGO -

i) Trinidad conducted manufacturing establishment surveys in 1966, 1967,and 1968, and censuses from 1969 onwards. 2/ These exercises havefaced substantial problems of incomplete and uneven coverage, suchthat available results are not useful for aggregating levels ofactivity, although they do give some picture of cost structure.The results of the 1969-70 census for establishments emnloving tenor more workers appear in Central Statistical Office, Census ofManufacttrinc 196Q and 1970( 1974= 3/ Tn a mainr rpvuiinn of nationalaccounts methodology and data, manufacturing data for 1966-70 havebeen reconrilpa intn nne Rpripe fnr rcrtnin sprtnrs; pilot resultsare in K. Levitt, A System of National Economic Accounts forTriniJdad and Toba.o: Interim Report on the Pr of Workn , on aNew System of National Economic Accounts for Trinidad and Tobago,Septem.ber, 107 S i. nce this 4time4 nfo,-a-lon bas beco.me availablein a few additional sectors. Whilst it is not yet clear how accurateth_e aggregates are, the cost breakdo-wn, th-e statistics on foreigr.Li1 L. ~ t LI L~J . UL dNUULL LL LdL. LJ-L~ i

and domestic ownership and on the value of taxes foregone throughLncentives, etc., represe,,t an important iLnrLovatiLor i, available

data on manufacturing and should prove extremely useful tools ofanalysis.

i, See notes on industrial statistics on pp. 16-i7 and 20-21 of Voi.iI orCountry Economic Report of January, 1973, 53-TR.

2/ For the survey results, see Central Statistical Office, Survey of Estab-lishments 1966-68. Bulletin No. 4. September 1971. Summarv results for1969-71 are beginning to appear.

3/ A methodological exposition of all the CSO's 1969-70 surveying of businessestablishments is provided in CSO, Survey of RBiuinpes Ftablishments 1969-70: General Report, 1974.

- 3 -

ii) In addition, the CSO has published a useful list of large establish-ments in many sectors, including manufacturing, by sub-sectors inwhich firms are coded for employment size and type and nationalityof ownership (see Register of Business Establishments Employing 10or more Persons as at November, 1970, August, 1973).

ii) Physical production figures for some products appear, inter alia,in GSO, OQuarterlv Eronomir Renort and for some c-onsumer durahbesin Central Bank of Trinidad and Tobago, Statistical Digest.

Table 1.1: CARIFTA: MANUFACTURING SECTCR. BASIC INDICATORS, 1970

Tntal F.-nnnnmv ManufacturingDomestic

Domestic Trade Market forPopulation GDP iT orts Exports E` rp loyment F n (SITC 5-8)(EC$ m) Uian .. o1 mnvment

(000) (9C$ m) (EC$ m) (EC$ m) (000) (EC$ m) Imports Exports (EC$ m) (000)

(1) (2) (3) (4) (5) (6) (7) (8) (9) (10)

Domndnica 71 37.9 31.5 11.4 19.7 3.1 20.6 1.2 22.5 1.5Grenada I9.1 4.1 11.0 25.9 1.8 27.8 0.1 29.5 2.1St. Lucia 101 66.8 54.6 8.1 26.5 2.4 27.2 .. 29.6 2.2St. Vincent 87 37.0 23.

8/a 7.1/a 21.0 1.4 14.3/a 0.1/a 15.6 1.6

Antigua 65 50.3 O9.37 S13.27 18.6 5.1 23.9,_ 0.27 28.8 18Montserrat 12 11.5 8.8 0.3 3.7 0.2 5.2 .. 5.4 0.2St. Kitts 46 30.5 23.4 7.7 12.4 0.8 14.4 1.1 14.1 1.3Belize 121 126.6 67 28.1 31.5 19.8 41.5 2.0 59.3 4.6

LDC Total 597 419.7 302.6 86.9 159.3 34.6 174.9 4.7 204.8 15.3

Barbados 238 289.9 235.0 61.0 83.9 31.4 150.4 15.6 166.2 12.3Gh,uvana 702 467.h 268.2 260.5 159.0 57.0 200.0 4.8/d 248.8 23.9Jamaica 1,849 2,339.3 1,044.5 799.7 492.0 317.7 765.6 31.0 1,052.3 71.3Trinidad 941 1,600.5 523.6/c 542.5/c 229.7 187.3 368.5 33.3/e 522.5 31.0

MDC Total 3,730 4,697.1 2,071.3 1663.7 924,6 593.4 1,484.5 84.7 1,989.8 138.5

CARIFTA Total 4,327 5,116.8 2,373.9 1750.6 1,123.9 628.0 1,659.4 89.4 2,194.6 153.8

b/ 1969c/ Net of petroleum trade under processing agreementsdj Excludes EC$ 3.4 m. of precious and semi-precious stones and pearls,worked and unworkede/ Excludes EC$77.2 m. of petroleum-based chemicals.

Source: Population and employment: unpublished census dataTrade: national trade returnsGDP: mission estimatesDomestic market for manufactures = manufacturing GDP + manufactured imports - manufactured exports.

Table 1.2 : CARIFTA: MANUFACTURING SECTOR. BASIC RATIOS, 1970

Average MO_PDaily Wage in (MGDP + MIM

GDP/P 3DP/EM MCDP/MFM Manufacturing MGDP/GDP MEM/EM MWIM MEX/EX - MEX) MEX/MGDP(EC$) (EC $) (EC$) 1972 (EC$) (% (% (% M% Wfi fi

(1) (2) (3) (4) (5) (6) (7) (8) (9) (10)

Dominica 534 1,924 2,070 4 8.1 7.6 65.4 10.5 13.8 5.7Grenada 629 2,282 860 4 3.0 8.1 63.0 0.9 6.1 1.4St. Lucia 661 2,521 1,090 4 3.8 8.3 49.8 .. 8.1St. Vincent 425 1,762 880 4 3.8 7.6 60.1 1.4 9.0 1.8Antigua 774 2,704 2,830 6 10.2 9.7 48.5 1.5 17.7 1.0Montserrat 958 3,108 1,000 4 '1.7 5.4 59.1 .. 3.7 m

St. Kitts 663 2,46C 620 4 2.7 10.5 61.5 14.3 5.7 3L.6Belize 1,046 4,019 4,300 6 15.6 14.6 61.8 7.1 33.4 2.5

LDC Average 703 2,635 2,260 8.2 9.6 57.8 5.4 16.9 3-4

Barbados 1,218 3,455 2,550 7 10.8 14.7 64.0 25.6 18.9 14.9Guyana 6664 2,401 2,3l80 ) 2 1 1.0 7.6 1 8 22. 2.5

Jamaica 1,265 4,755 4,460 10 13.6 14.5 73.3 3.9 30.2 2.9Trinidad 1,701 6,968 6,040 9 11.8 13.5 70.4 6.1 35.8 5.5

MDC Average 1,259 4,869 4,280 12.6 14.4 71.7 5.1 29.8 4-4

CARFTA Average 1,183 4,553 4,080 12.3 13.7 69.9 5.1 28.6 44

GDP = Gross Domestic Product IM = Imports MEM - Manufacturing EmploymentF = Population EX = Exports MIn Man-ufactured irnpor-;EM = Employment MGDP = Gross Domestic Product in Manufacturing MEX = Manufactured Exports

Note: Manufactured exports are reduced from a gross-to net-value basis, to facilitate comparison with GDP, on thebasis of 1971 net-to-gross value ratios obtained fromnotes to Table 1.4.

Source: Col. 4: Mission data. Other columns: Table 1.11.

Table 1.3: CARIFTA MANUFACTURING SECTCN. PRODUCTION, TRADE, AN1D MhRKET FORMANUFACTURES 1963, 1967, 1971

(ECS m)

Domestic Exports otImports of Manufactures Manufactures CARIFTA Domestic

Manufacturing Total Imports Retained Trade Market forGDP CARIFTA Other Re-Exports Imports CARIFTA Other Total Balance Manufactures

ECCM (2+3-4) (6+7) (6-2) (1+5-8)

1963 6.5 6.9 45.7 0.7 51.9 0.4 0.3 0.71967 8.9 16.2 71.3 0.9 86.6 0.5 0.3 0.8 -15.7 94.71971 15.9 37.0 143.4 1.4 179.0 0.7 2.7 3.4 -36.3 191.5

Barbados

1963 15.9 2.9 45.3 4.4 43.8 0.7 0.4 1.0 - 2.2 58.71967 21.1 5.4 72.2 5.8 71.8 1.8 0.7 2.5 - 3.6 90.41971 37.0 11.1 140.5 9.5 142.1 4.9 9.3 14.2 - 6.2 164.9

Guyana

1963 19.3 4.3 73.7 0.9 77.1 1.6 0.3 1.9 - 2.7 94-51967 32.4 7.5 158.7 4.3 161.9 1.0 1.2 2.2 - 6.5 192.11971 42.2 13.6 179.6 8.1 185.1 6.7 0.3 7.0 - 6.9 220.3

Jamaica

1963 148.7 3.1 243.9 5 9 241.1 3.7 20.4 24.2 + 0.6 365.61967 223.0 3.1 405.7 5.1 403.7 7.9 24.7 32.7 + 4.8 594.01971 333.7 15.3 749.5 21.4 743.4 18.5 34.5 52.9 + 3.2 1024.2

Trinidad

1963 51.6 2.0 241.8 9.6 234.2 11.1 6.9 18.0 + 9.1 267.81967 92.4 2.5 254.6 9.1 248.0 17.8 12.5 30.3 +15.3 310.11971 185.7 14.5 541.1 35.9 519.7 49.9 16.0 65.9 +35.3 639.5

CARIFTA(Less Belize)

1963 242.0 19.2 650.4 - 669.6 17.5 28.3 45.8 - 864.11967 377.8 34.7 962.5 - 997.2 29.0 39.4 68.5 - 1300.91071 6,1.5 91.5 1754.1 - 1836.6 80.7 62.8 143.4 - 2305.8

Notes tw Table i.3

1. Manufacturing GDP (at factor cost) excludes sugar milling.

For Trinidad petrochemicals are excluded. For the LDCs mining is

included.

Sources: Bank Economic Reports and Mission estimates.

2. Trade in Manufactures covers SITC 5-8. For Guyana exports of

SITC 67201 (precious and semi-precious stones) and for Trinidad exports

of SITC 51109030 (ammonium compounds) and 52102000 (tar oils, etc.)

are excluded as major export items not included in the GDP coverage.

It should be also noted that the following groups of manufactures

are also excluded- processed foods (ex SITC 0) because of non-

availability of the data; beverages and tobbaco (SITC 1) because

imports are small and exports (dominated by rum) are traditional exports

more closely related to sugar than to manufacturing; refined petroleum

products (ex SITC 3) because the value of output is largely derived

from mining rather than manufacturing; refined edible oils (ex SITC 4)

because the product is largely agricultural.

Sources. National Trade Statistics and Mission estimates.

3. The domestic market for manufarctures is -al nul tprd as the s1,M

of GTlfP and retained imnorts (imnorts less rP-exrnorts) less domesticr exports.

For the rART7TA total, howpver, it is cz lat.d as the sum of rnp ad

oronss nonnGARTVTA imnnrt+.q less AVno'"+. ^-. outsAi C(I APTE-A

Table 1.4: CARIPTA MANUFACTURING SECTOR- BASIC RATIOS IN TRADE AND PRODUCTION, 1963, 1967, 1971(nercent)

ECCM Barbados wt%'Ofa Jamaica Trinidad CAIwITA leas 3gliz)

Share =D Donastio Harket 1963 -196 1971 12963 1967 1971 1963 2 2622 1263 292 1222 1963 1967 1971 122I i.912 1971

Retained Production 12.0 9.1 7.9 26.7 22.6 19.9 19.7 16.5 18.1 36.7 35., 31.0 17.3 26.9 25.8 27.0 28.1 25.8CARIFTA Imports 10.9 17.1 19.3 1.9 6.0 6.7 4.6 3.9 6.2 0.8 0.5 1.5 0.7 o.8 2.3 (2.2) (2 7) (4.0)Other Imports 77.1 73.8 72.8 68.4 71.1 73.4 75.7 79.6 75.7 60.5 63.6 67.5 82.0 72.3 71.9 73.0 71.Y 74.2

Total 100 110u 100 10 100 100 1iO 100 100 100 100 100 100 110 ±nt

Sh&re ir9 G.D.P.

Retaied Produotior 96.8 97.3 94.7 98.3 97.0 88.5 96.6 97.6 94.7 95.2 75.6 95.2 89.9 90.1 89.0 96.5 96.9 96.9Eoports to CARIFTA 1.8 1.7 1.1 1.1 2.1 4.0 2.9 1.1 5.1 0.7 1.1 1.7 6.2 5.8 8.3 (7 2) (7 7 (13.1)Other Exports 1.1 1.0 1.2 o.6 0.8 7.5 0.5 1.3 0.2 4.1 3.3 3.1 3.9 4.1 2.1 3.5 3.1 3.1

Total 100 100 i0 100 100 10 0 100 in 1(7 100 100 ) 10 0 100 Jnc, 1 T , (1 ) no 1 OQ On

CARIFTA Trade Balance ao Percent -100 - 176 -228 -14 -17 -17 -lb -20 -16 0 02 sq -18 017 19 -of G.D.P.

- n.egative trade balance)( + a positive trade bale4ce)

Ratio of Exports to Importa:

CABRIFTA Trade .13 .03 .02 .24 .33 .44 .37 .13 .49 1.19 2.55 1.21 5.55 7.12 3.11Other .01 .. .02 .02 .01 .07 . .01 . 9. .0 .06 .05 .03 .91 .32

Total .01 .01 .02 .02 .04 .10 .03 .01 .04 .10 .18 .97 .u77 .12 .13 .6o .0> .70

Notes See folowBng page.

NXotes uo Table 1.4

'rlL or AWr 40 recon.cile the gr-os's out_t - --S of tr-ae stas+is-

with the net (GDP) oultnut values of Droduction statistics. the

following procedure was adopted:

1. Typical ratios of net-to-gross value were established for the

various years and countries, based on data from manufacturing surveys

diLL 4uL V~ L~V MO L "U..L.LU

Typical Ratios of Net to Gross Value inU 1's_PSactuingrIdliUL d ULL4

LDCs Barbados Guyana Jamaica Trinidad

1963 . . . . . . . .30 .25 .35 .30 .29

i967 . . . . . . . .30 .25 .-3 .30 .30

1Cl 71 O7 l. . . . . . . . . ,v. .) .JL

2. It was assuned that inputs (i.e. gross less net values) were

all imported from non-CARIFTA Sources. (This ignores small amounts

of local materials and services). In the calculation of shares in the

domestLc market the proceutUe was (l) to 'leaVe CARUX T-A import figures

from it the GDP element in total exnorts (calculated hv annlving the

above net-to-gross value ratios); and (iii) to calculate net retained

non-CARIFTA imports by subtracting from non-CARIFTA imports less re-exports

the input element of total exports (calculated by applying the reciprocal

of the above ratios).

3 L Tldi hecs cuClavi o Vi. 01Id.Lr .LL1 s. es i LA , Vhe prce -eU

was (i) to calcunilate retained local producntion as in 2(i) above, (ii) to

calculate the GDP value of CARIFTA and extra-CARIFTA exports by applying

the net-to-gross-value ratios).

Source: Table 1.3

/1Table 1.51: MDCs - GI)P IN MANUFACTURING, 19615-72

(constant :L971 EC$)

Share 'in Total CGP

Annual Grou.th __Current Prices)1966 1967 1968 1969 197( L97L 197:2 Rate 1966-72 1966 197'2

Barbados. . . . . 26.6 27. 7 29.0 31.14 33.8 37.0 39.0O 6.6 11.4 12.2

Guigana. . . . . . 40.3 41.7 40.7 41.:L 43.414 42.,2 45.0 1.9 9.0 9.2

Jamaica . . . . . 282.7 295.6 304.' 228.3 :346.5 370.2 391.6 5.6 12.4 13.2

Trinidad. . . . . ]L36. ] 171.!'> 170. 9 182.J4 L96.8 :215.7 224.6 8.7 6.5 9,4

T'otal. 8'.7 5'36.5 ' 545.:L 483.2 620.!5 665.1 700.2 6.3 9.9 LL,5

/l xc luding sugar mills.

Source: Bank Country Econonnic Reports and Mission Estimates.

Table 1.6: CARIFTA - EMPL0YMENT IN MANUFACTURING,1960 AND 1970 (Census Data)

Share in TotalWorking

000 Population (%)1960 1970 1960 1970

Dominica 2.5 1.5 11.3 7.4Grenada 2.6 2.1 10.3 8.0St. Lucia 3.5 2.2 12.1 8.1St. Vincent 2.7 1.6 11.7 7.8Antigua n.a. (1.8) n.a. (9.7)Mhntserrat 0.3 0.2 8.2 5-4St. Kitts 2.1 1.3 14.6 10.4Belize 3.8 4.6 14.6 14.6

LDC Total 17.6/a 13-5/a 12.2/a 9.6/a

Barbados 12e7 1273 14.9Guyana 26.3 23.9 16.3 15.OJtam^ai)a 46,. 71.3 7.6 14.4Trinidad 40.8 31.0 15.6 13.4

I,C Total 125.8 138.4 11.3 14.3

CARIFTA Total 143.4/a 151.9/a 11.4/a 13.7/a

a/ Excluding Antigua

Source: Unpublished census data.

Table 1.7: MDCS - EMPLOYMENT IN MANUFACTURING (ESTABLISHMENT SURVEY DATA), 1966-72('000)

1966 1967 1968 1969 1970 1971 1972

Coverage

Barbados

Sugar milling n.a. n.a. n.a. IfI Other 7.3 8.0 8.0

Total

Guyana

.I UL da ;nl f a 5.4 5.U 7.0 4.7 5.7

II Other 7.5 7.5 7.6 7.6 7.4

Total 12.8 12.5 12.6 12.5 13.3

Jamaica

III Sugarmilling /b 5.3/e

III Other 31.57F

Total 36.9/e

Trinidad

I Sugarmilling /c 4.0 3.5 3.7 3.7 3.8 3.6 n.a.

III Other /d 19.3 20.8 24.2 27.3 29.4 n.a. n.a.

T.oal .I,u 23.3 24. 2 3. 3 ; I . n.a. n.a.

a/ Includes office workers employed on sugar estates.b/ Includes rum distil1eriesc/ Average of May and November factory employment.y' Excluding petroleum-based industries.e/ 1964;.L/ LT 9: _.J.J._.LLt L

Coverage: It all establishmentsTTe Wstw'is&;ezr.L&. .MAA JIAa---11 ts e-3Ml-ng wi o reorkers

III: establishments esploying 10 or more workers

Souroest Barbados: Establishments Survey data from Statistical Service.(uvanan Bnnk 1ennomie Rnn?rtJmmicat D.partment of Statistics, Production Costa and Output in Large

Establishmentss Manufactuizn (Provisianal Reonrt). 1964Trinidadt Ministry of Economic Development,preliminary input-output data.

Table 1.8: MDCS - STRUICTURE OF EMPLOYMMT AND OUTPur BY MAJUMMANUFA'CTURING ]INDUSTRY

(%)

Ezmploymnt Oultput (VaLue Added)

Barbados Guyana Trimidad Barbados Guyana Jamaica TriLnidad

IS]:C 1971 1.971 1970 , 1971 1971/c 1969 L970/b

311-312 Food. except sugar 15 L 18 21 36 28/d 2231.3 Beverages 10 16 5 18 19 87d 123 2 Wearing Apparel 24 Ia 15 13 6 9Z 7332 Furniture & Fixtures 5 a 6 4 1 431i Printing & Publishing 7 7a 8 10 8 8/f 8

35;1 Indu.strial Cthemicals 1 -a 2 2 ( 3 ( 7 (3',2 Other Chemical Products 2 2 2 ( ( ( 14369 Non-Y3ta1lic Minerals 5 7 a 8 (381 Fabricated Metal Products 4 7a ( 4 ( 382 Machinery (except electrical) UL 7( 6 (5 (1L4 ( 17383 Electrical Machinery 2 a 1 2 ( ( (384 Transport Equipment /a / -a 9 /a /a ( (

Other : 73 17 LL 13 16

Total 1.00 100 100 100 100 100 100

al/ Included under "other"1b/ ISxclTdes petroleum-based industry; establishmints covered -dAth only 10 or more eimployees.

E/ Excludes rice milling. Figures are estimates.T/ Rum clistilling is inc:luded i1wth food processing.e/ Includes textiles.f/ Inclutdes paper and paper produLcts.

InclUdes all non-metallic mineralsi.

Sources: Statistical Offices and Mission. Data.

Tab.le 1.9.: M9uA -C PUiIGALA. vUTLr. OF~ S iiCTU 1MNI~UFACTURIE, LY97.

Unit JBarbDadaos Guyfana Jamaica Trinidad

Condensed milk (000 lbs) 2,U12 - 64,707 n. a.Evaporated mi.lk . .. .(000 lbS) 225 - n.a. naFlour . .. (in. tons) 75 104 n.a.Biscuits *........(000 ibDS) 0,o 4,708 n.a. n.a.Refined Sugar..(000 tons) 135 372 379 213

Confectionery. (000 lbs) 1,452 924 n.a. n. a.W~N~ A.. (... . 1 1., 4V 2 I

Margarine.. *.. .. * (000 lbs) 3.,799- 2,370 7,941 7,618 IdT ard and S,UbSti. tut4es f ry ' a.Edlible oils ........ (000 gal) -899 2.,705 1,392

Rum.. ... .. * (000 gal) 1,526 3,887 2.,677 1,887Othar' s-ntr t~- - - -(000 galI n.a. 11-2 __2 n-a.Beer and stout 9..(000 gal) 1,11l 1,473 9.,4617 4,296Cigarettes. . .(000 lbs) 313 955 1.3 6 6 /c 1.795Woven cotton fabrics .. (000 sq.'yds) - -6,360 2',600

Bagasse. . . * * (000 sq.ft) 5 - ,208 n. a.Sulphuric acid* . ( tons ) - - 10,080 Fertilizers . .9 (000 tons) -n.a. 57 600 /ePaints . .. .. .. . (000 gal ) n.a. 147 1,192 n.a.-soap.9* * ..... (000 lbs ) 2.,411 4.,35o 16,044 4,073 /b/f

Detergents.........* (000 lbs ) n.a. 1.,823 8.,462 n. a.Matches. .... (000 gr.box) 11U7 n.a. 406T7es(OQOilbs ) - - 5S,784 naCenmnt.. ... .. .. . (000 tons) -- 424 252Steel. **~ .. *. . (tons ) -- 17,879

uap Uo.U.rV .. .... iJvu- n.a. 20.0 /eRadios and TVs .(000 ) -- 16.1 17.07 T

Ref -- (trs nn - ii a..---99 99 99 99 99 - - £19 U~~~~~~~~.a. .54 V I,e

Mo,tor vehicles assenib4y~* (000 ) -- __

a/ Corn meal only gin

Uf.L)(L 0v/ Mission estmzates

cl million cigarettes f/ Toilet soap only

Source: Various national publications.

Table 1.10: CARIFTA - TRADE IN MNUFACTURES(STri 5-8 at f.o.b. values), 1971

(EC$ mil.)

Imorters Total Total Total Non- GrandV.- - P.(WrU BAli a TTnrn BRrbados r- .nramn4na l anr CARITA TCRT ''P Toel.

ECCM /a 0.2 - 0.2 0.1 .. - 0.3 0.5 0.7 2.7 8.

Belize /a _ _ 1.6 1.6

Total LDCs 0.2 - 0.2 0.1 .. - 0.3 0.5 0.7 4.3 5.0

Barbados 2.9 - 2.9 - 0.4 0.2 1.3 2.0 4.9 9.3 14.2

uuyana to 1.5 .. 1.5 0.9 - 1.8 2.4 5.2 6.7 0.3 7.0

Jamaica 2.6 .. 2.6 3.2 2.9 - 9.8 15.9 18.5 34.5 52.9

Trinidad /c 17.5 0.1 17.6 10.0 9.7 12.5 - 32.2 49.8 16.0 65.9

Total MDCs 24.5 0.1 24.6 14.1 13.0 14.5 13.5 55.3 79.9 60.1 140.0

Total CARIFTA 2.7 0.1 24. 14.2 3.0 14.5. 13.8 55.8 80.6 64-4 145.0

Non-CARIFTA /d 138.1 39.8 177.9 123.6 162.6 680.8 491.3 1458.0 1636.0

Grnnd Total /d 1A69 0 3.0 a no.R ,47R 7r A Ao17.3 C2c.n I -c13 17-1. A

a/ Partially estimatedb/ xccludes SITC 672-01: Precious and Smri-Precious Stones (including synthetic)c/ Exccludes SITO 51109030:ammonium compunds;SITC 52102000:tar oils, etc.7,/ Tntal impnrt- w.ere esti.mavte from c.i.f. import figres divided by a factor of i1.1 to

reach estimated f.o.b. values, non-CAUF`kA f.o.b. irport values were derived as the difference between totalimports thus estiratted and imports from CAHIFTA.

Source: National trade statistics (domestic exports)

Table i.li- ABAOAS - ESIMATEDnc TRADE lN SELECTEDc MAN`GFCVUES MkORn .UC, 97

(EC$ 000)

Imports Domestic ExportsCA R IPFTA Grand CA R IF TA Grand

S ITC. Product Groan L,DCs Guyana Jamaica Trinidad Total Other Total LDGs Guyana Jaxnacca Trinidad Total Other Total

RE. 013 Processe.d Meat - - - - - 4,324 4,324- - - - - -

022 Processed Milk - . -4,749 4,749- - - - - -'32 I o 19 579 169 749 8

046 Wheat Ploa -- - 3,191 3,191- - - - - -

048 Cerea Preparation - - - 79 79 1,593 1,672 209 31 h63 297 1,200 27 1,227

5 re...essed Fruit37 1,2 40 53 299 055 Processe d Vegetables 20 - - 419 439 165 604 - - - - - - -

0h2 Sugar preparations - 35 45 70 150 374 524 223 - -39 262 27 209

08 Antel feeds 15 225 - 1,333 1,573 5,063 6,636 - - -- - - -

09 Mincellaceoou food preparations - - - - - - - £ 6, 1-23 -7

11 Be-reges . 344 44-4 40 828 2,042 2,870 566 - 14 1,679 2,259 2,370 4,637

122 Tobacco manfactures - - 75 50 125 350 475 48 7 -55 Ill - 110

51 Chemical eleme.nts- - - - - - -- - - - - -

52 Minera Tern, etc.- - - - - - - - - - - - -

53 Dyeing, Tanocg, colouringmaterials . 220 599 819 479 1,298 905 .. .. .. 905 54 959

54 Medicinal 4 pharmsaceutical prod. - 95 255 215 565 6,691 7,256 171 - -4 175 94 269

55 Ense.ntial oils, perfumes,coetc.clrclasig .-ei.l 55 135 1~139 7;727 4,051 2,666 6,917 620 - 13 69 702 151 053

56 Manofactored fertiliners - - - 65 65 1323 1,388 - - - - - - -59 E.plosives 4 misc, chemicals - 0 5 5 14 1463 1,637 348 - 7 240 595 131 776

62 Rabber manafacrores 5 35 - 185 225 1,233 1,458- - - - - - -

Il 63 Wood and cork 10 - - - 10 1,068 1,578- - - - - -

64 Paper and paper products - 15 100 889 1,004 4,849 5,853 245 114 9 8h 454 - 454

65 Teaie - 41 - 4509,3539,398 - - -2-

66 Noe-Metallic mineral 5 10 694 709 7,770 8,479 - - - - - -

87 Precious Metsls 4 Jewery - - - 25 25 3,021 3,046-- - - - -

68 Rasione.tals . - - - - - - - - - - -

69 Metal manfactuces .. .. 574 609 1,183 5,014 6,197 489 65 -37 591 33 624

71 Machinery, except electrical 5 .. .. 5 10 8,079 0,089 - - - - - -

72 Electeical machinery .. 294 289 583 14,701 15,284 7 9 2 99 3,585 3,684

73 Transport equipment -- - - 14,371 14,371- - - - - - -

81 Pme-fabricated buildings,

san itary, etc. - - - - - 1.737 1,757- - - - - -

82 Purnitare 30 - - 20 50 2,761 2,811 - - - - - -

83 Travel goods - 30 10 65 105 369 474 43 12 -47 102 07 189

01. C1.lothing 314 250 1,063 1,627 1,ins 7 R70 655 140I 999 flu 7791 ,nus5 3476

05 Footwear - 80 10 105 195 3,086 3,281 - - - - - -

86 Profiessc-nal, scientific

intoec, etc. - - - - - 1,768 1,788- - - - - -

no miscol -ne.o - 3jja 754 1,148o 7,30Q 8,98 2.es-.3- 9,c cI

TOTAL 150 1.468 4.154 12.005 17_77 7 125_154 142 931 65332 614 1,630 3,898 12,376 9,936 22_312

Note: Covrage of trade to maosfactor- is not-ceplete. Trade in products falling under SIGTC 5-8 ccthe abov- table -cpr-otu 00 outmatcd 68'! of total

SITC 2-8 imports, and 637. of rtal. SiTC 5-8 enports.

Source: M9seion estimates based op Quarterly Overneas Trade Reports, 1972.

Table 1.12, GUYANA - TRADE IN MANUFACTURES BY MAJOR PRODUCT, 1972

(EC$ 000)

_ _ _ _ PlMFOSTS ________________ _ DOMESTIC 0XPOh1 _T-

SITC MaLor Praducta CAoaFe GOrand CaEIFTA GrandLDCs B5 b.d.. Jamaica Trinidad Total r Total tDCs Ebado Jaminca Trinidad Totat 0the Total

013 Processed Meat _ - 217 9 227 476 703 0... 0-a. n.a. 0.0. 0.0. 0.0. 0.a.022 Praceosed Milk _ 221 - 5b 275 7,514 7,789 0.0. 0.0. 0.a. 0.0. 0.0. 0.0. 0.0.0b8 Cereal Freparationa - 26 2h 216 266 1,087 1,353 0.0. 0.0. 0.0. 0.a. 0.0. 0.0. 0.0.053 Frocessed Fruit 58 - 297 131 b86 4bb 930 0.0. 0.. na. 0.0. 0.0. n.a. 0.0.o55 Processed Vegetables - - 74 378 452 n.. na. 0.0. 0.0. n.0. 0.0. n.a. n.0. 0.0.

062 Saga- Peparat-i-s - 8 26 214 248 n.a. n.a. 18 8 9 11 15 a.a. 0.0.28 Animal Feods ..o. o.a. 00 .. 00 o . 9 127 - 63 199 .a 0009 Miscellaneoua Food Preparations 20 216 586 857 1,669 .. a 0.. 66 12 13 91 0 0.0.112 Alobolie Beverages 1 3 53 181 241 5731 815 235 137 57 276 705 5,651 6,356122 Tobacco Man-afctares - 22 105 .. 126 n.0. 0.0. 0.0. 0.0. 0.0. 0.0. 0.0. 0.0. 0.0.

533 Paints - 56 977 1,033 1,561 2,594 0.a. 0.0. 0.0. 0.0. 0.0. 0.0. 0.0.51.1 Nsdec,.-! bPba-maeeuii.-o.r.oueta - 6i 292 181 533 5,166 5,699 371. 182 371 169 1,195 151 1,336552 Perifue, CosetiYos, Soaps, etc. 14 38 1,122 1,611 2,985 926 3,911 771 159 18 531 12,69 95 1,563561 Man-af-tured Fertilieers - - 46 2,136 2,182 2,108 4,290 31 31 1 19 82 0.0. 0.0.599 Miacellaneow hbemovala (mostly plaesti) - 75 1G6 136 617 7,500 8,117 n.a. n.e. -.0. n.0. n.a. n.a. n.a.

629 Rubber Manuafctares (costly tires) - - 2 319 321 4,077 5,598 0.a. n.0. n.a. -.0. 0.0. o.a. i.e.632 Wood Maoafactaree n.0. a... 0.0. n.0. na. n.e. n.a. 155 35 1 261 455 0.0. 0.a.61l, 642 Paper and Paper Produots - 61 116 1,023 1,200 5,995 7,195 39 8 - 273 320 1 321so. 6S Tactile Fabrica - 3 6 6l4 73 (.770 AONI3 2 8 53G 107 647 n.a. nes. 66 Non-Metolic Minerals - 123 121 598 742 6,003 6,755 50 77 138 112 377 0.0. 0.0.

672 & 673 Precouoa Stones & Je-elr. n.0. 0.0. 0.0. n.a. 0.0. n.a. n.a. 18 367 11 b6 1b2 0.0. n.0.685 & 685 Basic Metals (Alucinow & lead) - - 60 59 119 n.a. 0.0. n.a. n.. n.a. n.a. n.0. n.0. n-a.699 Metal Mnoafacture- 2 159 533 852 1,556 13,923 15,469 n... n.e n.a. n.a. n.a. n.a. 0.0.721 Electrical Machloery .. .. 69 90 161 13,741 15,060 n.0. 0.0. 0.0. 0.0. 0.0. n.0. 0.0.735 Ship. and Boats - - - 61 61 1,b21 1,185 1 - _ 890 891 n.0. n..

811 Prefrbricated buldmigi and P-rto n.0. 0.0. 0.0. n.e. n.a. n.a. n.a. 1.1h 59 - 163 921 0.0. n.a.821 Froatare - 9 113 51 173 187 660 3 b - 2 9 0.0. 0.0.d31 Travel Goods - 12 b 14 30 n.a. n.a. 17 30 32 28 107 0.0 0.a.841 Clothing 43 233 75 586 937 1,747 2,681 402 518 11b 715 2,459 105 2,555851 Foatac-r 2 2 96 105 204 5,770 45,97 139 50 589 75 853 0.0. n.a.ox. 89 Mi-ellan..eou 16 23b 576 1,112 1,938 8,712 10,650 53 22 7 91 176 0.0. n.0.

Other ex. SITC 5-8 15 6 83 209 313 n.a. 0.0. 21 8 1 27 57 n.a. n.0.

Sub________ _ Total S}TC S2g_ 3.794 10.332 15,240 185.901 201.141 2.277 1(,406 2,117 33 9,1316 2,53C 11,566

Total of itemieed prod,cts 161 1,l11 5 . 157 12.129 19.160 0.0. 0.0. 2,816 1,622 2.281 11,596 na. 0.0.

Source: Guyapa trade returna.

Table 1.13: JAMAICA - TRADE IN MANUFACTURE5 BY MAJOR PRODUCTS, 1972(EC$ 000)

Imports Domestic Exports

C A R I F T A Grad C A R I F T A Grand

SIW Product Group LDCs Barbados Guyana Trinidad Total Other Total DCs B-ar - I…Tinidad Total Other Total

013 Processed moot - - - - 77 10,106 10,183 - - - - 811 89 900

022 Proceased milk - - - - - 11,035 15,035 - - - 6 5 A7 65

032 Processed fish -- 10,700 10,720 - - - 7

046 Wheat flour - - - - - 15,212 15,212 - - - - - 29 29

048 Cereal preparations - - - - 1,123 5,188 6,311 - _ - _ 22 172 194

053 Processed fruit - - - - 336 3,369 3,705 - - - - 266 8,886 9,152

055 Processed vegetables - - - - 799 1,217 2,016 - - - - 215 363 578

062 Sugar preparations - - - - 198 1,506 1,704 - - - - 779 179 958

08 Animal feeds - - - - - 9,150 9,150

09 Miscellaneous food preparations - - - 278 278 2,132 2,410 51 14 196 25 286 548 834

11 B-verages . 48 137 185 12,610 12,795 145 441 109 331 1,026 14,036 15,062

122 Tobacco ma.ufactures - - 390 390 9 94 102 56 261 6,113 6,374

51 Chenical elements - - 2 2 39,519 39,521 18 10 236 331 595 389 984

52 Mineral tars, etc. - - - - - 2,546 2,546 - - - - - -

53 Dyeing, tanning, colour-ng R656 673 3-061 7 031 774 1,805

54 Medicc-l and pharmaceutical prod. - 65 186 22 273 15,951 16,224 386 194 250 629 1,459 629 2,088

55 Essential oils, perfumes, cosmetics,cleansinRg mterials - 136 19 1,892 2,047 7,314 9361 1,2

56 Mantfactured fertiliterc - - - 869 869 6,089 6,958 14 - - 76 90 87 177

59 Explooi-es and misc. chemicals - 46 - 145 191 36,496 36,687 145 261 124 611 1,141 194 1,335

61 Leother manufactures - - - - - 4,375 4,375 1 - - 21 22 305 327

62 Rubber manufactures - - - 29 29 11,931 11,960 1 1 11 26 39 19 58

63 Wood and cork 2 - 19 21 8,207 8,228 17 41 - 270 328 105 433

64 Paper and paper products - 12 387 399 42,989 43,388 90 72 90 183 435 102 537

65 Textiles 15 3 341 588 944 73,982 74,926 15 31 3 1,249 1,298 820 2,118

66 Noo-metallc minerals - 7 123 - 130 25,890 26,020 73 238 101 45 457 2,527 2,984

67 Precious metls rd oewery - - 7 172 179 51353 5,532 23 15 5 13 56 837 893

68 Basic metals _ - 10 10 52,794 52,804 175 356 58 460 1,049 674 1,723

69 Metal nanufactures 2 92 10 1,171 1,275 44,248 45,523 1,088 256 519 612 2,475 521 2,996

71 M-chinory, except electrical 2 70 17 79 140639 140 718 !3 1 _37 51 244 795

72 Electrical machinery - - - 796 796 55, 701 56,497 280 193 45 1,230 1,748 578 2,326

73 Transport equipment 2 2 - 5 9 113,479 113,488 36 - - 5 41 29 70

81 Pro-fabricated buildings,sanitary, etc. 5 2 7 9,724 9 731 _ 17 20 37 11 '8

82 Furniture - 5 - 41 46 2,541 2,587 81 29 111 74 295 251 546

83 Travel goods - - 34 121 155 1,950 2,105 2 21 2 1 26 489 515

84 Clothing 165 857 922 6,551 8,495 5,633 14,128 253 291 57 1,767 2,368 14,057 16,425

85 Footwear - - 396 1,106 1,502 3,244 4,746 90 24 106 233 453 253 706

86 Professional, scientificinstruments, etc. - -e 5 5 21,666 21,671 1 2 3 11 17 196 213

89 Miscellaneous 2 114 5 3,202 3,323 43,410 46,733 402 483 883 1,807 3,575 2,717 6,292

TOTAL 195 1,418 2 096 18,214 24 475 4 863 4 288 4 478 14 ,076 29,828 405 23

a/

Table 1.14 TRINIDAD - TRADE IN MANUFACTURES BY MAJOR PRODUCT, 1971

(EC$ 000)

Total Imports Total Exports

C A R I F T A Grand C A R I F T A Grand

SITC Product Gr2E LsnC /b Barbados Guyana lomaiac Total Other Total LDCs lb Barbados Guyana Jamaica Total Other Total

013 Processed eat - - - 15.2 15.2 - 15.2 0.9 0.0 4.1 205.3 210.3 - 210.3

022 Processed milk _ -- - 694.2 0.1 158.4 0.8 861.5 1.7 863.2

032 Processed tfsh - - - . .1. 6 4 .4 6 _

046 Wheat flour - - - - - - - 10.1 - - - 10.1 - 10.1

048 Cereal Preparations 0.0 198.4 2.3 - 2C0.7 - 200.7 604.7 64.3 151.9 389.1 1210.0 39.2 1249.2

053 Processed fruit 250.2 0.6 - 595.5 846.3 - 846.3 242.9 495.9 97.3 71.9 908.0 48.7 956.7

055 Processed vegetables 18.6 - - 8.s 11.4 - 27.4 19.4 9.8 223.6 382.2 635.0 0.8 635.8

062 Sugar Preparatory - 20.7 0.2 21.8 42.7 - 42.7 51.7 16.4 174.8 124.1 367.0 0.8 367.8

08 Asimal feeds - - 46.0 - 46.0 - 46.0 844.1 1298.6 25.2 2.6 2170.5 5.2 2175.7

09 Miscellanesos food preparations 1.3 56.6 0.2 268.4 326.5 20.3 346.8 401.9 182.8 359.5 176.8 1121.0 46 4 1167.4

11 Beverages 0.0 1580.3 147.3 474.5 2202.1 1.2 2203.3 390.5 78.2 9.9 95.7 574.3 6i5.0 i189. 3

22 Tobabo =anofactures - 0.0 - 7.3 7.3 - 7.3 0.5 - 0.1 - 0.6 - 0.6

51 A Chemical eleneats - 2.8 2.0 117.2 122.0 - 122.0 424.3 175 4 278.1 161.4 1039.2 8.2 1047.4

52A7 - et- 1.0 21.0 - 71.8

53 Dyeieg, tannery, colsrong materials 0.0 6.8 - 245.6 252.4 - 252.4 686.8 242.6 617.1 309.2 1855.7 56.0 1911.7

54 Medicinal & pharmaceutical prod. 0.5 146.5 444.3 482.6 1073.9 0.3 1074.2 224.4 123.2 61.5 51.9 461.0 10.9 471.9

55 Essential oils, perfues,nosnetius, cleaning maceroas 36.5 145.3 613.3 2238.2 3033.3 - 3033 1024.0 1810.7 1317 9 1535. 6537 6 99.7 6637 3

56 Macufactured fertol-eers - - - 16.2 16.2 _ 16.2 92.8 59.1 2005.9 251.2 2409.0 7 .3 2416.3

59 Explosives and aisc. chenctals 26.0 219.7 19.8 355.3 620.8 - 620.8 357.5 172.2 247 5 82.7 861.9 18.1 880.0

61 Leather ranufactures - - - - - - - 4.6 - _ - 4.6 - 4.6

62 REbber aansiactures 0.0 - - 112.6 112.6 0.2 112.8 185.7 54.2 243.0 1.4 45.9 18.13 1u

63 Wood and cork 0.7 0.0 169.7 0.2 170.6 - 170.6 79 7 13.0 3.4 1 3 97 4 1 6 99.0

64 Paper and paper prsducts 0.0 98.0 211.9 320.7 630.6 - 630.6 3044.5 756.0 729.0 143.4 4672.9 23.5 4696.4

65 Teotiles 1.4 48.1 59.4 377.2 486 1 0.1 486.2 444.9 56.4 199.1 708.7 1409.1 28.0 1437 1

66 Nos-aetallic nonerals 1.7 28.2 50.8 4.1 84.8 - 84.8 2233.7 1604.1 945.7 11.7 4805.2 26.7 4821.9

67 Precious motals aed jewelry 0.2 0.1 37.4 42.7 80.4 - 80.4 243.4 228.9 9 3 170.1 651.7 224.9 876.6

68 Basic metals 0.2 0.1 - 144.4 144.7 - 144.7 250.2 98.2 0.1 124.1 472.6 17.2 489.8

69A Metal =anufactures 1.8 89.8 3.6 666.6 761.8 0.5 762.3 1411 6 838.7 977.8 1492 1 4720.2 118.4 4838.6

71 A Mahinery, escept electrical 7.0 314.1 539.2 1709.8 2570.1 0.7 2570.8 8860.8 4054.7 3598.1 2573.6 19087.2 467 9 19555.1

72 A Electri-ai machinery 0.4 0.0 0.7 631.8 632.9 - 632 9 425.0 319.1 78 1 212.6 1034.8 53.7 1088.5

73 A Iracsport equ-p-cni 4 1 8.3 12 5 0.8 25.7 - 25.7 403.4 116.1 67.5 20.0 599.0 9 6 618.6

81 A Pre-farcaiC,eduauc06,sasItary, etc. - - 3.9 14.0 17.9 _ 17.9 51.6 9.3 3.0 0.0 63.9 0.9 64.8

82 A Furniture 0.8 64.4 0.3 36.7 102.2 0.4 102.6 860.7 421.1 12.3 30.0 1324.1 86.2 1410.3

83 A Travel goods - 20.6 24.6 15.5 60.7 - 60.7 47.7 62.6 22.9 82.1 215.3 0 8 216.1

84 A Cluthing 126.5 588.9 651.6 1024.1 2391.1 u.2 1391.3 0952.5 2u06.1 597.5 -351.7 9507.8 245.19752 9

85 A Poor..ear - 0.7 184.1 549.0 733.8 7 233.8 359.9 73.1 155 1 936.8 1524.9 15.6 1540 5

86 A Prsfessiona, scientific-nstr-ments, etc. 1.2 0 2 2.0 13 2 16.6 _ 16.6 100.4 49.4 40.1 2.2 190.1 19 4 211.5

89 A Miscellanexou 5.5 367.8 66.0 1190.9 1630.2 1 1 1631.3 915.7 547.8 776.1 1774 1 4013.7 64.1 4U//.2

TOTAL 484.6 4007.0 3293.1 61702.0 19486.7 25 0 19511.7 26760.1 16042.0 14191.5 16166.6 76203.3 2380.1 78583.4

A 51 aud 52 - all inEormati-n from 1970, 69-89 import inf-omat-on from 1970.

a R Re-coports which are innlsded 4 cnports, represent the following shares n total exports:

to CARIFTA Other

SITC 0..SITC 1..SITC 5..SITC 6..SITC 7..SITC 8..

b/ Euclading Monrterrat

TableA 1.15: CARIFTA COUNTRIES - ESTIMATED SI-ARE OF TRANSPORT COSTS

IN C.I.F. IMPORT VALUES

(%~)

From U.S. (G-1ulfFrom other From and Atlantic

CAltIFTA Canada PorLs)

Canned meat ... 3 7Canned milk .. .. .. 7 16

Flour . .. . . .8 50Biscuits .. 3

Fruit Juice .. .. 8 22Processed Vegetables 5 13Sugar confectionary .. .. 4Animal feeds .. .. .. .. .. .. 19 56 36

Mar garine. ... 5Rum . .. .. .. ... 6Beer .. 7Cigarettes. 1

Paints. . .. .. .. 3Cosmetics.. .. . . 2Soap (household). . . 5Tvres 2

Paper bas.g ..Cotton fabrics 8G,1S hbtt.1L-Cement. .. . .. 72

Cans.Fabriecated d- ninuin products. 2Furniture .. .. .. .. .. .. 3 9rlnthi n.-O. 00 3 07 1.0

Notes to Table 1.15

1. Estimates for transport costs (including freight and port

handling charges) are based on average unit values of St. Kitts 1972

imports and typical IDC freight and port-handling charges. The following

estimates of average transport costs per lb (in EC¢) for a typical product

illustrates the minor variations observed between CARIFTA coultries:

Imports Importsby IDCs by MnCs

Imports from MDCs ¢ 2-3.3 d 2.6_32

Im2orts from Canada • 6.7-7.1 5

Imports from US d 7.3-7.7 6 5.7-7.7

2. For most items in intra-CAPTFTA.trade rates nre iven on An

alternative weight or volume basis; whichever is Preat-r For l-a 'f

detail on volime. the calmulations, in the Table are based on weight o.nly.

Tn Somn 8S? S - fmrvnre iS thA mnoq+i oir%iv - +he al ..ati.te basis

woyA11l (ilmrvst ±.rtnnly +.sll n1 .hig.e rates

VISoI't0 SqrTVncy rates (.e T, ZS.C. n Trport Sactor Dra-ft -Pr- and

*fl.bJLtJ.~Jfl ssion esti V.-Atesl P. a

Table 1-16: CARIFTA - SELECTED NONWAGE COSTS, 1973(EC$)

Tyjpical GvrsnInutil Average costTndii-i. Government Industrial tr i

Industrial Water BuldingEstate Rental 1 ton of goodsElectricitv Der Costs Land Faetory Shell from shin to

per KwH 000 gal. p. Sq. Ft. p. Sq. Ft. p. Sq. Ft. Warehouse 1971

Dominica ¢ 6.5 $ 13

Grenada ¢ 9 $14

St. Vincent ¢ 6 $ 12 $ 15

Antigua ¢ 6-11 $ 6.oo $ 20 $ 29

St. Lucia ¢ 26 $ 15 $ 10

rvii cerraL $ 14

St. Kitts A 4

Belize 0 4.9

Barbados ¢ 4 $ 0.80 $ 25 ¢ 10 $ 1.10 $ 11

Guyana ¢ 3 $ 0.23 $ 20 $ 1.80

Jamaica ¢ 4.6 $ 34 $ 2.20 $ 21

Trirnidad ¢ 1.6 $ 0.60 $ 20 ¢ 3-10 $ 17

Source: Last columnreport on Antiguxa by Peat, Marwick, and Mitchell, 1972.Others: National IDCs and Mission estimates.

Tn1-abl-e 1 17: rAD T 'fA = VT ED'TPTTT T.TA(21' T TJr S, 1Q73'L Lau LC .Z~* ~ f±JJ .I f.I LJf-.JA_SJ.LJJJ 3 fl*'I -

Semi-Skilled Factory OperativeWage per Week

Estimated share of fringe Wae per ekLocalTn;i'1 eMnI R4fit atc. GeAnernl M$nager _

Range Level a in Wage Bill b/ Laborer MBchanic per Month

(ECs) (ECo) (percent) (EC$) (EC$) (kC$)

D -.ic A30 243"%UUAAL.LLJ± a L4~ _)%J kA.J .J'J

u'renada C25-40 UV25'

St. Vincent 4° 15-20 I)

Antigua 100 20 40 120 125

S Licia 35 1 10eu ou

Montserrat 80

St. Kitts 20-40 30 20-25 140-68

Beliize l 0 20-28 38

Barbados 40-70 40 l5-l8 42-48 70-86 00-1,000

Guyana 45 6-10 32 61-84 500

Jamaica 40-90 20 25-83 63-167

Trinidad 55 16 34-45 68 1,500-1,700

a/ i.e. a comparatively low skilled assembly-type operation.

b/ ' Share of paid leave, sick leave, fringe benefits, and employer's contribution inoperative wage bill.

cSur tssion asfactory e 4n r not 'naa 4-F1 flfl workers

Source: 1ission Estimates.

Table 1.18: AVERAGE ANNUAL WAGE PER WORKER IN WEARINGAPPAREL (ISIC 322), 1969-70

(US$)

Trinidad and Tobago 691 (1970)

Barbados 648 (1970)

Brazil 927 (1969)

Colombia 559 (1969)

Dominican Republic 1,370 (1969)

Ecuador 431 (1970)

El Salvador 851 (1970)

Puerto Rico 2,785 (1970)

Greece 867 (1969)

Morocco 535 (1969)

Spain 1,217 (1970)

Korea 428 (1970)

Phil,innine s 261 (1970)

Japan 1235 (1970)

S11rt-As Trinidad and Barbadns Central Statistical Offices.other countries UN, Growth of World Industry 19711Editinn; -nonverted to 1$US according to exchange

International Financial Statistics.

Table 1.19t GUYANA, 1971: COST Saui ruROP. rm A OF INDISTRIES

(%.)

Oil Aerated Alcoholic

Biscuits Iflls Beverages Beverages Cigarettes Garzcmnts Footwear Sa Fls Furiture Printing Paints Soap(2j~ W kL (2k) (8) (2) (21) (6) ( 6 ) _IJ k 3

Inputs

Local (materials, services, fuels) 2.4 67.4 16.7 ( 3.2 2.3 1.2 ( 10.0 1.0 0.5 4.7Imported ( -1 ) 51.7 16.4 10.7 ( 69.2 52.4 66.7 . 9.1 51.4 25.2 58.9 45.6Other (repair and maintenance and

indirect taxes) 27.4 5.7 27.2 51.4 6.9 10.2 6.9 10.4 10.6 11.5 10.3 16.3

Total 81.6 89.5 54.5 76.5 79.2 64.9 74.9 59.5 72.0 37.7 69.7 66.6

Value Added

Wages and salaries 25.2 5.6 28.9 11.3 9.6 16.5 11.7 22.6 18.5 30.5 10.4 9.7Othez '-bor oosts 2.7 ~~~~~~~0.5 1l .3 1.3 0.0. . . .8 o.6

Depreciation 6.5 1.2 5.9 2.9 1.6 1.0 - 5.5 1.1 2.6 1.9 3.8Surplus (Includes finance charges

pre-tax profits,building rental5 - 16.0 3.1 10.7 7.9 8.3 17.0 12.2 11.3 7.3 25.7 17.1 19.3

Total 18.4 10.5 45.4 23.5 20.8 35.1 25.1 40.5 28.0 62.3 30.3 33.4

Value of Output 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

Source: Statistical Office, Mlnistry of Economic Developcmnt.

Table 1.20: TRINIDA.D AND TOBAGO, 1970 - COST STRUCTURE FOR A SAMPLE OF INDUSTRIES

t(F)

industries Industry Groups

Processing of Textiles, Sawmills

Fruit and Food Processing Garments, Furniture WoodVegetables Feed Garment Tyres Beverages and Footwear and & wood-related

(except citrus) Mills Factories and Tubes Tobacco Hardwear Industries

Inputs

Isported materials 31.2 74.4 55.3 25.3 38.5 51.7 19.8Imported services 0.1 /a 0.2 1.2 0.8 0.2 0.7

Local materials 20.0 77 4.4 14.8 ( 23( 4 8 22 5Local fuel and electricity 2.3 1.0 0.7 3.2 23.7 1 2Local services: interest & Bank

charges 3.3 0.5 1.9 4.9 ( ( 3.7transport 1.0 0.7 0.5 0.4 (communications 0.9 0.5 0.5 0.5 (insurance 0.9 0.3 0.5advertising 3.2 0.2 0.7 0.8 ( 8.3 ( U1.1 ( 10.7professional ( (

services 0.9 0.3 o.6 0.9 (commissions - 3.7 3.9 ( (rent of land and

buildings 1.2 0.2 0.5 ( 0.4rent of machinery .. 0.2 0.2 0 * Cmaintenance 0.8 0.1 0.4 o.6 Cother 1.7 0.6 2.0 1.9 (

Total 67.4 88.2 72.4 54.8 71.2 /b 67.6 /b 57.4

Payments to Government 0.7 0.1 0.5 3.0 /a /a /a

Value Added

Wages, salaries & other laborcosts ( ( 16.3 20.0 10.8 19.2 18.8

Travel, directors' fees & ielfare ( 19.9 ( 5.0 1.0 2.7 0.8 0.8 1.8Management fees & royalties C ( 0.4 - 0.9 0.4 -

Depreciation 6.o 0.9 2.1 7.8 2.1 3.0 2.1Surplus (pre-tax profit) 6.0 5.8 7.3 11.7 14.3 8.8 19.9

Total 31.9 11.8 27.1 42.2 28.8 32.4 42.6

Value of Output (percent) 100.0 100.0 100.0 100.0 100.0 100.0 100.0

TT$ m. 5.4 23.7 35.6 8.8 185.6 54.6 19.5

Return on Total Capital Investment 7.2 17.0 n.a. n.a. 22.3 12.8 24.1%

a/ Included under Local services

bi Individual data on input constituents do not exactly correspond to the difference between gross output and value added andhave been adjusted pro rata.

Source: Central Statistical Office.

a!

Table 1.21: SELECTED COUNTRIES - VALUE ADDED PER EMPLOYEE IN MLNUFACTURING, 1970

(EC$ 000)

IS1c Barbaaos d uua Trndad Korea

311/'3-12 FoodC procuacts 4.8 14.46.42 b

313 Beverages 6.9 11.0 12.1 9.91I4 T 9 28.6

321 Textiles /c 2.5 2.4322 Teari4g Apparel 1.9 -2.3 2.0

324 Footwear _7x 3.6 2.5331 x,.bod P woduc+A 6.3 77 2.9 1.6

322 Furniture 3.2 T 2.9 1.63I/J)/342 Paper, print.nTg and publishing 5.8 74 L.7

351 Industrial chemicals 7.7 77.0 /d 8.23__ Other chemicals 3.6 7( 6.5355 Rubber products 9.6 7- 9.2 2.5356 Plastic Droducts 0.2 7& /c 3.7369 Non-Metallic minerals 4.4 7 7d 5.o381 Metal products 3.6 7F ( 2.4382 Machinery except electric 2.3 7c ( 5.0 2.4383 Electrical machinery 4.6 T ( 365384 Transport equipment 5.5 rc 6.3 4.8

Professional, scientific andmeasuring equipment 4.2 /c /c 2.4

Other 2.2 T:7 b:3 3.0

Average 3.8 4.5 5.2 4.0

Darbiadurs val-Me aLUed per enAi-jJ±UJWV. W-±.LrLL

by national pattern of employment 3.8 4-7

Trinidad value added per employee weighted

i/ Petroleum-based products and sugar refining excluded.

b/ TncludAs sugar refining.

c/ Included under other.

d/ Non-metallic mdnerals (ISIC 36) are included with chemicals (ISIC 35).

Source: Establishment Survey Data:

Korea: UN, The Growth of World Industry, 1971 Edition, Vol. 1, 1973.

Table 1.22: MDCS - INVESTMENT PER EMPLOYEE UNDER INCENTIVES SCHEME

(ECj$ 10Y)

Barbados Guyan Jamaica Trinidad

1965 . .. .. .. .. .. .. n. a. 2. 7 6. Lv a

1966 5.0 10.9 13.0

1967..... 2.3 7.2 5.8

1968 0.2 3.9 28.1

1969 . .... .. 3. 0 19 . 4 19 . 9

1970 1.4I 10.4, 11.1

1972 .. .. .. .. .. .. .. 1.7 n.a. n.a.

1973 . .... . . . . n.a. n.a. n.a. 11.1

a/ Average for 1962-65

Souo: B>jIk Econom c Reports d p Plprs of. T1.

Tahle 1 :9! 1VTf - 5IqEGT,RTEfT VOMPARTSMSN ni F LT,OAT, MT4RK.P PRTrTE1

AND C.I.F. NONCARIFTA INPORTS, 1972

Barbados Guyana Jamaica Trinidad

Canned sausages.. - - n.a. 63 NPCondensed milk .. - - n.a. 0Flour .. .. .n a., n.a. 31P/70NPMacarorn... .. .. 7p 32 P 75 P n.a.

Orange juice .. - - 7 E 24 ECanned tomatoes.. - - n.a. 5o P&NPCanned tomato juice. .. .. - - 35 P 30 PMargarine.. ... 0 22 n.a. 0

Beer. .. .. .. .1 . P/27NP 26 NP n.a. 0Cigarettes. .. .. .. .. .. 111 P n.a. n.a. 6OP/74NPLaundry Soap.. n.a. n.a. 23PA/n8NP n.aAutomobile tyres. - - 51 NP n.a.

Class bottles.. .- - n.a. 22 P&NPMatches . - 1O P n.a. 53 PPaints... 27 P 29 P 17 P 14 Razor blades.. - - n.a. 62 NP

Knitted garments. . 26 E 20 E 43 E 26 EWovenr garennts . E 0 E 22 0 E

Price comparisons are wit}h major supplier(s), if local prices are within5% ( 4 or -) of iinport prices; the price difference is assumed to be zero.

: Price corparisorn is with export price (major export item only).

P: Price comparison is with a Cormonwealth Preferential irport.

NP: Price compxrison is with a non-preferential import.

:No local production.

n=a=:i -cal prouriti on hut nrir.e noirngrison not avwilable.

Sources: trade statistics, national price control offices and privatef; irm.z

Table 1.24L MuCS - ±NDIWOR¶S OF GOnrEL1rTI±rvFNF BY rBMJOR FPOD'ruCLIN INTRA-CARIFA TRADE

Barbados Guyana Jasaica TrinidadI. Competing Products

Canned milk * aBiscuits, macaroni *

Sugar confectionery * *Animal feeds /b *Margarine * *

Alcoholic Beverages /a E *E EPaints - *M.m44crinaJq I- ---- ucts *

Cosmetics, perfumes, cleansing products. * *Plastic products *

Rubber articles *Paper articles *Finishing of textile fabrics * *Jewelry E * *Fabricated aluminum products *

Electric accumulators *Small boats *

Furniture *Clothing *E * E *Footwar**

Records * *Electronic assembly E

II. Monopolistically-Available Products

Canned meat *Canned fruit E *ECanned vegetables *Cocna nowdar *Cement *

Glass bottles * Cotton weaving * *Razor blades *

Gas sto-vss *C ans

Crown corks *Electric light bulbs *Ratio/TV/gramophones *

Insulated cable * *Refrigerators *

III. Resource-Based Products

Manufactured fertilizer *EWood products *

Flat glass *

Aluminium in primary form *

* - Significant positive trade balance in intra-CARIFTA trade (1972).

E = Significant export item to non-CARIFTA countries (1972).

Definitions of product groups:

rCn-nAtAn& nrnA.rii+ those produced n at least+ hree s A.d using norind t-~ --7-F- ------ AUS.IML JL.± Z1tL~ L .are availa6e at comparable prices.

monopoLi atallyAvailable products: products which are only produced in Jamaica and/or Trinidad.

Resource-based products: products where local inputs are apparently vital to competitiveness.

a/ partly resource-based.

b/ resource-based.

Table I25r t A m 'ririA - rOMn *rK?TvreVtl 1^n A T A nfln IoB MLMTQ lLa L.C- 'JAaL2±A ,Vj.L iL1U.L~j.L,Qw LUL A 1.LtV"l±31r'4O±VLij

~~~~ ~~~MA NUFA CTUTR E

(Trinidad Cost of production /-xcluding profits7- 100)

IDC

Trinidad Jamaica Guyana Btagdos "Low-Cost""High-Cost"I. Basic Cost Eleiints

1. lakts a.Ls kuuuy free) .-W 65) 65~ 65 5,62. Utilities 1 2 2 2 2 33. Bi9. e,a 1 ° 0

4. Cost of capital (depreciationsvrrZ ;n v o . 1. ). X,1I. 1.

wid -ntare-t'/ ' 41 I.14 .45. Other services 10 10 11 1 11 136. Wnge c 16 19 13 12 8 167. Supervisory & Management 3 3 3 3 3 3

8. Total cost of production(excluding profit) 100 105 101 100 95 107

LI. Var le Gos+v EitrIenW s

9. rJos U eJ. x of Uor±--g (.&ranspoL t a.dLimarketing)to other CARIFTA cowntries 3 3 3 3 3 3

ir . P +i-1* , ;+ I. I. 1. L I 10. -- u.n -pr o f i 14 4 4 4 4 411. Tax on profits 4 4 4 4 4 412. moth+icA1 dty on. inputs 10 10 10 10 10 10

III. Sales Price underDifferent AssumDtions

12a. Tax paid cio.f. LD5 1l1 116 112 111 103 *1O12b. c.iJ D. ,)C 108 113 109 108 106 118

13a. Tax paid MDC c.i.f, LDC 111 116 112 Ill 99 11113b. Tax exempt IDC c.i.f. MC 108 113 109 108 102 11L

14a. Tax & tariff paid MDC' ci f T2Vr 121 126 122 121 99 11114b. 118 123 119 118 102 114

Notes to Table 1.25

1. This Table represents a very broadly estimated construction of

costs of a labor-intensive (and fairly import-intensive) manufacture

thought to be somewhat representative of the kLind of areas where LDCs

are most likely to be competitive within the regLon. The costs are

so constructed that final selling prices can be compared under different

situations (different national markets, differential levels of incentives

enjoyed).

2. -Eer- cost item, i 1, the T^^le is expre-sseA ir. MSe.s of r|d cost

Ar A_ l r A_A~~4 4- =-1nn N M-1 - -,, _ r_

V p sJ-V>t_4 U c su-J iJ SAW Uexc ,V-V_ n p . L.LU -VV J * 1 LO c L AX Jn.L U.o .L.JL.LU.U. h _UU

co4 co4in individual cos UVitem (RoUwsZ 1-'- ) or slln p,icesLIr (R-LLtow 1-L-^A4J 1e-w-ee

co-at'r-1ees.

3. Trinidad costs are broadly based on the cost structure of garments

(see Table 1;20), allowing for an eight percent pre-tax return on sales

(Row 10 plus row 11). Under the CARICOM schedule the duty on imported

inputs in apparel is more likely to be 15-20% than the 10% of Row 12 (which

is taken to be more typical of other industries).

4. Cost items for other countries are built on the basis of the data

in Tables 1.16 and 1.17 and of mission estimates. The following assumptions

ale notably made:

(a) There is no difference in factory-delivered costs of materials

(e.g. arising from transport cost differentials), in costs of capital,

in costs of export (transport and marketing) of the final good from

any one cowutry of the region to another.

(b) equivalent operative labor productivity is assumed in all

countries (therefore operative labor costs vary with wage

levels) but supervisors and managers are both higher-cost

and more efficient in the more advanced countries such that unit

costs of supervisory and managerial labor are considered equalized

throughout the region.

(c) Costs of utilities, builcdng rental, and other services are

considered to vary as given in the Table.

The "high-cost" and "low cost" IDCs do not represent particular

IDCs but give estimates for extremes combining all the highest-cost and

all the lowest-cost features respectively. Thus actual LDCs are expected

to lie within the range.

Table 1:1k Page 1 of 10

C ion,,,wealth Caribbean :-4 Taifs-nraeRetiction

TrinidadBTN Product Description CCM ECCM Barbados Guyana Jamaica and

Tobago

Food (Specific rates: per 100 lb.)

0201 Fresh, chilled or frozen meat 0 0 $ 0.84 N P 30 N N16011 Canned sausages 15 15 $ 2.00 N 15 P,e $ 0.83 N 25 N16021 Canned corned beef 5 5 $ 2.00 N E 15 N N1603 Meat extracts and preparations 25 25 20 P 30½ N N0402 Milk and cream, preserved/concentrated 5 5 $ 1. 00 n E 25 N n1001 Wheat 0 0 $ 0.12 N 15 O N 01101 Wheat flour 10 10 $ o.48 N $1.09 E $ 1.20 N $0-501903 Macaroni 30 15 20 N 30 N N1908 Biscuits 30 15* $ 0.48 50 P $ 0.52 N 151905 Cereal preparations 30 30 10 N P 15 n2106 Baking powder and natural yeast 3°l 15 10 15

230 1-6 Animal foddex (excl. pet foods) 0 0 20 n 0 N n0701 Vegetables, fresh or chilled UA 0.75 $0.40 0 N E 30 N 0.90 N.0802 Fresh c±itrus fruit 40 1 On C NA N2002 Canned vegetables 45 20(*) $ o.60 n P,e 18½ N N2006 Canned fruit 45 30(*) 20 9° P 183½ N 30 N2007 Canned vegetables & fruit juice 45 30 (*) 20 P,e 30 N N1704 Sugar confectionery, not containing cocoa 45 35 40 E 55 N18061 Chocolate confectionery 45 35 30 N 70 E 33 N 401513 Margarine 30 5 $1.80 N E $ 3.00N 1507 Vegetable oils 15 30 $ 0.12 N E $ 0.42 N N1701 Sugar, refined 30 $3.60 $ 4.00 N p $ 0.83 N N

Beverages (Specific rates: per gallon)

2202 Soft drinks 30 30 20 45 P 30N 252203 Beer from malt UA 5.5 30 $ 1.56 p $ 1.73 N $3.0022093 Rnl, in bottle not exceeding 8Q% proof ITA 59 $4.35 $12.30 P 111.38 N

22095 Whiskey bottle not exceeding 80% proof UA 55 $5.83 $17.08 $22. 49 N22097 Gin bottle not exceeding 80% proof UA 56 $4.40 $14.80 p $20.46 N

Tobacco (Specific ratest per lb.)

2401 Unmanufactured Tobacco UA 3.00 $0.70 $ 3.06 $ 6.70 /a $ 0.53 N $2.61 N24022 Cigarettes UA18.46 $9.00 * $ 7.24 $14.60 $ 7.69 N $5-75

Taqble i -9A,

Page 2 of 10

TrinidadB TN Product Descrintion OC.f, ECCM Barbados Guyana Jamaica and

Tobago

Textiles and Garments

5501 Raw cotton 10 10 0 15 15 05601 Discontinuous Man-Made Fibres 10 10 20 15 15 2555005 Cotton yarn 20 20 20 25 30 305605 Spun man-made fiber yarn 20 20 20 25 71s An5509 Cotton fabrics (specific rate: per sq.yd.) 45 25 10 25 20 N 50+$0.10 N56072 Man-made fiber fabrics (specific rate " ) 35 25 10 25 30 N 50+$0.10 N6101-9 Garments 45 30 70

of which important items:ex 6101 mens/boys trousers, woven (cotton) 45 30 35 (35)/c 30ex 6005 womens e-esses, krtted (nonotton 30 203ex 6103 men's shirts, woven (cotton) 45 30 (60)/a (40)Taex 6004 women's underwear, laitted(non-cotton) 45 30 25 (80)7Ej

6003 wom-llen ' s stocki{ ngs, kn itted,synthetic, fabric. 20 20 (60)/b (90)/b

Shoes and Leather Products

4102 Bovine cattle leather 10 10 0 15 15 N 25 N4202 Travel goods 45 30 30 60 30 N 306401 Footwear 25 15 30 30-. N

Wood Products (specific rate: per cub. ft.)

t4 i03 Lows 10 10 20 40 $0.02 N 254415 Plywood, veneer 20 15 10 50 20 N: 25 N4421 Wooden packing cases 25 15 20 10 N44 23 Bu,1iders t ca-pentry and joinmey 45 35 20 20 N N9403 Furniture, other, metal and wood 45 30 20 N 50 P 36~i 35 N9401 Chairs, metal and wood 30 20 N P 48½N N

Paper Products

4701 Pulp 0 0 20 15 12 2548011 Newsprint 0 0 0 25 20 04804 Paperboard 20 20 20 40 20 : 254516 Paper boxes and bags 30 20 0 32 N 25 N

Petonleurn Products (s3ne& i'i Itas ner Ealc'-E

2709 Crude oil 15 0 $1.2C N 15 12 25N27102 Motor snirit UA 0.5 30 $0. 4.0 25

a/ Estimated ad valorem equivalent of combined specific/ad valorem tariff on shirts at EC$ 15.00/dozen cif.b/ Estimated ad valorem equivalent of combined specific/ad valorem tariff on stockings at EC$0.40/pair cif.c/ Estimated ad val_ ea 'val_rt of ccm--- =-ed specific/ad valoreru tariff oni men's trousers at EO$ 60/dozen cif.4/ Estimated ad valInen ec '--sian+ nf combined specific/ad valorem tariff on women's dresses at EC$60/dozen cif.e/ Estimated ad valorem equivalent of corbined specific/ad -valorem tariff on wsmen's underwear at 32$ lO/dozen cif.

Page 3 of 10

TrinidadBTN Prnd,,ut. nfe.rjn±n t'-.M JYmG M Barhaos , r,v:-na .. ai -nd

Tobago

Chemicals

2801 Chemical elements, inorganic compounds 10 10 20 15 N 03102 Nitrogenous fertilizers (specific rate:/ton) UA 15 0 $2.00 5 0 03209 Paints and enamels 15 15 26 p 20 N N3301 Essential oils 30 30 20 10 i N. 233061 Bayrum (specific rate: per gallon) 70 70 $4.20 $2.40 i33062 Shampoo, toothpaste 35 20 30 40 30 3533069 Perfumes, cosmetics 55 45 30 L I.3401 Soap (specific rate: per 100 lb.) 30 30 $0.72 N 40 E $0.73 30 N3402 Detergents 30 30 $0.72 N P 30N N3606.1 .atches in contailers whith 601 matches

or less (specific rate: per gross container) UA 5 60 30 N P/L $0.13 N $0.2038111 Desinfectants, for retail

sale 10 10 20 038112 Desinfectants, not for retail

sale 15 10 20 039021 Polymerization products (plastics),

ready for use 30 0 10 40 15 N39022 Polymerization products, other 15 0 in 15 P/L 153907 Plastic articles 30 30 10 15 ~j N

Non-Metallic Minerals

2523 Cement (specific rate: per ton) UA 10 0 $6.o5 N $0.38 E $3.60 N $0.70 N6904 Bu±lding bricks (speeifie rates- per n,0) 25 15 $2.40 40 30 306910 Ceramic sinks, basins, etc. 25 25 18 206911 Ceramic tableware 25 25 16 40 30 N 307001 Gla.ss ir. ,ass 0 0 16 8 12 257004 Glass, unworked, cast or rolled 25 15 16 40 20 257010 Bottles 30 0 10 40 20 25

Rubber

4001-4 Natural, synthetic, reclained, wasterubber 0 0 0 7½>

4008 Plates, sheets of unhardenedvulcanized rubber 20 10 20 71½

40111 Tyres and tubes for bicycles andtricycles 15 15 32 40

40119 Tyres and tubes, other (not solid) 35 25 52 40 N $0.54 N

Table 1.26

Page 1 of 10

TrinidadBTN Product Description CCM ECOM Barbados Guyana Jamaica and

Tobago

Metal and Metal Products

7307 Iron and steel, blooms, billets, slabs 0 0 20 8 5 35

7313 Iron and steel, plates and sheets 10 22 20 10 5 N7318 Iron and steel, tubes and pipes 10 22 20 0

7321 Iron and steel, structures and parts 35 22 20 40 5N 30 N

7323 Iron and steel, casks, drums, cans, boxes 22 22 20 15 20 N

7324 Iron and steel, containers for liquified gas 22 22 20 25 N

7331 Iron and steel, nails and tacks 15 15 20 P/L 25 N N

7336 Iron and steel, non-electrical stoves 45 22 20 30 N

7338 Iron ar.d steel, baths basins, etc. 30 22 20 2< N7401 Copper, unwrought 0 0 20 15 10

7407 Copper, tubes and pipes 10 22 20 57410 Copper, stranded W Lwre, cables 22 22 20 5 25

7601 Aluminum, unwrought 10 0 20 15

7604 Aluminum foil 10 22 20 15 N 25

7608 Aluminum structures and parts 45 22 20 P 5N

8313 Crown Corks 25 25 20 25 N

Non-Electrical Machinery

8401 Steam boilers 7½ 0 20 8 5 10

84062 Engines for motor vehicle 35 35 20 60 40 35

8412 Air conditioners 30 22 10 15 10 N 45 N

8415 Refrigerators 35 25 10 45-70 10 N 25 N8424 Ploughs 7½ 0 10 8 5 2½

8437 Textile weaving machines 7½ 0 0 8 5

8451 Typewriters 25 22 20 40 20 30

Transportation Equipment

87011 Agricultural tractors 0 0 5 8 5 30

8702 Motor vehicles 45 35 28 15 4CM 30 N87062 Mo-tor vehicle parts 35 28---O 7r0 4

8709 Motorcycles 35 35 30 60-70 40 25

8710 Cycles 25 15 20 40 20 25

8802 Aircraft 10 10 20 8 0 35

89019 Baats, ships for navigation (excl.warships) 25 0 20 40 0

Table 1.26

Page 5 of 10

Trinidad

B r,z Product Description CCM ECCM Barbados G,.- a-n_ J^taica andTobago

Electrical Machinery

8501 Generators 7½ 25 20 8 5 12½8503 Batteries 30 30 20 40 25N 3085072 Electric stoves 30 30 20 60 20 N 158513 Telephones & telephone equipment 30 30 20 23 N 2585151 Radio and TV 45 30 30 70 48I 45 N8520 Electric lamps 30 30 20 40 25 N 30 N9211 Gramophones 45 25 30 12 N9212 Gramophone records 35 25 30 12 N850h Electric accumulators 45 30 20 N P/L 25 N N

M-scellar.eous

3406 Candles (specific rate: per 100 lbs.) 25 25 $2.00 20 N N71n^A _:_ .4- . _.-^.^ 5P J tI -a ..... '

Si U± L Of t J-WC-G J.SJ71G IS VV JV N ) 4 U I

9101 Wrist watches 50 20 30 60 30 N 459404 Matresses 45 30 20 N P 30 N N9602i-9 Broomsa & brutshes (excl.besoms, etc.) 30 15 20 20 N N4602 Matting of plaiting material 45 25 3° 209702 Dolls 25 25 18 40 30N 30 N98012 Buttons 25 15 20 40 15 N 309805 Pencils 22 22 20 40 15 2558021 Carpets, not knotted, of veg. material 40 40 30 30

Page 6 of 10

Table 1.26

Commonwealth Caribbean: Tariffs and Trade Restrictions

Explanatory Notes

1. Tariffs listed in the table are Most-Favored-Nation (MFN) rates

and are either percent adc valorem or specific.-/ Ad valorem rates

appear in the table as simple figures. Specific rates are expressed

in Units of Account (UA) for CARICOM (UA is equivalent to 0.395833

grams of fine gold or about EC$ 0.90 or G$ 1.00 in 1972 values), and

in $ for the other schedules (EC$ for the ECCM and $ in national

currencies for the other countries).

2. Quantitative Restrictions: tariff rates are followed by

notations indicating the nature of trade restrictions as below:

N: most or all of the item is on the negative listand requires an import licence;

n: part of the item is on the negative list andreauires an imort lieence:

p: most or all of item is rompl etely prohibhiiP(Guyana only);

p: part of item is completely prohibited (Guyana

E mostonlly);+.~:L~r lowdol

through External Trade Bureau (or other designated

e: p t of tle itemn: ir,^o- 4lo" o'y -ougl,

External Trade Bureau (or other designated agent)(Got- Onnlr\ ;

*:. Th('s a"o- u,nt41 Y- 1 1983, -4. p

existing against MDCs g*) indicates that only partU.L UL4Iu ±Ik.1 .LO a.L.LfzC;LjC /.

1/ The BTN number and designation refer to the CARICOM schedule: headingsfor othner scneauies are the nearest relevant headings.

Table 1-26

Page 7 of 10

3. Preferential Tariff Rates: the following illustrates the most

frequent relationships between general (YEN) and Commonwealth Preference

ad valorem ratest

Commonwealth Preference Rate

General Rate CARICO/ECCM Barbados Guyana Jamaica Trinidad

5 0 2½ o

10 5 0/5 5

15 10 10 10 10

20 15 10/15 lG/15 15

25 15 15 15 15 15

30 20 10/20 15/20 20

35 25 25 20/25

40 no rate 20 20 20/30 20

45 35 no rate 25 30/35 30

50 40 no rate 30 45 no rate

60 50 no rate 40 no rate no rate

70 60 no rate 50 no rate no rate

90 no rate no rate 70 no rate no rate

Table 1.26

Page 8 of 10

4. Au V ELUL.JAL OSpLVcifi TLrULf Ut LU-L.LheWLi16 fl n rige

gLvt: ubukLvlcw.L.~ VI~ L,1v ctu Va.JUL.LVuII t:;4LULVd±.t;1V.' ~J4. MiAJulJV oPw.L±UL.LLJ ±11

give , esflrf,lI..s. o~lffl bh -or-1 eq-ven jrA L.....r fl',fl ctfs

uiH QW'lUUIl 'idU flAjj.i OLI.1UUUtLLLLb kUdZLL OIL 06. fLtUU 7I {L avj' ` a UI±±

values Of i-mports).

Ad Valer emSpecific Tariff Equivalent

-unit (FV-) ( % )Uinit Price cARICOM ECCM CARICOM ECCM

(EC 5)

Fresh vegetables 100 lb 4,5.5 0.68 0.50 1.> 1.1

Beer gal. 2.54 4. .95 /a 195 30 /a

Rum gal. 7.18 53.10 4.35 740 61

Whiskey gal. 16.23 49.50 5.83 305 36

Gin gal. 12.96 50.40 4.40 389 34

Cigarettes lb. 4.23 16.61 9.00 393 213

Refined petroleum gal. 23.22 0.45 /a 2.4 30 /a

Nitrogeneous ton 178.91 13.50 free 7.5 freefertilizer

Cement ton 71.04 9.00 free 13 free

Matches gross 2.41 4.50 /a 187 30 /aof boxes

a/ ECCM rate is ad valorem

Table 1.26

Page 9 of 10

5. Sources: tariff data for the MDCs coms from the various national

schedules in force up to 1973. The sources for the CARICCM and ECCM

tariffs are as follows:

The Caribbean Community Secretariat, The Coymnon 3xternal Tariff

of the Caribbean Common Market (1973?)

East Caribbean Common Market, Customs Tariff: with List of

CodtionaDu Exminaf d Reductions (1972?)

Sources on quantitative restrictions are as follows:

Barbados: The Miscellaneous Controls (General Open Import Licence2

Regulations, 1973 (September 4, 1973).

(Listed items are those whi-r, coming from non-CARIFTI

countries,require import licsnces. Some of the items, e.g.

gasoline, motor vehicles. cement, are not locaILy produced

and the control is therefore presumably for balance-of-pay-

ments purposes).

GiUyan. Order lMade under the Trad_ Ordiriance, 1958, Nos. 86 and 87

of 1971. (There is apparently no consolidated list of products

subject to control and we cannot, therefore, be sure of tihe

inclusiveness of the information present3d),

aTam A- So11rc'. r lotiv-'e bNot 282P! The Trade T-2w 19 f(tw 1 of

1955): Cwzn Genernl Lcence (IForts), My 10, 1973 (Set

Bar-bados notes).

QW LU I.4r.UTLa e '.26 Ln

Triildad and Tobago The Trinidad and Tobago Chamber of Industry

and (Commerce (Northern Division), Consolidated Negative

List up to Miay 5, 1973 (Notice to Inrorters) 2 of 1973

July 2, 1973.

Table 1.27

A Comparison of Industrial Incentives intrief MIDCs1-

l l C'ul=;^ 8 s~~~~~~~~~~RUiIDZD tend)0 4a Ji.,

Irdu-strifr1 Incentivue P roneer Industric 5 Year incrcoie Tnx 10 Year iTncom.ie Tex 7 Ye i:ltio y-Law 5 Ycar Income Tax lioliday - special Holiday. Exteaded to 10

flolidvy. 10 Year exemption : ars for Deve-for Ceme,nt, Fer- loped ireas;tilizer, Lubrica- 15.years forting Oil and Rural reas.

.^,ort L1.clusWry 1Cil Ycs.-.l'o £ExpU Yes: SPecial Rates Yes: ExemptionEnzoarajnemnt Law duty paid on of Income Tax for from Paymitent of

_c__ _ertan :nroucts Export Industries. Tr1com Tax for

In'cst+-r.t Lllowanc il Nil mYes: vombined with

__________________ _________a_ | ccc erated anor-I iac ie otUol aUd Law E dsta by Comnprehelisive Law Sueciaci Law 1. very comorehen-

Lnplication. | patterned alonrg | CL.s. |sive law exists.tne TCam,,. ons

L _ _ _ _ I _ _ _ _ _ _ _ _ I _ _ _ _ _ _ _ _ _ _ _ _ _ _ _

Ikree Gntrr- Raw ISrecil Pro- IYes: Grlntnd vnrv Grnnte~d to Jnnpro-Entry - Raw &i~~~~~~~cinl --ry -Ys-.E por'-inliateralMs 1visions exist liberally for 5 ved Industries. Import substitu-

for certain In- years. tion Industries.dus-tries in

_~~~~~~n fIr Lc l'o a 'rn 2

r rec Nlachineiy ac Uran Qed ior a lranted liberally Granted liberaliy Granted liberallyj.ilding 'tAurialS. period of 5 for peri-od of 5ir.c tri1 a s year-Tns. Iot fo. Y aus.L _ _ _ _ _ _ _ _ _ _ _ rr.~ v bi 1'Li L i Ljo n . _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _

lrd,aztrial Site;s Ye| yr <l c1'.,a_Lt° I Yes - t(.nLtU |IYes zI es3[ |~~~~~$1.10 an-d .-20 f

W Lrl. ~~pr ,.-C.ft.p/a !I_IIndu_trial Buildinigs Ye5 - Very few Yes Yes - Rental 50¢ Yes - Rental

Rtjnttal $1.80 per per sq. ft.L I ~~~~~.(il;,f, f_rsr ainZnum,l

3oecelerated 'mortisfX Yc - For Indus- Similar to Guyana Yes - Similar to |Yes - Similar totries in Second rowanc for IGuana. el-ayanea but comn-Schedule List is workers welfare bined with in-

Lbeina aded to, housing. I_ve2tient allowance.Loss Carry Over Yes Yes Yes __Yss_|Yes

Source: Guyana Development Corporation

Table

Estimated Impaot of CARICOM and ECCO Tariffs onAverage Tariff uevels

(perc&nt) nypotneticalincrease

in CARICOM shareon XverLage Tariffs

National

Patternr Share of 'a Weighted New Average

Product of Carifta Tariff Average CARICOM CARICOMSITC wrp Tmnnrt- 1 n Imports CARICOM ECCM Share Tariff

(1) (2) (3) (4) (5) (6)

0 Food 25 15 9 7 25 81 Beverages & Tobacco 3 55 115 35 70 752 Crude .materia-s 0 100 0 0 1r_ v .L U VL~JJ L. .h -- LO --

3 Mineral fuels 4 80 8 8 80 8)4 AnimAl & veYetAhlA oils 1 5 15 30 20 125 Chemicals 9 40 20 15 50 186 Manufactured goods 20 10 27 18 20 247 Machinery 26 1 20 15 5 198 Miscelaneous manufactures 10 25 34 26 40 27

0-8 Total/Average 100 15 22 15 25 19

Average less SITC 1 19 14 23 17

a/ Includes items not qualifying for area treatment i.e. re-exports from CARIFTA sourcesand CA2RIFTA goods not fulfilling rules-of-origin criteria.

b/ 1- -4-eih,4. 4-- c dt_ s-s esUir4ute f- or t efcsofd;-r C.FArrs,as Well11..I f1T~ .-. 4.a4.~. ~ a 4 ., 4-1,- ef -+ _P A.,-,- .P-- CAD-rVnmA -- as

as duty-exempt imports under incentives schemes.

Note. The pattern of imports (Col. 1) and Share of CARIFTA in imports (Col. 2) are basedon St. Kitts 1972 import figures. The weighted tariff averages (Cols. 3 & 4) arebased, within each SITC section, on weighted averages of duty payable given thatduty is largely not payable on CARIFTA imports under incentives schemes) as apercentage of total imports. Tne national new CARiCOM share (Col. 5) is based onone set of illustrative plausible increases, rather than actual predicted increases.'LghtV arf averag.e U.dUr 1-4 .RjICOr.^ IIOUIl are th0I±en rec 'c- - d -- ol. 6).

Table 12

Classification of Industries for Promotion

in LDC s

EIU I. LARPGER CARIFTA ;',,ARaET (C'% AiiD- ETU TTT. DflCCTTnT N E.Yf rGCfM TNnTITRTTFSEXP. RTNUESTRILTJ (E) ALUMINIUM PRODUCTSBICYCLES (C) ANIMAL FEEDSTUFFSBUILDERS HARDWARE (C) ( )AUTOMOBILE COMPONEN ISCANNING FRUIT AND VEGETABLES (C)- BANANA FIBRECERAMICS C) (;F) BROOMS,BRUSfIES AND MOPSDOMESTIC ELECTRICAL ACCESSORIES (E3 CEMENT BAGGINGELECTRONICS (E) CLAY BRICKS,BLOCKS AND TILESFOOTWEXAR {e ) CLOCKS - ALARM AND KITCHENGARMENTS (E) COIR FIBRE}fANDTOOLS AND CUTLERY (C) * DRINKING STRAWSJE"'ELLERY (E) FLOUR. ''LLINGLEATHERl GOODS (E) GALVANISED PRODUCTSSPORTS GOODS (E) GLASS AND GLASSWARETOYS (E) * HATS AND CAPS

LEATIHER TANNINGPLASTICSSAILS FOR YACITS AND BOATS

* UMBRELLAS(a) WIRE PRODUCTS

EIU II. EXISTING ECCM INDUSTRIES WITHPOTENTIAL FOR EXPAInSION TH FIU IV. INDCv TRIES WHICH DO NOT APPEAR TO HAVE POTENTIAL AT PRESENT

-1OR ARE UNDER SEPARATE INVESTIGATION-)* BEER ASBESTOS ROOFING* BISCUITS BABY FOODS

BOAT BUILDING BUTTONSCANNING AND BOTTLING GANSBOARD

)' CIGARETTES CEMENT MANUFACTURECLOTH PRINTING CHEIUC AIS FOR INDUSTRIAL USECLOTH PRINTING COSMETICS FROM LOCAL OILS

* CONCRETE BLOCKS, nLES AND PIPES DOMrNICAN TIMBEi -- SAIIRLL AND VENEER MILL.(*) COPRA BASED PRODUCTS DORINICA TIFBER -- WOODEN BUILDING SECTIONS _ STANDARDISED

FIBREGLASS BUOYS, ETC PRE-FABRICATED)FOU-NDY INDUSTRY DOKljuICAN -1I'BER -- LWOUDEN FURNITURE, STANDAIR DESIGNFURNITURE - WOOD AND METAL DRY CELL BATTERIES

(* GARMENTS ELECTRIC NEON SIGNSINDUSTRIAL GASES *GRAMOPHONE RECORDS

* MATTRESSES INKMILK RECONSTITUTION OR PASTEURISATION TRATin Arm T CCIrT.TT M rAr

(* PACKAGING MfATERIALS AND CONTAINERS LIE CE-AND LIN ILPRINTIIIG WORKS MACARONI PROUCIFvREADY-'n, CONCRE'TE MATCHES

* SOFT DRINKS BO0TTLING NUTMEG GRINDING AND NUTM-G OIL DISTILLATION* SOFT DRINKS BOTTLING ~~~PAINT MANUTFACTURtE OR M~INGSPICES AND CONDIMENTS PERFUIeS

* TiSSUE PAPER PRODUCSl PETROCIEaCAIS, FERTILIZERS AND DETERGENTSTYRE RETREADING AND REMOULDING PHARMACEUTICAL PRODUCTS

PUMPSPUNlCHED CARDSREFRIGERATORS AND AIR-CONDITIONERS-ASSEMBLYTEXTILES (SALES YARN MILL)TOMATO PASTETRANSFORMERS - UP TO 4J0 VOLTSTYPEWRITER ASSEMBLYTYrES AND ±uoBES --RUBBER

WOODEN FURNITURE - HIGH QUALITY FOR EXPORT

RESIDUAL INDUSTRIES (NOTr IDENTIFIED BY EIUJLISTED IN ANNEXII OF GEORHoTEMN ACCORD

* RUM* OTHER BAKERY PRODUCTS* HANDICRAFT ITE1M* POP CORN* STATIONERY (EXCLUDING CONTINUOUS BUSINESS FGRMS)* SYRUPS

k 1.em not. copidere,deasible by.EIU which prepared a Prospectus to- llustrame Lne proDiems assocpareo jith tne pSoject.

*: item /T*) - par of item 7 appears in Annex II of Georgetown Accord:Industries for Promotion in less Developed Countries (industries listedwill not be eligible for incentives in MDCs until 1976).

Source: EII, Eas'tern Caribbean and British Honduras Industrial Survey: FinalRepor,~ AuFast, 1972.

Table 1.30

Summary of Main Aggregates in Regonal

Industrial Programming

TargetProjected volume and Approi- DiKect

Volume Value of lilate Employ-Activintyand Value Domet-i c Capital ment

of Imports, Ce-parity 1.Investment-1975 1975

Iron and steel base metal 229,000 tons 300,000 tons 2 $ 50.0 2,500S69 0 m. S960

Pulp and paver (excludingnewsprint) 100,000 tons 100,000 $ 109 m. 4,000

$58. m. $58 m.

Newsprint $25,000 tons $35,000 $ 27 M. 300$d m $ 8.5

Cotton 20,000 tons 3 n.a. 3,000

COtton textile 15,000 tons 15,000 tone $ 100 m. 7,000$63 me $63 m

Synthetic staple and textile 13.000 tons 6,000 $ 84 m. 3,000$63 m. $32 m.

Synthetic rubbet. plasticmaterial and products 35,000 tons 35,000 tOns $ 80 m.4 7.000

$64 m. -

Gl ass -containers - 88,000 tons5 $ 27 m. 1,300

Gl asse-sheet 9,300 tone 6,000 tons $ 2.8 120$ 3.2 m. $ 2.2 m.

LeatHbe tanning (for footwear) 5.7 m.lbs. 5.7 w.lbe. $ 6 m. 600$14 m. n a.

F'ootwear - 15 m !jalrf5 $ 33 1i. 2,500

Leather tPani-.g and producta(other thin footwear)7 - 7.5 I.lbs. $ 20 Mn. 3.000

Chlorine (electrolytic) 38,000 tons 36,000 tons224.6 m. $5.8 M. m

Sadluin hydroxide (electro- ) )lytic) ) 41,000 tons ) $ 12 m. 3 200

$ 4.3 m.

Sodium nhydroxide (lime-soda) ) 467,000 tons 42d,000 11n.e. L s.j30,4 mu. S53.1 M. -

Mator cars 25,000 units 40,000 units $ 42 m. 8,000*003 mm..nU3 m. $100 r

No te: 1. The unit vlue of do.aetic producton I. based, for *estl..ting pw;o6.s, on the twitvAlue of Imports (1964).

2. This includes the steel which would be used In motor caoproduc%lon. The valua of steolproducUon does not exclude the cabu of imported pig iron or scrap.

3. This 1. be.sd on the curr#at xrport s*tin_ pdc. of United Stat, cotton.4. The nvetstment required for fa ctctlag end-products is not included.3. *- tiste of tncremental demad.. Does not exclud, the value of ihports of sods *ah.

7. Aesming compiete import replacement i beef, -ea and ork there could be producedby 19/5 sbout 15 m. lbs. of cow end pig leathe,. We aagme here ore-half is usmd forleather products other thb, footwear (actually oly 5.7 a. lha. of le.t,er sws tba pro-jeited dencod f:! footwe). r e ff -s OU ,-…"o vl "'o -:t e- :^ita" -.-a aerneintended &a the ciudest poseible gude to the magnitudee involved.

Source: Appendix 7A of H. Brewster and C.Y. Thomas, TheDynamics of West Indian Economic Intezration,1967.

Table 1. 31

CARIFTA/CARICOM: Actual and Potential Production arid

Consumption of Textile Fabrics

(A.. sq- vdis-)

1971 1978

Jamaica:

production in cld mill (cotton) o 9nrc1cti,o. nn i,r ne.s mw'1 (rnTix+url =

imports 42 44

Tri i e'-~.-

produl v^- t4o i-n * A - v -i R .

production in new mill (mixtures) - 15

Barbados:

production in new mill (nmixtv.res) 5J .. ~..Lsot

Guyana.

production in new mill (cotton) - 10imPorts 21 20

LDCs:

imports 16 23

Regional Total . . ...... 34 L 150

Ofwhich, consumption: cotton woven 60 65synthetic fibre andmixture, woven 45 75

knitted 15 30

Of.her 14 20

nfwhieh- production: cotton 9 24

Synthetic - 30K=nitted n.a. n.a.other

Notes to Table 1.31

This Table provides broad estimates of demand growth and potential

growth in regional capacity on tae folMlowing assumptiorns:

i) demand grows overall at 5% per annum with modest increases in the

share in this of synthetic/mixture woven fabrics and knitted fabrics.

ii) 1978 capacity is based on the following:

(a) existing mills (Jamaica and Trinidad) increase preser±t one-to-two

shift capacity utilization to a two-shift basis (all new mills

operate three shifts).

(b) a planned Guyanese mill will weave 10 m.sq.yds. of cotton;

(c) a planned Barbados mill is estimated to weave (not spin) %msq.yds.

of mixtures;

(U) contemplated "ills In Tamalca and Trinidad will be assumed each

wo -wea-ve 15 _,x .sq.yds., of MIxtures.

Source: 1971 production and imports XRS, e. Protective Hegime for the

Textile Industry in the Commonwealth Caribbean, l173.

Table 1.32 P^ge 1 of 2

CARIFTA/CARICOM: Actual and Potential Production and

Consurmption of Cement

( 000 tons)

1978 Ilnit Gost,Estimated Demand Production Capacity 1973 EC$ per ton)

1972 1978 1972 l976.Sst. Exfactory -ransport

Windwards 45 60 - 60 50 60Leewards 25 35 - 35 60 60Belize 20 30 - n.a. n.a.Barbados 55 75 - 75 50 60Guyana 12$; 170 - 170 40 60Jamaica 425 570 450 800 32 60rinidad 170 230 290 300 40 60

CARIFTA Total 865 1,170 740 1,)640

Note: this table provides (i) broad estimates only of present and future regicnalcement consumption; (ii)jestimates of what future production capacity might

look like if presently contemplated projects were to go ahead, and (ili) broadestimates of unit production and transport costs meant to provide somo initial feel forthe relative merits of national versus regional production. The assumptions behindthe estimates are as follows:

(a) Estimated demarnd: 1972. Production and trade statistics (these areetimates based on complete production and inconplete, and sometimesoutdated, trade statistics); 1978: assumed 5% per annum growth over1972.

(b) Production capacity: 1972: based on mawimuiu observed ainual productiorn;1978: based on national stated intentions as follows:

Jamaica has anrounced an increase in its existing cement plant to800,000 tons capacity;

Trinidad is contemplating establishing a new mill: we assurre acapacity of some 200,000 tons;

Barbados, Guyana, and Antigua are contemplating dlJls, we assume acapacity equivalent to our 1978 consumption estimates for the nationaamarkets of Barbados and Guyana and for the Leewards in the case of Anti.,ua;

Domidnica is contemplating the grinding of clinker (imported from4au rtnq-ue and Guadaloupe): we assume a capacity equivalent to the

1978 consumption estimates for the Windwards.

(c) Costs: the estimated 1973 Trinidad ex-factory cost is estimated at someEC$ 50 per ton whilst average transport costs (UzSC freight rate plustypical port handling changes) within the region are some $ 60. It isassumed that a situation of newer mills and increased regional competitionshould substantially lower prices (although increased fuel costs willoffset this). The costs are calculated as follows:

- 1. 3'

Page 2 of 2

HypotheticalAverage Cost Index CAIRIFTA Costs

Plant nanacitv ______ U.S UK new _nA pr ton)

33,000 )$0 60l66,000 121 50

1(YYflC)114. hAf 118 C

200,000 100 100 100 400 - xi 86 89 n . a

500,000 n.a. 84 91 341,000,000 63 81 30 (32 for 800,00C

2,000,000) 73 tons)

(A svmr ca g,e c o st Jr. - " 4C e s ara -e rt ^n fr or, f Ca I .bes- A 104.4(i)Jar,d A 0LU.5L Of-J C.Fd. r. at' en, L Economies of Scale in Manufacturing Industry, 1971)