25 Economic integration and CARICOM

Single Market and Economy

By the end of define ‘economic integration’;
this chapter explain the stages of economic integration;
you should be list the member states of the CARICOM Single Market and Economy (CSME);
able to: explain the features of the CSME;
describe the benefits to its members of the CSME;
identify some examples of economic integration elsewhere in the world.

Concept map Economic integration and Caricom

Single Market and Economy (Csme)

free trade area

customs union features

common or single
CSME
market

economic union benefits

Economic integration
economic integration • Economic integration is the coming together of national economies to operate
as one economy. National boundaries disappear as economic activity develops
across borders. Countries might adopt common trade, fiscal and monetary
policies. Countries of the world are responding to trade liberalisation and
globalisation by forging greater ties with neighbouring states. A common
feature of the world economy today is the formation of mega-trading blocs. A
trading bloc • trading bloc is a group of nations coming together to trade under a trading
agreement. A mega-trading bloc is a large trading bloc. When countries unite
and integrate, they are better able to face the world.
There are four stages of economic integration. They are:
1 Free trade area
a Countries belonging to a free trade area have no trade barriers
ITQ1 against other member countries;
Give an example of a free trade area. b however, each member state determines its own trade policy (and
tariffs) towards other countries of the world.
208
 25 · Economic integration and CARICOM Single Market and Economy

2 Customs union
a As in a free trade area, there are no barriers to trade between
member states in a customs union;
b unlike the states in a free trade area, all member states will have a
common external tariff with countries outside the customs union.
3 Common or single market
a In a common market, as in a customs union there are no barriers
to trade between member states;
b as with a customs union, all member states will have a common
external tariff with countries outside the common market;
c there is free movement of labour and capital between member states;
d there are common taxation policies, employment laws, product
laws and competition policies.
4 Economic union
a There are no barriers to trade between member states in an
economic union;
b all member states will have a common external tariff with
countries outside the customs union;
c there is free movement of labour and capital between member states;
d there are common taxation policies, employment laws, product
laws and competition policies;
e there is common fiscal and monetary policy made by a centralised
body representing the government of each member state.

The CARICOM Single Market and Economy

(CSME)
CARICOM Single
Market and Economy • CSME stands for CARICOM Single Market and Economy. When fully
implemented it will be a single economic system that will enable the Caribbean
region’s financial, natural and human resources to come together to develop
economic power. It will enable the region to respond to globalisation and the
formation of mega-trading blocs.
The CARICOM Single Market and Economy (see p. 212 for a discussion of
CARICOM) came into being on 30 January 2006. The countries that signed the
declaration of the CARICOM Single Market at that time were Barbados, Belize,
Jamaica, Trinidad and Tobago, Guyana and Suriname. As of 3 July, 2006,
Antigua and Barbuda, Dominica, Grenada, St Kitts and Nevis, St Lucia, and St
Vincent and the Grenadines became members.

Five of the twelve members of the CSME.

209
25 · Economic integration and CARICOM Single Market and Economy

The CARICOM Single Market and Economy has certain features. When the
CSME comes into full operation, it is intended that there will be:
ITQ2 • Free movement of wage earners; this includes university graduates,
How can this free movement of wage earners sports persons, media persons, artistes, musicians, nurses, teachers, services
benefit the economy? providers and persons opening up businesses.
• Free movement of capital, entrepreneurship and ideas.
ITQ3 • Free movement of goods. This means that there will be no tariffs on goods
How can the free movement of capital assist coming from other CSME countries.
firms in the region? • Free movement of services. Individuals and firms supplying services can
locate anywhere in the region.
ITQ4 • The freedom for firms to set up businesses in any member country.
Give three examples of services that a • Free movement of goods imported from outside the region that would
consumer can purchase from a foreign require collection of taxes at first point of entry into the region. Such
individual or firm. collected customs revenues are to be shared.
common external tariff • • A common external tariff; that is, a rate of duty applied by all members of
the single market to a product imported from a country that is not a member
of the single market.
• A common external policy with respect to tariffs and other trade relations
with non-member countries.
• Harmonisation of tax laws; that is, common income tax and corporation
taxes. This must be so in order to prevent workers and firms from locating or
declaring income in countries where taxation is lower.
Many of the above features that the CSME will eventually have will take
time to come into being, as they require individual governments to pass
laws in home countries. All governments in the CSME will have to agree on
common policy with respect to non-member countries and taxation in member
countries. They will be achieved in the long term.

The benefits of the CSME

The CSME, when fully operational, will be a single market and economy.
Theoretically, such a union will bring to its members certain benefits. It is
hoped that, in time, membership in the CSME will:
• Give each country access to a larger market for its goods and
services. There is a combined population of 6 million people in the
CARICOM region, which is large when compared with the lower
populations in the small states.
• Enable the people of the region to improve their standard of living.
Workers will move to where there are available jobs. It is sometimes argued that
skilled labour and professionals are really the ones to benefit, as they will move
to where the jobs are and also receive increased wages. However, unskilled
labour cannot move across the region as freely, and so their earnings might not
increase. Nevertheless, firms will locate and operate all over the region, thus
providing employment and stimulating growth in less developed regions.
• Enable the region to improve its standard of work. Competition
amongst labour will raise the quality of the labour force.
• Achieve full employment of labour, as people will move to the region
ITQ5 where they can be employed. Labour, however, is the human factor, and
as such is somewhat geographically immobile, because people have strong
What is geographical immobility?
family and community ties, and so might be unwilling to relocate to another
country.
• Expand trade and economic relations with states outside the region.
• Improve levels of international competitiveness, as competition
amongst member states will raise the quality of goods and services available
ITQ6 for sale. Services that were lacking in some regions will now be provided.
Name a new service that can be provided to • Increase production and productivity as firms in the region benefit from
your country with the CSME. economies of scale.

210
 25 · Economic integration and CARICOM Single Market and Economy

• Increase inflows of new capital to the entire region.

• Introduce entrepreneurship and technology from one member state to
other member states.
• Create more opportunities for travel, work and study in CARICOM
countries by residents of member states.
• Provide opportunities for companies and individuals to invest in
companies all over the region through the purchase of company shares and
mutual fund investments.
Caribbean leaders have, indeed, realised that they need to deepen the
economic integration process in order to respond to the changing world
economic environment. The CSME is our response to the changing world.

Examples of economic integration

European Union – EU

USA
0 200 400 600 800 km
Gulf of The 0 200 400 600 miles
Mexico Bahamas

Atlantic Ocean

Cuba

G r Dominican Puerto
Rico Virgin Is. Anguilla
Cayman e a
t e Haiti Republic
Mexico Islands r Barbuda
A
n t St Kitts and Nevis Antigua
i l l e s
Jamaica Monserrat Guadeloupe

L
es
Belize Dominica

se
Martinique

r A
Guatemala Caribbean Sea St Lucia
St Vincent

ntilles
Honduras
and the Barbados
Netherlands Grenadines
Aruba Antilles
Grenada
Nicaragua Tobago

Trinidad

Costa
Rica

Panama Venezuela

Guyana

Colombia
Suriname
CSME members

The European Union was born out of the European Economic Community
(EEC). The EEC was founded in 1957 and the EU was established in 1992. In
2009, there were 27 members in the Union. The EU represents cooperation at
an economic and social level by the countries of Europe. The aim of the Union
is a full economic union with deep integration of members. Most members
already share a common currency – the euro. The UK is an exception, as this
country still uses the pound sterling.
Member countries have given up some of their sovereignty to the governing
body that comprises representatives from all member states. A problem, though,
is that many of the working committees producing numerous ‘directives’ to
member countries are unelected, and are seen by some as meddlesome.

North American Free Trade Agreement – NAFTA

In January 1994, Canada, the USA and Mexico launched the North American
Free Trade Agreement. This is the world’s largest free trade area. The Agreement
The euro is the common currency used
has brought economic growth and increasing standards of living for people in
by many EU countries, though not the
UK. all three countries.

211
25 · Economic integration and CARICOM Single Market and Economy

Southern Common Market – MERCOSUR (Mercado Común

del Sur)
This is a common market of the South American countries of Argentina, Brazil,
Uruguay, Paraguay and Venezuela. It was set up in March 1991. It aims to
bring about the free movement of goods, services, capital and people among its
member countries.

The Association of Southeast Asian Nations – ASEAN

The aim of this association is eventual full economic integration. Some members
are Brunei, Indonesia, Malaysia, the Philippines, Singapore, and Thailand. In
1992, the ASEAN Free Trade Area (AFTA) was formed. Tariff and non-tariff
barriers among member countries were eliminated.

The Caribbean Community and Common Market –

CARICOM
The Caribbean Community and Common Market (CARICOM) was established
by the Treaty of Chaguaramas, which was signed by Barbados, Jamaica, Guyana,
and Trinidad and Tobago, and came into effect on 1 August 1973. CARICOM
members are Antigua and Barbuda, Belize, Grenada, Montserrat, St Vincent
and the Grenadines, Turks and Caicos Islands, The Bahamas, British Virgin
Islands, Guyana, St Kitts and Nevis, Suriname, Barbados, Dominica, Jamaica,
St Lucia, and Trinidad and Tobago. CARICOM aims at the eventual integration
of its members and economies, and the creation of a common market.

Free Trade Area of the Americas – FTAA

This is an effort to unite the economies of the Americas into a single free
trade area. Talks began at the Summit of the Americas in December 1994 in
Miami, USA. There are 34 democracies in this association. Barriers to trade and
investment will be eliminated over time.

›› Economic integration is the coming together of national economies to

operate as one economy.
›› Countries can move through different stages of economic integration –
from a free trade area, to a customs union, to a common or single market.
Full integration involves becoming an economic union.
›› The CARICOM Single Market and Economy (CSME) represents integration
of the Caribbean economies. When the integration process is completed,
the member states will operate with common external and some internal
(taxation) policies.
›› The features of the CSME are: free movement of goods, services, capital and
labour; firms operating in any territory; free movement of imported goods;
common external tariffs; common external policies and harmonisation of
tax laws.
›› The benefits of the CSME are: larger markets, increased standard of
living, higher standard of work, full employment, expanded trade, greater
international competitiveness, economies of scale and inflows of capital.
Other benefits include: more opportunity for travel and work in the region,
sharing entrepreneurship and technology, and opportunities to invest in
firms all over the region.
›› Some examples of economic integration are: the European Union (EU), the
North American Free Trade Agreement (NAFTA), the Southern Common
Market (MERCOSUR), the Association of Southeast Asian Nations
(ASEAN), the Caribbean Community and Common Market (CARICOM)
and the Free Trade Area of the Americas (FTAA).

212
 25 · Economic integration and CARICOM Single Market and Economy

1 Free trade areas include the Free Trade Area of the Americas (FTAA) and
the North American Free Trade Agreement (NAFTA).
2 Free movement of such wage earners will provide skilled labour in
territories where this kind of labour is needed. Service providers will
increase the range of services offered to consumers. Entertainers will
spread the culture of the region.
3 Firms will obtain capital that will add to the productivity of labour.
4 A hairdresser, lawyer or computer technician can move from one CSME
member state to another and sell their services to consumers there.
Banks and insurance companies can locate in CSME member states, and
consumers in that member state will purchase services.
5 Geographical immobility is the unwillingness of labour to move from
one location to another to obtain employment. Family ties and a sense of
belonging to your land of birth contribute to geographical immobility.
6 Specialist doctors might move to different islands. Massage therapists and
beauty care professionals might spread their services to all islands.

Examination-style
Multiple choice questions
questions
1 What is the correct order of the stages of economic integration?
a customs union, to economic union, to free trade area, to
common market
b customs union, to common market, to free trade area, to
economic union
c free trade area, to common market, to customs union, to
economic union
d free trade area, to customs union, to common market, to
economic union

2 How is a single market different from a customs union?

a A customs union has a common external tariff with non-
members but a single market does not.
b A single market has common taxation policies but a customs
union does not.
c A customs union has free movement of labour but a single
market does not.
d A single market has common monetary policy but a customs
union does not.

3 At what stage of economic integration is the CARICOM Single Market

and Economy?
a a customs union
b a free trade area
c a common market
d an economic union

4 Which of the following is not a feature of the CARICOM Single Market

and Economy?
a free movement of goods and services
b free movement of labour and capital
c location of firms in any territory
d limited movement of imported goods

213
25 · Economic integration and CARICOM Single Market and Economy

5 Which of the following of the following is not a benefit of the

CARICOM Single Market and Economy?
a free movement of goods and services
b free movement of labour and capital
c unemployment in some territories
d location of firms in any territory

6 All of the following are examples of economic integration except:

a FTAA
b CSME
c ASEAN
d IMF

Structured question
1 a What is the difference between a free trade area and a customs
union? [2]
b Give an example of a free trade area. [2]
c Define an ‘economic union’ and give an example. [3]
d Discuss one way in which an economic union can benefit
member countries and one way it can be disadvantageous. [8]

Essay question [20]

The CSME is an example of Caribbean integration.

a What does the CSME stand for? [1]
b Explain the features of a common/single market. [8]
c Discuss the benefits of the CSME to all Caribbean states. [11]

214