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Trade, economic and welfare impacts of the CARICOM-Canada free trade agreement/Los impactos comerciales, economicos y de bienestar derivados del Tratado de Libre Comercio CARICOM-Canada/Impacts sur le commerce, l'economie et la protection sociale de l'Accord de libre-echange entre le Canada et la CARICOM.

ABSTRACT

This paper estimates the trade, revenue and welfare effects of the proposed Caribbean Community (CARICOM)-Canada free trade agreement (FTA) on CARICOM countries, using a partial equilibrium model. The welfare analysis also takes into account the Economic Partnership Agreement, signed in 2008 by the CARIFORUM countries (CARICOM and the Dominican Republic) and the European Union. The revealed comparative advantage index, trade complementarity index, and transition probability matrices are used to examine the dynamics of comparative advantage for CARICOM country exports to Canada. The results obtained from the partial equilibrium model indicate adverse revenue and welfare effects for CARICOM member states. The results from various trade indices used do not provide evidence to suggest that an FTA between CARICOM countries and Canada can improve trade outcomes.

Keywords: CARICOM-Canada FTA, partial equilibrium model, welfare effects, comparative advantage

JEL classification codes: F13, F14, F17

Este trabajo calcula el impacto del comercio, los ingresos y el bienestar del Tratado de Libre Comercio (TLC) propuesto entre la Comunidad del Caribe (CARICOM) y Canada sobre los paises del CARICOM, utilizando un modelo de equilibrio parcial. El analisis del bienestar tambien toma en cuenta el Acuerdo de Asociacion Economica, firmado en 2008 por los paises de CARIFORUM (CARICOM y la Republica Dominicana) y la Union Europea. El indice de ventaja comparativa revelada, indice de complementariedad comercial y matrices de probabilidades de transicion se utilizan para examinar la dinamica de la ventaja comparativa de las exportaciones de paises de CARICOM a Canada. Los resultados obtenidos de este modelo de equilibrio parcial indican ingresos adversos y efectos de bienestar para los Estados miembros de CARICOM. Los resultados de los varios indices comerciales utilizados no proporcionan evidencia para sugerir que un TLC entre los paises del CARICOM y Canada pueda mejorar los resultados comerciales.

Palabras clave: TLC CARICOM-Canada, modelo de equilibrio parcial, los efectos de bienestar, ventaja comparativa

Cet article cherche a estimer les effets sur le commerce, les revenus et la protection sociale de la proposition d'accord de libre-echange (ALE) entre le Canada et la Communaute caraibeenne (CARICOM) dans les pays de la CARICOM en utilisant un modele d'equilibre partiel. L'analyse de la protection sociale prend egalement en compte l'accord de partenariat economique signe en 2008 signe par les pays membres du CARIFORUM (la CARICOM et la Republique dominicaine) et l'Union europeenne. L'indice d'avantage comparatif revele, l'indice de complementarite des echanges commerciaux et les grilles de probabilites de transition ont ete utilisees pour examiner la dynamique des avantages comparatifs pour les exportations des pays de la CARICOM vers le Canada. Les resultats obtenus a partir du modele d'equilibre partiel indiquent des effets negatifs sur les revenus et la protection sociale pour les pays membres de la CARICOM. Les resultats obtenus a partir des divers indices commerciaux utilises ne fournissent aucune preuve suggerant qu'un ALE entre les pays de la CARICOM et le Canada pourrait ameliorer les resultats des echanges commerciaux.

Mots cles: Accord de libre-echange entre le Canada et la CARICOM, modele d'equilibre partiel, effets sur la protection sociale, avantages comparatifs.

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The economic effects of North-South free trade agreements (FTAs) do seem to outline more positive benefits for small, developing countries than do South-South FTAs (Schiff 1997; El Agraa 1999). Most South-South FTAs involve countries with similar factor endowments and economic constraints that hinder developing countries in realizing the gains from freer trade. Schiff (1997) and Schiff and Winters (2003) have argued that North-South FTAs offer more benefits to developing countries. In particular, Schiff and Winters (2003, 15) noted the following:
   If a developing country is going to pursue regionalism, it will
   almost always do better to sign up with a large rich country
   than with a small poor one. In trade terms, a large rich country
   is likely to be a more efficient supplier of most goods and a
   source of greater competition for local producers.


North-South trade arrangements can facilitate growth in developing countries by providing their South counterparts with access to larger markets, greater transfer of technology, and by positively influencing total factor productivity in developing countries (Grossman and Helpman 1991; Coe and Hoffmaister 1999; Schiff and Wang 2003). (1) In contrast, Cernat (2003) noted that trade arrangements among developing countries can be used as a mechanism to assist small countries in the globalization process. Regionalism can facilitate the building of institutional capacity whereby government bureaucrats can learn a significant number of the techniques required for engaging the multilateralization process. However, previous studies have shown that North-South FTAs result in adverse trade, revenue and welfare outcomes for developing countries (Greenaway and Milner 2006; Nicholls, Nicholls, and Colthrust 2001). This paper explores this issue by estimating the trade, revenue and welfare effects on CARICOM countries of the proposed CARICOM-Canada FTA.

Despite seven rounds of negotiations since 2007, CARICOM and Canada were unable to reach an agreement on the establishment of an FTA to

replace the existing Caribbean Canada Trade Agreement (CARIBCAN) in 2015. The long-term options of either a trade agreement in the future or no trade agreement and the CARIBCAN waiver not renewed will have implications for the region. At the request of Canada, the World Trade Organization extended until 2023 the CARIBCAN waiver (World Trade Organization 2015), the main feature of which is preferential duty free access to the Canadian market for a broad range of goods produced within the Commonwealth Caribbean region. However, as a nonreciprocal arrangement, the CARIBCAN is inconsistent with the WTO principles and commitments and requires a World Trade Organization (WTO) Most Favoured Nation (MFN) waiver. Canada had initially indicated it would not seek to renew the waiver but instead to negotiate an FTA with CARICOM. It is against this backdrop that Canada and CARICOM explored the prospects of forming an FTA, until negotiations broke down in 2015. At this stage, it is unclear when or whether both parties will return to negotiations under the extended CARIBCAN waiver. Despite this uncertainty, it is important to determine whether Canada is a good trading partner for the CARICOM region.

The formation of a CARICOM-Canada FTA is likely to create both opportunities and challenges for CARICOM countries. In particular, the FTA would have secured duty-free access for CARICOM countries' merchandise exports to the Canadian market. In addition, the CARICOM-Canada FTA would have expand duty-free market access to trade in services and provided CARICOM countries with development assistance. The implementation of the CARICOM-Canada FTA would result in liberalization of tariffs on all imports from Canada. The removal of tariff barriers on regional imports would result in adverse implications in terms of declining tariff revenues, regional production and intra-CARICOM trade as a result of increased competition from Canadian imports (Girvan 2009).

At present, trade between CARICOM countries and Canada is relatively low as the share of CARICOM's exports to and imports from Canada is roughly 3 percent and 2 percent, respectively (see Figure 1). Imports by CARICOM countries from Canada are dominated by Trinidad and Tobago and Jamaica, while exports from the CARICOM region to Canada originate mainly from Jamaica, Suriname and Trinidad and Tobago (see Table Al). The CARICOM region trade deficit with Canada stood at US$65 million in 2012. The main commodities exported from the CARICOM to Canada include aluminium ores, gold, alcoholic beverages, organic-inorganic compounds, and vegetables, which account for more than 90 percent of CARICOM total exports to Canada. CARICOM imports from Canada are wheat, medicaments, fish, meat, paper products, vegetables, and plastics, which make up 48 percent of CARICOM's total imports from Canada. The majority of CARICOM's trade is concentrated in the United States and the European Union, where similar nonreciprocal trade agreements are in effect. (2)

This paper examines the competitiveness of CARICOM countries' exports to Canada using a revealed comparative advantage index, a transition probability matrix, and a trade complementarity index. We also estimate the trade, revenue and welfare effect of liberalizing tariffs on CARICOM countries' imports from Canada. The results from the competitiveness analysis show that room for increasing exports from CARICOM countries and Canada is weak, as the number of commodities in which CARICOM countries have a comparative advantage relative to Canada shrinks over time. Trade complementarity between the two trading partners is also low and has been on a downward trend over the past two decades. When we examine the effect of removing tariffs on revenue and welfare we also observe a negative effect for all CARICOM countries. The results from the three approaches are consistent with theory, in that when countries engage in trade agreements where trade complementarity is low, the welfare outcomes will also be low. We also find that trade complementarity for trade in services between CARIOM countries and Canada is higher than for merchandise trade. This paper therefore suggests that closely examining trade in services may provide a more positive outlook on the FTA.

The contribution of this paper is twofold. First, this study provides an empirical assessment of the trade and welfare outcomes for CARICOM countries associated with a proposed CARICOM-Canada FTA. Second, it provides relevant empirics for policy-makers to streamline policies to benefit from or mitigate any potential losses from a proposed FTA. The rest of this paper is structured as follows. Section 2 examines the economic preconditions of the proposed CARICOM-Canada FTA. Sections 3 and 4 outline a partial equilibrium model and results, respectively. Section 5 concludes the paper.

ECONOMIC PRECONDITIONS OF THE PROPOSED CARICOM-CANADA FTA

In theory, as a country removes barriers to trade with respect to a partner country (or the world), there is likely to be a process of adjustment occurring in that country's production structure. The country should begin to specialize in those sectors in which it has a comparative advantage relative to the trading partner. As a result, an important ingredient for the success of an FTA depends on the prospective members having a strong comparative advantage in different products (Kemal 2004; Pitigala 2005). Recent theoretical work by Schiff (2001) on the natural trading partner hypothesis has established that a high level of trade complementarity among prospective members of an FTA should increase the likelihood that the FTA will be welfare enhancing. Therefore, evaluating the pattern and persistence of comparative advantage and trade complementarity are very important indicators for determining the success of the proposed FTA between CARICOM countries and Canada.

Revealed Comparative Advantage Index and Transition Probability Matrix

The most popular measure of comparative advantage in the literature was developed by Balassa (1965) and has been used in many studies to determine the comparative advantage structure of countries (for example, Ferto and Hubbard 2003; Hinloopen and van Marrewijk 2004; Bojnec and Ferto 2006; Sinanan and Hosein 2012). The RCA index, also known as the Balassa index, is outlined as follows:

[RCA.sup.i.sub.j] = [X.sup.i.sub.j] / [X.sup.i]/[X.sup.ref.sub.j] / [X.sup.ref] (1)

where [X.sup.i.sub.j] is exports of commodity from country

[X.sup.i] is total exports from country

[X.sup.ref.sub.j] is exports of commodity j from a set of reference countries (which may or may not be the world)

[X.sup.ref] is total exports from a set of reference countries (which may or may not be the world)

The RCA index compares the share of exports of commodity j in country i's total exports to the share of exports of commodity j in the world's total exports (world accounts for all other supply sources). The notion is that if the share of exports for commodity j in country i's total exports is larger than the share of exports for commodity j in world total exports, then country i is considered to have a comparative advantage in commodity j. The RCA index has a theoretical range from a value greater than zero (0) to less than infinity ([infinity]), which is divided into two groups: 0< [RCA.sub.j] < 1, which means the country has a comparative disadvantage in commodity j; and 1 < [RCA.sub.j] < [infinity] which means the country has a comparative advantage in commodity j.

Hinloopen and van Marrewijk (2001) provided a further decomposition of the theoretical range of the RCA index by dividing the latter range into three parts. The decomposition of the theoretical range of the RCA index permits the identification of weak, medium and strong comparative advantage for the export industries of a country (Table 1). The persistence or mobility of a country's comparative advantage over time can be examined by applying a transition probability matrix and Markov chains to the classification of the RCA index (see Proudman and Redding 2000; Brasili, Epifani, and Helg 2000; Hinloopen and van Marrewijk 2001; Hosein 2008; Sinanan and Hosein 2012).

A discrete time Markov chain is characterized by a finite set of states at discrete time intervals and probabilities ([p.sup.ij]) for transition between these states. The transition probability ([p.sup.ij]) is the probability of a process being in state i at time t and moving to state j at time t+1. The matrix of probabilities ([p.sup.ij]) for all states is usually referred to as the transition probability matrix of the Markov chain. A Markov chain can be formally expressed as follows:

P{[X.sub.t+1] = j | [X.sub.0] = [i.sub.0], ..., [X.sub.t-1] = [i.sub.t-1], [X.sub.t] =}, (2),

= P{X.sub.t+1] = j | [X.sub.t] = i} (3)

In terms of the RCA index, a transition probability matrix can shed light on the evolution of comparative advantage from one time period to another period for an economy. The transition probability matrix determines the probability of a commodity moving from one state (say, comparative disadvantage (a)) to another state (for example, strong comparative advantage (d)) from an initial time period (t) to another time period (t+1). The probability of a commodity being in state d in the next time period (t+1) given that it is presently (t) in state a is a one-step transition probability denoted as [P.sup.t,t+1.sub.ad] (see Anderson 2011 and Hunter 2012), where:

[P.sup.t,t+1.sub.ad] = P{[X.sub.t+1] = d | [X.sub.t] = a} (4)

In addition, the degree of mobility or persistence in the RCA index is summarized by various mobility indices. Shorrocks (1978) developed an index denoted as ([M.sub.1]) which captures the relative magnitude of the diagonal and off-diagonal elements in a transition probability matrix. (3) The index ranges from 0 [less than or equal to] [M.sub.1] [less than or equal to] 1, where a value of 0 indicates that there is imperfect mobility or total persistence and this occurs when the elements of the leading diagonal of the transition probability matrix are equal to one. When there is perfect mobility the index takes on a value of one and this occurs when the trace of the transition probability matrix is equal to one and all of the elements in the transition probability matrix have the same value. The Shorrocks index is defined as follows:

[M.sub.1] = K - tr (P)/K -1 (5)

where K is the number of classes in the transition probability matrix, P is the transition probability matrix, and tr(P) is the trace of the transition probability matrix.

Data

The RCA and trade complementarity indices are computed at the Standard International Trade Classification (SITC) 3 digit level for the period 2000-10 using trade data from the UN Com trade database. A sample of six CARICOM members' exports to Canada is first examined using the RCA index. The RCA index is then used to calculate a transition probability matrix for each CARICOM member's exports to Canada. The intertemporal changes in the RCA index for each CARICOM member are briefly summarized in the Tables A3-A8.

Evolution of Comparative Advantage for CARICOM Members' Exports to Canada

The results from the transition probability matrices indicate that those commodities in the comparative disadvantage class (a) for CARICOM countries' exports to Canada have a high probability of persistence. The high probability values in class (a) imply that commodities revealing a comparative disadvantage are likely to remain in a state of comparative disadvantage over time. In contrast, the Bahamas, Jamaica and Trinidad and Tobago have recorded a relatively high probability of persistence in the strong comparative advantage class (d). Jamaica revealed the highest probability of persistence (0.80) for commodities in class (d), followed by Trinidad and Tobago (0.71) and the Bahamas (0.67). These findings mean that commodities with a comparative advantage in the Bahamas, Jamaica and Trinidad and Tobago have a high probability of maintaining their comparative advantage rank over time as compared with those of other CARICOM countries. The persistence of commodities in classes (b) and (c) for all the selected CARICOM countries' exports to Canada appears to be very weak, with the exception of Jamaica for the weak comparative advantage class.

The dynamic changes in the comparative advantage structure of an economy are usually observed through the off-diagonal elements of the transition probability matrix, that is, by comparing the lower triangular to the upper triangular matrix. A strong upper triangular matrix is preferred as it indicates that commodities are migrating from a lower class of comparative advantage to higher classes of comparative advantage. However, from Table 2, there appears to be a relatively weak upper triangular matrix as compared with the lower triangular matrix. The weak upper triangular matrix of the transition probability matrix indicates that the probability of commodities moving from a lower class of comparative advantage to a higher class of comparative advantage is very low for all of the selected CARICOM countries in relation to Canada. Furthermore, the probability of losing comparative advantage from the start of the period (2000) to the end of the period (2010) is very high for the selected CARICOM members.

Trade Complementarity between CARICOM and Canada

The potential for an FTA to improve the economic outcomes of its members can also be determined by an examination of their bilateral trade structures. The more complementary the nature of the trading relation between the prospective members of an FTA, the greater is the likelihood that the FTA will improve the economic outcomes for its members. (4) The level of trade complementarity between the CARICOM bloc and Canada is evaluated by a trade complementarity index. (5) The main proponents (Michaely 1996; Yeats 1998) of the trade complementarity index argued that the higher the value of the trade complementarity index the more likely the proposed FTA will succeed (Pitigala 2005). The trade complementarity index has a theoretical range from a value greater than 0 to less than [infinity]. If the value of the trade complementarity index is greater than unity then bilateal trade complementarity exists; however, if the value of the index is less than unity then bilateral trade complementarity is not present. Figure 2 shows the trade complementarity index for the CARICOM bloc in relation to Canada, the European Union and the United States. The trade complementarity index indicates that the level of trade complementarity between CARICOM and Canada is generally low and has been declining over the past two decades. The level of trade complementarity is much lower for Canada as compared with the European Union in the past decade. (6)

[FIGURE 2 OMITTED]

Figure 3 shows that the level of trade complementarity in trade in services reported improvements in the region's three major source markets, with the largest increase in the trade complementarity index occurring in the Canadian market. However, in the latter part of the decade there was a simultaneous decline in complementarity with the United States, the European Union and Canada. The level of trade complementarity in services was highest for Canada as compared to the European Union and the United States for the period 2008-10.

The low level of bilateral trade complementarity between the CARICOM region and Canada implies that bilateral merchandise trade is not likely to improve with the FTA. In this regard, the next section outlines the mechanics of a partial equilibrium model to determine the possible economic effects on CARICOM countries of liberalizing tariffs on merchandise imports from Canada.

MEASURING THE WELFARE EFFECTS OF THE CARICOM-CANADA FTA

Partial equilibrium models have been widely used in the literature to assess the trade and welfare effects of proposed FTAs (see McKay, Milner, and Morrissey 2000; Greenaway and Milner 2006; Gasiorek and Winters 2004; Busse, Borrmann, and Grossmann 2004; Karingi et al. 2005; Zouhon-Bi and Nielsen 2007; Busse and Luehje 2007; Hosein 2008; Fontagne, Laborde, and Mitaritonna 2011). The major benefits of using a partial equilibrium model include its ability to provide a detailed analysis from a product and country perspective (Lang 2006). A partial equilibrium analysis allows for the identification of commodity groups that are most likely to be affected and the extent of the effect on account of freer trade with a prospective trading partner. Moreover, the partial equilibrium model facilitates the estimation of trade creation, trade diversion, tariff revenues, and welfare implications associated with liberalizing trade barriers (see, for example, McKay, Milner, and Morrissey 2000; Greenaway and Milner 2006; Zouhon-Bi and Nielsen 2007). The literature identifies two branches of the partial equilibrium model, namely, the perfect substitution model and the imperfect substitution model. The perfect substitution model assumes a homogeneous product, and that imported goods are perfect substitutes for domestically produced goods. The perfect substitution model is most applicable in situations where there are specific markets and where the producers are price takers. The imperfect substitution model is grounded in the Armington (1969) principle of product differentiation. The imperfect substitution variant is more applicable to industrial markets where product differentiation becomes essential to the analysis. This paper uses the imperfect substitution approach since it allows for identification of the various trade source substitution effects that arise when an FTA is formed. The remainder of this section outlines a partial equilibrium model to evaluate the trade and welfare effects of the proposed CARICOM-Canada FTA.

Imperfect Substitution Model

The imperfect substitution model outlined by Greenaway and Milner (2006) defines the trading players in the world as belonging to an intra-regional group (for example, CARICOM) and an extra-regional group.

The following are intra-regional trading partners:

HC--home country

PC--partner country

The following are extra-regional trading partners:

CAN--Canada

ROW--rest of the world, excluding Canada.

The initial trading environment is one that is characterized by a situation where the HC and the PC belong to a regional trade agreement. Assume that the regional trade agreement imposes a non-discriminatory tariff on imports from all extra-regional import sources. Then the price facing consumers in the HC's market would be [P.sub.P], [P.sub.ROW] (1+t) and P (1+t) from the PC, the ROW and Canada, respectively. The initial volume of imports by the HC is given as [M.sub.1], [M.sub.2] and [M.sub.3] from CARICOM (1), the ROW (2) and Canada (3), respectively.

Next, suppose that CARICOM and Canada form an FTA. The CARICOM-Canada FTA will result in the removal of tariffs on imports from Canada but not on imports from the ROW. This change in relative import prices would alter the trading opportunities for consumers in the HC. For example, as the price of imports from Canada falls, the consumers in the HC would increase their demand for imports from Canada and simultaneously reduce their imports from the ROW and the PC. The overall trade effects associated with the CARICOM-Canada FTA can be disaggregated into three parts. The three trade effects are known as a trade diversion effect, a consumption induced trade creation effect, and a displacement of regional imports effect (Greenaway and Milner 2006). The trade effects are outlined in the next section.

Trade Creation Effect

The direct consumption-induced trade creation effect or trade creation effect represents the increase in imports from Canada by the HC in the FTA environment. The trade creation effect occurs when the tariff is removed on imports from Canada such that the price of Canadian goods in the HC falls from PCAN (1+t) to [P.sub.CAN'] where [P.sub.CAN] (1+t) > [P.sub.CAN]. This will result in increased imports from Canada of the amount [M.sub.3] to [M'.sub.3] where [M'.sub.3] > [M.sub.3]. The change in imports from Canada ([DELTA][M.sub.3]) by the HC can be measured empirically by the following:

[DELTA][M.sub.3] = (-t/1 + t) [e.sup.d.sub.m] [M.sub.3] (6)

where ([DELTA][M.sub.2]) = [M'.sub.3] - [M.sub.3] is the change in imports from Canada, f is the tariff rate, [e.sup.d.sub.m] is the elasticity of demand for imports, [M.sub.3] is volume imported from Canada before the formation of the FTA, and [M'.sub.3] is new imports from Canada.

Trade Diversion Effect

A switch of imports from one extra-regional partner (ROW) to another extra-regional partner (Canada) in the FTA environment represents the trade diversion effect. Trade diversion occurs when some of the HC's imports from the ROW are diverted to Canada; for example, the ITC's imports from the ROW falls from [M.sub.2] to M?, where [M.sub.2] < [M.sub.2]. The change in imports from the ROW (A[M.sub.2]) can be measured empirically in a similar way as the change in imports from Canada as follows:

[DELTA][M.sub.2] = (-t/1 + t) [[sigma].sub.23] [M.sub.2] (7)

where [DELTA][M.sub.2] is the change in imports from the ROW, t is the tariff rate, [[sigma].sub.23] is the elasticity of import substitution for CARICOM countries between imports from the ROW and Canada, [M.sub.2] is the amount imported from the ROW before the formation of the FTA, and [M.sub.2] is new imports from the ROW.

Displacement of Regional Imports

The FTA between the regional trade agreement (HC + PC) and Canada also results in some of the HC's imports from the PC's market being replaced by imports from Canada, for example, from [M.sub.1] to [M'.sub.1] where [M'.sub.1] < [M.sub.1]. The change in imports from the PC can be measured in a similar way as the change in imports from Canada and the change in imports from the ROW. The new imports from Canada are determined by the change in the import price, initial imports and the elasticity of import demand:

[DELTA][M.sub.1] = (-t/1 + t) [[sigma].sub.13] [M.sub.1] (8)

Where: [DELTA][M.sub.1] is the change in imports from PC, t is the tariff rate, [[sigma].sub.13] is the elasticity of import substitution between CARICOM countries and Canada, [M.sub.1] is the amount imported from the PC before the formation of the FTA, and [M'.sub.1], is new imports from PC.

Revenue and Welfare Effects

The welfare effect for an HC in the CARICOM sphere from the CARICOM-Canada FTA originates from two sources, namely the change in tariff revenues and the change in consumer surplus for the HC. First, the FTA between CARICOM countries and Canada alters the relative import prices for the HC consumers from the various sources of supply (Canada, ROW, and CARICOM). As a result, consumers in the HC will benefit from a lower import price with the preferential partner country (Canada). This results in an increase in imports from the preferential market at a lower price, thus leading to an increase in consumer surplus and a positive effect on the HC's welfare. The HC consumers can substitute imports from the intra-regional partners for imports from the extra-regional partners (CARICOM to Canada) and among the extra-regional partners (ROW to Canada). The substitution of intra-regional imports for extra-regional imports has no effect on tariff revenues as there is a regional trade agreement among the intra-regional partners. However, the reallocation of imports among the extra-regional partners (from the ROW to Canada) will negatively affect the HC's welfare through losses in tariff revenues. The loss in tariff revenues for the HC takes two forms: the loss in revenues from Canada and the loss in tariff revenues on the amount of imports diverted from the ROW to Canada. The change in tariff revenues is determined by the difference between the initial revenues obtained in the pre-FTA environment and the new revenues obtained in the FTA environment. The following is the basic algebra associated with the change in revenues.

[DELTA[R = [R.sub.1] - [R.sub.0] (9)

[R.sub.1] = t[M'.sub.2] (10)

[R.sub.0] = T[M.sub.3] + T[M.sub.2] (11)

[DELTA]R = t[DELTA][M.sub.2] - t[M.sub.3] (12)

where t[DELTA][M.sub.2] is the tariff revenues associated with a change in imports from the ROW, t[M.sub.3] is the initial tariff revenues collected from Canadian imports in the pre-FTA environment, [R.sub.1] is the new tariff revenues for the HC in the FTA environment, [R.sub.0] is the initial tariff revenues for the HC in the pre-FTA environment, and is the change in tariff revenues.

Therefore, the change in welfare is a function of the change in consumer surplus and the change in tariff revenues. This is outlined as follows:

[DELTA]W = [DELTA]CS + [DELTA]R (13)

Substituting [DELTA]CS and [DELTA]R into the [DELTA]W yields the following:

[DELTA]W = 1/2 t([DELTA] [M.sub.3]) + [DELTA]R (14)

Data: Import Demand and Substitution Elasticities

The estimation of trade creation and trade diversion in an imperfect substitution setting requires knowledge of various elasticities. Specifically, the Greenaway and Milner (2006) model calls for information on the import demand elasticities and the elasticities of substitution between preferred and non-preferred trading partners.

In the literature, several studies have used various estimates of import demand and substitution elasticities. For example, Busse and Shams (2005) followed the standard Dutch convention, which assumed that the values for import demand elasticity and the elasticity of substitution were 0.5 and 2.0, respectively. According to Busse and Shams (2005), the assumed elasticity values of the standard Dutch convention were very similar to the estimates of import demand and substitution elasticities developed by Kee, Nicita and Olarreaga (2004); and Galla way, McDaniel, and Rivera (2003). Busse, Borrmann, and Grossmann's (2004) study on the Economic Partnership Agreement between the Economic Community of West African States and the European Union assumed values for the import demand and substitution elasticities respectively since reliable estimates for both import demand and substitution elasticities were not available. In particular, Busse, Borrmann and Grossmann (2004) established three scenarios; a low, a mid, and a high. The import demand and elasticity of substitution values were different in each scenario and were also based on the degree of homogeneity for the products which were differentiated between agricultural products, raw materials, and manufactured goods. The elasticity values assumed by Busse, Borrmann and Grossmann (2004) were similar to elasticity values in other developing countries (see Sawyer and Sprinkle 1999; Gallaway, McDaniel, and Rivera 2003; and Kee, Nicita and Olarreaga 2004). Greenaway and Milner (2006) used the import demand elasticities based on Stem, Francis, and Schumacher (1976) while the relevant import source substitution elasticities were acquired from the Global Trade Analysis Project behavioural parameters file (Hertel et al. 1997). For enhanced comparability with the Greenaway and Milner (2006) study, the experiments conducted in this paper also used the various elasticities used by Greenaway and Milner (2006). (8)

The Greenaway and Milner (2006) method for determining trade and welfare effects is then applied to SITC two-digit data for a selected group of 11 CARICOM countries for the years 1998 and 2008 (see Table A2 for data sources). Similar to Greenaway and Milner (2006) and Hosein (2008), both the import demand elasticities and the import source substitution elasticities are assumed to be the same across CARICOM countries for a particular product group. Moreover, we assume complete tariff liberalization of Canadian exports into the CARICOM market (for similar assumptions, see Busse, Borrmann, and Grossmann 2004; Greenaway and Milner 2006; Lang 2006; and Hosein 2008).

RESULTS AND DISCUSSION

This section now turns to the results of the experiments on the trade and welfare effects of the proposed CARICOM-Canada FTA. (9) It should be noted that this is a static study and will undertake several permutations. Specifically, comparative FTA experiments with CARICOM countries and Canada as well as with other countries for the years 1998 and 2008 are examined. The grounding in 1998 is for comparison with Greenaway and Milner (2006). The remainder of this section is divided into three parts: (10)

I. Trade effects from full liberalization of tariffs on imports from Canada only, European Union only, and European Union and Canada only.

II. Revenue effects from full liberalization of tariffs on imports from Canada only, European Union only, and European Union and Canada only.

III. Welfare effects from full liberalization of tariffs on imports from Canada only, European Union only, and European Union and Canada only.

The Effect of Full Liberalization of Tariffs on Imports from Canada Only, European Union Only, and Both European Union and Canada

This part considers four issues. It examines three trade effects associated with the proposed CARICOM-Canada FTA; it updates the work of Greenaway and Milner (2006); and it compares the results of the proposed CARICOM-Canada FTA to the updated results associated with the Economic Partnership Agreement. (11) In addition, an experiment involving the liberalization of tariffs on imports from Canada and the European Union is examined. (12) The trade effects for each experiment are aggregated across all SITC two-digit commodities and are provided in the Tables. In columns 1 and 2, the trade creation on existing imports from the prospective trading partners is reported while in columns 3 and 4 the changes in imports from CARICOM countries (displacement of regional imports) are shown and columns 5 and 6 show the change in extraregional imports (trade diversion).

Trade Effects for the Proposed CARICOM-Canada FTA

The first experiment indicates that the percentage increase in trade creation would range from 8.4 percent for Trinidad and Tobago to 17.7 percent for Grenada. In actual dollars, Jamaica and Trinidad and Tobago are the two CARICOM countries expected to benefit the most from trade creation on existing Canadian imports (see Table 3). Trade creation for Trinidad and Tobago and Jamaica using 2008 data is estimated to be US$21.79 million and US$22.11 million, respectively. Belize would record the least trade creation from liberalizing tariffs on Canadian imports amounting to US$0.74 million, an increase by 11.2 percent.

The percentage decline in regional imports would range from 17.9 percent for Barbados to 28.12 percent for Belize. In actual dollars, the displacement of regional imports toward Canada was likely to be greatest for Barbados, Guyana and Jamaica. The results imply that Jamaica's imports from CARICOM would fall by US$303.97 million (18.6 percent) while for Barbados and Guyana by US$79.41 million (17.9 percent) and US$78.90 million (22.9 percent), respectively. (13)

Extra-regional trade diversion, which measures the switch in import source from the ROW to Canada, would range from 39.6 percent for Trinidad and Tobago to 64.6 percent for St. Lucia. Other CARICOM countries that would report significant extra-regional trade diversion were the Bahamas, Barbados, Guyana and Jamaica. The extra-regional trade diversion effect represents a significant opportunity for an increase in Canadian exports to the CARICOM market (an estimated total of US$10,398 billion), on account of the relatively lower FTA import price for CARICOM consumers.

Trade Effects for the Economic Partnership Agreement with the European Union

With respect to the European Union, the percentage increase in trade creation ranged from 12.6 percent for Trinidad and Tobago to 19.3 percent for the Bahamas using 1998 data. For 2008, there was a small increase in trade creation (in actual dollars) for all CARICOM countries except the Bahamas. This is not a surprising trend as one would expect that over time in a rapidly globalizing world economy trade source substitution toward the European Union and Canada would increase, albeit only slightly. Trinidad and Tobago and Jamaica recorded the largest increase in trade creation on EU imports from 1998 to 2008 (see Table 4). The decline in extraregional imports ranged from 40.1 percent for Trinidad and Tobago to 64.9 percent for St. Lucia in 2008. There is a general increase in extra-regional trade diversion (in actual dollars) for all CARICOM countries. Moreover, Trinidad and Tobago recorded the largest increase in trade diversion in actual dollars from the listed CARICOM countries.

Trade Effects for the Proposed CARICOM-Canada FTA and the Economic Partnership Agreement

Another relevant experiment is to examine the effect on CARICOM countries of simultaneously removing tariffs on imports from both the European Union and Canada as this is likely to be the most practical scenario in the medium term. This permutation explores the CARICOM-Canada FTA in the context of an already signed Economic Partnership Agreement with the European Union. The results associated with this experiment are provided in Table 5. Examination of the effect on CARICOM countries of full tariff liberalization of EU and Canadian imports showed that the increase in trade creation would be higher than with the two previous individual country cases discussed earlier. The two major beneficiaries from trade creation would again be Trinidad and Tobago and Jamaica. A similar trend was observed for extraregional trade diversion. In general, adding Canada to the mix would not create any significant optimism for CARICOM countries, especially the smaller island states. The inclusion of Canada in CARICOM's list of FTA trading partners, although not counterproductive in a dynamic trading environment, would not add significant value from a trade creation (diversion) perspective.

Comparison of the Trade Effects for the Proposed CARICOM-Canada FTA and the Economic Partnership Agreement

In the first instance, trade creation in actual dollars to be recorded for the full liberalization of tariffs on Canadian imports by CARICOM economies was lower than on EU imports for both years in which the experiments are conducted. These results imply that the liberalization of tariffs on EU imports would yield significantly greater positive results for CARICOM countries from a trade creation perspective than would the liberalization of tariffs on imports from Canada.

CARICOM Countries' Dependence on Import Duties

Before turning to the tariff revenue effects of the FTAs on CARICOM countries, this section will examine the extent to which CARICOM countries depend on import duties. The dependence on tariff revenues is examined using three indicators: (a) import duties as a share in current revenues, (b) import duties as a share in tax revenues, and (c) import duties as a share in GDP for the period 2000-11. Nicholls, Nicholls and Colthrust (2001) identified three levels of tariff revenue dependence for an economy. In the first instance, a country is classified as having a low dependence on tariff revenues if import duties account for less than 15 percent of government revenues, moderate dependence if import duties account for greater than 15 percent but less than 30 percent of government revenues, and high dependence if import duties account for more than 30 percent of government revenues. Table 6 shows the level of tariff revenue dependence for a selected group of CARICOM countries for the period 2000-11. According to the categories of tariff revenue dependence, countries belonging to the Organisation of Eastern Caribbean States (OECS) are classified as having a moderate dependence on tariff revenues while Jamaica and Trinidad and Tobago have a low tariff revenue dependence (see Table 6). (14) It is important to note that there is a regional trend to replace import duties with value-added tax. (15) Therefore, over the long term and depending on the effectiveness of the value-added tax collection system, the adverse fiscal effects of liberalizing tariffs would ease.

Tariff revenues as a share in tax revenues and current revenues averaged almost 20 percent for OECS members with the highest being observed for St. Lucia at 21.58 percent. In addition, CARICOM countries have a higher level of tariff revenue dependence than other developing countries in Latin and Central America. In this regard, the removal of tariffs on imports can have adverse implications on CARICOM countries, particularly the OECS members.

Revenue Effects of Full Liberalization of Tariff on EU and Canada Imports

Table 7 reports the revenue effects associated with the full liberalization of tariffs on Canadian imports only, EU imports only, and Canadian and EU imports only. (16) The four CARICOM countries expected to experience the highest losses in actual dollars from liberalizing tariffs on Canadian imports would be Trinidad and Tobago (US$429 million), Jamaica (US$411.4 million), and the Bahamas (US$199.9 million). The expected revenue losses from the simultaneous removal of tariffs on imports from the European Union and Canada were obviously higher. Although the tariff revenue losses were higher than the two previous FTA experiments, they were not significantly different, especially for the listed OECS countries. The percentage decline in tariff revenues from liberalizing tariffs on Canadian imports would range from 51.4 percent for Trinidad and Tobago to 72.7 percent for St. Kitts and Nevis. The findings from the three FTA scenarios indicate the smaller economies (Dominica, Grenada, St. Kitts and Nevis, St. Lucia, and St. Vincent and the Grenadines) were likely to experience a higher percentage decline in tariff revenues than the larger CARICOM countries (see Table 7). The fall in tariff revenues from liberalizing tariffs on EU imports revealed only similar results.

The loss in tariff revenues would present a greater challenge for the smaller economies since they have a higher dependence on tariff revenues as a source of their total revenues than do the larger CARICOM countries.

Effect of Revenue Decline on the Macro Economy

The effect of a decline in tariffs on tax revenues is expected to be largest for the least developed countries in the CARICOM region. For example, St. Kitts and Nevis and St. Lucia would likely experience a decline in tax revenue of about 15 percent (see Table 8). Therefore, although the larger economies in the CARICOM are expected to experience larger tariff revenues losses in actual dollars, the smaller economies are expected to experience more adverse effects on their macro economy.

Welfare Effects of Full Liberalization of Tariffs on EU and Canada Imports Only

This part compares the likely welfare effects of full liberalization of tariffs on EU imports only, Canadian imports only and EU and Canadian imports only. The potential decline in welfare of CARICOM countries caused by the full liberalization of tariffs on EU imports is recorded in Table 9. (17) The Bahamas, Jamaica and Trinidad and Tobago are the three CARICOM countries expected to be the most affected, while Dominica and St. Vincent and the Grenadines would record the least negative effects using 1998 data. From the 2008 data, Trinidad and Tobago and Jamaica again stand out as the countries expected to experience major declines in welfare. In comparison, the fall in welfare for CARICOM countries because of the full liberalization of tariffs on Canadian imports would be lower than with full liberalization by the European Union for each of the listed CARICOM member states (see Table 9). The welfare loss for most CARICOM countries on account of liberalizing tariffs on EU and Canadian imports would not be significantly different from the welfare loss associated with liberalizing tariffs on EU imports.

Impact of Welfare Decline on the Macro Economy

Table 10 shows that the macro economies of the OECS countries are likely to be the most affected by a decline in welfare arising from the CARICOM-Canada FTA.

CONCLUSION AND POLICY IMPLICATIONS

The results obtained from the partial equilibrium model show that while there is likely to be some trade creation from the CARICOM-Canada FTA, the overall revenue and welfare effects from a static perspective will be unfavourable for CARICOM countries. The extent of trade creation effects varies considerably among CARICOM countries with the major beneficiaries being among the MDCs, specifically Trinidad and Tobago and Jamaica, which together account for approximately 72 per cent of the estimated trade creation from the CARICOM-Canada FTA. The countries expected to benefit least from trade creation are the members of the OECS. Compared to trade creation to be obtained from liberalizing imports from the European Union, the trade creation on existing Canadian imports would be significantly lower.

The effect of liberalizing tariffs on imports from Canada is expected to have a greater adverse revenue effect on members of the OECS, as they are more dependent on trade taxes as a source of fiscal revenue than are Trinidad and Tobago and Jamaica. All CARICOM member states experience losses in welfare in each of the three experiments.

The room for increased exports from CARICOM countries and Canada also appears to be weak given the results of the revealed comparative advantage index, the transition matrices and the trade complementarity test. In particular, the number of commodities in which the listed CARICOM countries have comparative advantage with Canada for the most part dwindles away over the time period. Furthermore, the inability of at least three of the listed CARICOM countries to maintain strong comparative advantage in relation to Canada over time, as well as the lack of trade complementarity between CARICOM countries and Canada, do not offer encouraging signs for enhancing merchandise trade.

The findings of the partial equilibrium model, the evolution of comparative advantage and trade complementarity presented in this paper do not provide evidence to suggest that an FTA between CARICOM and Canada would yield considerable positive benefits for CARICOM countries, especially from a merchandise trade perspective. In this regard, the negotiations of the FTA should take a cautious route to mitigate the direct and indirect negative effects on CARICOM countries. CARICOM countries would need to identify vulnerable product lines needing provisional protection from the liberalization of tariffs on Canadian imports. The continued protection of such industries would be of significant importance for the region.

Furthermore, a serious look at trade in services might provide a more positive outlook on the FTA. Notably, trade in services is not currently covered by the CARIBCAN trade arrangement. Importantly, however, the services sector is the largest and contributes the most to GDP for most of the CARICOM economies. Chaitoo (2008, 2013) noted that the services sector in CARICOM has the potential to account for the largest new benefits from the CARICOM-Canada FTA. However, Girvan (2009) warned that even the prospective benefits from trade in services could be minimal as the services exports that originate from the region presently do not necessarily need an FTA to thrive in the Canadian economy.

Moreover, as the FTA provides greater market access, the negotiations should focus on mechanisms that would assist CARICOM countries in taking advantage of the opportunities in the Canadian market. Negotiations from a CARICOM outlook should also place emphasis on Aid for Trade and public-private partnerships among the mechanisms through which greater trade can be nurtured in the FTA.

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APPENDIX
Table A1: CARICOM Countries Trade with Canada, 2008-10

CARICOM countries exports to Canada, US$m

                                   2008      2009      2010

Antigua and Barbuda                0.00      0.11      0.30
Bahamas                           32.67     22.64     15.19
Belize                             1.13      1.12      0.62
Barbados                           9.19      9.66      7.61
Dominica                           0.06      0.06        --
Grenada                            0.89        --      0.00
Guyana                           215.12    267.30    356.26
Jamaica                          257.52    125.52    162.02
St. Kitts and Nevis                0.00      0.00      0.04
St. Lucia                          0.38      0.00      0.00
St. Vincent and the Grenadines     0.06      0.04      0.04
Suriname                         251.24    375.79    577.42
Trinidad and Tobago              192.03     61.18    175.53
Total                            960.29    863.41   1295.03

CARICOM countries imports from Canada, US$m

Antigua and Barbuda                0.00      9.26      7.36
Bahamas                           11.44     14.03     16.03
Belize                             7.05      6.11      5.46
Barbados                          58.48     50.95     52.66
Dominica                           6.31      4.03      4.20
Grenada                           10.06      7.18      0.00
Guyana                            18.05     26.00     44.64
Jamaica                          131.58    106.67     91.72
St. Kitts and Nevis                6.74      4.85      5.47
St. Lucia                         11.86      0.00      0.00
St. Vincent and the Grenadines     7.89      6.85     19.12
Suriname                           7.11     47.77     11.85
Trinidad and Tobago              260.69    149.00    183.98
Total                            537.27    432.68    442.49

Source: World Integrated Trade System 2013

Table A2: Data Sources

   Variable            Description                  Source

Partial equilibrium model

Imports           Value of imports for    UN Comtrade database.
                  each of the selected    http://comtrade.un.org/db/
                  CARICOM member states
                  at the SITC two-digit
                  level (revision 3).

Elasticities      Import demand           Greenaway and Milner (2006)
                  elasticities and
                  elasticities of
                  substitution between
                  preferred and non-
                  preferred trading
                  partners.

Tariff            Extra regional tariff   Greenaway and Milner (2006)
                  (%)

Trade indices

Trade             Value of exports to     UN Comtrade database.
complementarity   the various             http://comtrade.un.org/db
index             destinations in US$m.

RCA index         Value of exports to     UN Comtrade database.
                  the various             http://comtrade.un.org/db
                  destinations in US$m.

Note: RCA = revealed comparative advantage

Table A3: Inter-temporal Changes in the Bahamas RCA with Canada

                                                   2000-     2008-
SITC   Description                                   2002     2010

Sectors that lost comparative advantage (7)

112    Alcoholic beverages                         13.89      0.00

516    Organic chemicals, n.e.s.                    1.64      0.00

523    Metallic salts and peroxysalts of            1.01      0.00
       inorganic acids

597    Prepared additives for mineral oils;         3.92      0.00
       liquids for hydraulic transmissions;
       antifreezes and de-icing fluids;
       lubricating preparations

635    Wood manufactures, n.e.s.                    1.44      0.00

792    Aircraft and associated equipment;           2.41      0.55
       spacecraft (including satellites) and
       spacecraft launch vehicles; and parts
       thereof

896    Works of art, collectors' pieces and         3.81      0.02
       antiques

Sectors that gained comparative advantage (5)

282    Ferrous waste and scrap; re-melting          0.00     53.79
       ingots of iron or steel

515    Organic-inorganic compounds,                 0.14    158.26
       heterocyclic compounds, nucleic acids
       and their salts

676    Iron and steel bars, rods, angles,           0.00      1.13
       shapes and sections, including sheet
       piling

699    Manufactures of base metal, n.e.s.           0.08      1.17

749    Nonelectric parts and accessories of         0.00      2.12
       machinery, n.e.s.

Sectors that retained comparative advantage (5)

036    Fish, dried, salted or in brine; smoked    353.53     32.90
       fish (whether or not cooked before or
       during the smoking process); flours,
       meals and pellets or fish, fit for human
       consumption

269    Worn clothing and other worn textile       171.45     52.39
       articles; rags

278    Crude minerals, n.e.s.                      43.29      4.02

291    Crude animal materials, n.e.s.              15.14      4.17

553    Perfumery, cosmetics, or toilet              9.54      3.61
       preparations, excluding soaps

Note: RCA = revealed comparative advantage;
n.e.s. = not elsewhere specified.

Source: Calculations based on UN Comtrade 2012

Table A4: Inter-temporal Changes in Barbados' RCA with Canada

SITC   Description                                2000-02   2008-10

Sectors that lost comparative advantage (15)

881    Photographic apparatus and equipment,       61.72      0.38
       n.e.s.

098    Edible products and preparations, n.e.s.    15.78      0.28

883    Cinematographic film, exposed and           13.08      0.00
       developed, whether or not incorporating
       sound track or consisting only of sound
       track.

091    Margarine and shortening.                   12.75      0.16

111    Non-alcoholic beverages, n.e.s.             11.87      0.66

695    Tools for use in the hand or in machines.    8.71      0.74

813    Lighting fixtures and fittings, n.e.s.       7.40      0.01

884    Optical goods, n.e.s.                        4.42      0.09

054    Vegetables, fresh, chilled, frozen or
       simply preserved; roots, tubers, and         2.71      0.01
       other edible vegetable products, n.e.s.,
       fresh or dried

696    Manufactures of base metal, n.e.s.           2.60      0.00

511    Hydrocarbons, n.e.s. and their               1.59      0.00
       halogenated, sulfonated, nitrated or
       nitrosated derivatives

581    tubes, pipes and hoses of plastics           1.55      0.00

764    Telecommunications equipment, n.e.s.;        1.26      0.09
       and parts, n.e.s., and accessories of
       apparatus falling within
       telecommunications

057    Fruit and nuts (not including oil nuts),     1.23      0.02
       fresh or dried

723    Civil engineering and contractors' plant     1.09      0.00
       and equipment

Sectors that gained comparative advantage (13)

897    Jewellery, goldsmiths' and silversmiths'     0.53      6.74
       wares, and other articles of precious or
       semiprecious materials, n.e.s.

727    Food-processing machines (excluding          0.21      1.46
       domestic)

658    Made-up articles, wholly or chiefly of       0.18      1.13
       textile materials, n.e.s.

699    Manufactures of base metal, n.e.s.           0.02     10.12

899    Miscellaneous manufactured articles,         0.02      5.86
       n.e.s.

885    Watches and clocks                           0.02      8.21

848    Articles of apparel and clothing             0.02      1.74
       accessories of other than textile
       fabrics; headgear of all materials

841    Men's or boys' coats, jackets, suits,        0.00      1.17
       trousers, shirts, underwear of woven
       textile fabrics (except swimwear and
       coated or laminated apparel)

831    Trunks, suitcases, vanity cases,             0.00      2.04
       binocular and camera cases, handbags,
       wallets of leather; travel sets for
       personal toilet, sewing

291    Crude animal materials, n.e.s.               0.00     47.42

612    Manufactures of leather or composition       0.00    101.28
       leather, n.e.s.; saddlery and harness

282    Ferrous waste and scrap; remelting           0.00     38.15
       ingots of iron or steel

525    Radioactive and associated materials         0.00      8.68

061    Sugars, molasses, and honey                  0.00      1.34

Sectors that retained comparative advantage (8)

112    Alcoholic beverages                         97.56     84.46

001    Live animals other than animals of          21.72      2.88
       division 03

896    Works of art, collectors' pieces and         5.31      1.82
       antiques

034    Fish, fresh (live or dead), chilled or       3.63      2.33
       frozen

292    Crude vegetable materials, n.e.s.            3.03      2.07

893    Articles, n.e.s. of plastics                  2.58     1.60

792    Aircraft and associated equipment;           2.17      2.17
       spacecraft (including satellites) and
       spacecraft launch vehicles; and parts
       thereof

048    Cereal preparations and preparations of      1.86      1.51
       flour or starch of fruits or vegetables

Note: RCA = revealed comparative advantage,
n.e.s. = not elsewhere specified.

Source: Calculations based on UN Comtrade 2012.

Table A5: Inter-temporal Changes in Guyana's RCA with Canada

SITC   Description                                2000-02   2008-10

Sectors that lost comparative advantage (2)

034    Fish, fresh (live or dead), chilled or       3.83      0.69
       frozen

843    Men's or boys' coats, capes, jackets,        1.32      0.00
       suits, blazers, trousers, shirts (except
       swimwear or coated apparel), knitted or
       crocheted textile fabric

Sectors that gained comparative advantage (5)

282    Ferrous waste and scrap; re-melting          0.00     53.79
       ingots of iron or steel

515    Organic-inorganic compounds,                 0.14    158.26
       heterocyclic compounds, nucleic acids
       and their salts

676    Iron and steel bars, rods, angles,           0.00      1.13
       shapes and sections, including sheet
       piling

699    Manufactures of base metal, n.e.s.           0.08      1.17

749    Nonelectric parts and accessories of         0.00      2.12
       machinery, n.e.s.

Sectors that retained comparative advantage (1)

285    Aluminium ores and concentrates             10.86      1.44
       (including alumina)

Note: RCA = revealed comparative advantage,
n.e.s. = not elsewhere specified.

Source: Calculations based on UN Comtrade 2012

Table A6: Inter-temporal Changes in Jamaica's RCA with Canada

SITC   Description                                2000-02   2008-10

Sectors that lost comparative advantage (4)

056    Vegetables, roots and tubers, prepared       1.11      0.22
       or preserved, n.e.s.

074    Tea and mate                                 1.01      0.53

111    Non-alcoholic beverages, n.e.s.              1.17      0.49

551    Essential oils, perfume and flavor           1.29      0.39
       materials

Sectors that gained comparative advantage (3)

045    Cereals, unmilled (other than wheat,         0.00      1.78
       rice, barley and maize)

057    Fruit and nuts (not including oil nuts),     0.79      1.00
       fresh or dried

282    Ferrous waste and scrap; remelting           0.03      9.23
       ingots of iron or steel

Sectors that retained comparative advantage (8)

024    Cheese and curd                              2.25      1.39

048    Cereal preparations and preparations of      1.58      1.04
       flour or starch of fruits or vegetables

054    Vegetables, fresh, chilled, frozen or        5.06      3.70
       simply preserved; roots, tubers and
       other edible vegetable products, n.e.s.,
       fresh or dried

058    Fruit preserved, and fruit preparations     13.52      7.14
       (excluding fruit juices)

075    Spices                                       8.85      5.22

098    Edible products and preparations, n.e.s.     2.06      1.17

112    Alcoholic beverages                          5.90      9.97

285    Aluminium ores and concentrates            426.68    285.73
       (including alumina)

Note: RCA = revealed comparative advantage,
n.e.s. = not elsewhere specified.

Source: Calculations based on UN Comtrade 2012

Table A7: Inter-temporal Changes in St. Vincent and the Grenadines
RCA with Canada

SITC Description                                  2000-02   2008-10

Sectors that lost comparative advantage (10)

635    Wood manufactures, n.e.s.                    9.84      0.33

759    Parts and accessories suitable for use       2.93      0.14
       solely or principally with office
       machines or automatic data processing
       machines

898    Musical instruments, parts and               1.17      0.01
       accessories thereof; records, tapes,
       and other sound or similar recordings
       (excluding photographic film)

022    Milk and cream and milk products other      66.71      0.00
       than butter or cheese

579    Waste, parings and scrap, of plastics       26.79      0.00

112    Alcoholic beverages                          8.75      0.00

034    Fish, fresh (live or dead), chilled, or      3.49      0.00
       frozen

036    Crustaceans, molluscs, aquatic               2.91      0.00
       invertebrates fresh (live/dead)
       crustaceans

659    Floor coverings                              1.40      0.00

774    Electrodiagnostic apparatus for medical,     1.11      0.00
       surgical, dental, or veterinary sciences
       and radiological apparatus

Sectors that gained comparative advantage (15)

883    Cinematographic film, exposed and            0.00    438.62
       developed, whether or not incorporating
       sound track or consisting only of sound
       track

881    Photographic apparatus and equipment,        0.00     61.06
       n.e.s.

001    Live animals other than animals of           0.00     23.44
       division 03

273    Stone, sand, and gravel                      0.00     13.54

282    Ferrous waste and scrap; remelting           0.00      8.78
       ingots of iron or steel

288    Nonferrous base metal waste and scrap,       0.00      2.72
       n.e.s.

657    Special yams, special textile fabrics        0.00      1.79
       and related products

763    Sound recorders or reproducers;              0.00      1.77
       television image and sound recorders or
       reproducers

792    Aircraft and associated equipment;           0.00      3.20
       spacecraft (including satellites) and
       spacecraft launch vehicles; and parts
       thereof

713    Internal combustion piston engines and       0.00      6.17
       parts thereof, n.e.s.

874    Measuring, checking, analysing and           0.07      1.08
       controlling instruments and apparatus,
       n.e.s.

111    Non-alcoholic beverages, n.e.s.              0.26    100.95

764    Telecommunications equipment, n.e.s.;        0.28      3.04
       and parts, n.e.s., and accessories of
       apparatus falling within
       telecommunications

058    Fruit preserved, and fruit preparations       0.56      1.75
       (excluding fruit juices)

098    Edible products and preparations, n.e.s.      0.63      1.29

Sectors that retained comparative advantage (8)

892    Printed matter                               1.19      2.01

813    Lighting fixtures and fittings, n.e.s.        1.49     2.72

745    Nonelectrical machinery, tools and           1.81      1.66
       mechanical apparatus, and parts thereof,
       n.e.s.

054    Vegetables, fresh, chilled, frozen or        2.94      5.54
       simply preserved; roots, tubers, and
       other edible vegetable products, n.e.s.,
       fresh or dried

845    Articles of apparel, of textile fabrics,     6.77     16.25
       whether or not knitted or crocheted,
       n.e.s.

821    Furniture and parts thereof; bedding,       10.22      2.73
       mattresses, mattress supports, cushions,
       and similar stuffed furnishings

057    Fruit and nuts (not including oil nuts),    44.15     20.91
       fresh or dried

075    Spices                                     1397.42   214.84

Note: RCA = revealed comparative advantage,
n.e.s. = not elsewhere specified.

Source: Calculations based on UN Comtrade 2012

Table A8. Intertemporal Changes in Trinidad
and Tobago's RCA with Canada

SITC Description                                  2000-02   2008-10

Sectors that lost comparative advantage (6)

676    Iron and steel bars, rods, angles,          42.92      0.00
       shapes, and sections, including sheet
       piling

292    Crude vegetable materials, n.e.s.            2.61      0.36

062    Sugars, molasses, and honey                  2.53      0.95

016    Meat and edible meat offal, salted, in       1.45      0.00
       brine, dried or smoked; edible flours
       and meals of meat or meat offal

112    Alcoholic beverages                          1.38      0.97

054    Vegetables, fresh, chilled, frozen or        1.34      0.67
       simply preserved; roots, tubers, and
       other edible vegetable products, n.e.s.,
       fresh or dried

Sectors that gained comparative advantage (2)

035    Fish, dried, salted, or in brine; smoked     0.47      2.54
       fish (whether or not cooked before or
       during the smoking process); flours,
       meals and pellets or fish, fit for human
       consumption

343    Natural gas, whether or not liquefied        0.00     18.51

Sectors that retained comparative advantage (6)

671    Pig iron and spiegeleisen, sponge iron,    553.20    210.47
       iron or steel granules, and powders and
       ferroalloys

334    Petroleum oils and oils from bituminous
       minerals (other than crude), and            24.34      3.47
       products therefrom containing 70 percent
       (by weight) or more of these oils,
       n.e.s.

512    Alcohols, phenols, phenol-alcohols and      19.66    202.22
       their halogenated, sulfonated, nitrated,
       or nitrosated derivatives

034    Fish, fresh (live or dead), chilled or      15.42      7.06
       frozen

111    Non-alcoholic beverages, n.e.s.             11.50      4.25

075    Spices                                       8.88      4.75

Note: RCA = revealed comparative advantage,
n.e.s. = not elsewhere specified.

Source: Calculations based on UN Comtrade 2012


(1) See also Behar and Criville (2010), Mayda and Steinberg (2007), Arora and Vamvakidis (2006), and Vamvakidis (1998).

(2) In 2008, the CARIFORUM (CARICOM and the Dominican Republic) and the European Union signed an Economic Partnership Agreement, which replaced the long-standing nonreciprocal Lome Conventions. It is expected that a free trade agreement will also replace the Caribbean Basin Initiative, which at present covers trade between Caribbean countries and the United States.

(3) See also Bartholomew (1973) and Sommers and Conlisk (1979).

(4) This means that if an importing country's comparative disadvantage is matched by an exporting country's comparative advantage, then an FTA between those countries is more likely to improve economic welfare (see Schiff 2001).

(5) Drysdale (1967) outlined the trade complementarity index as follows:

[C.sub.ij] = [[summation].sub.k] {[X.sup.k.sub.i] / [X.sub.i] * [M.sup.k.sub.j] / [M.sub.j] * [M.sub.w] - [M.sub.t] / [M.sup.k.sub.w] - [M.sup.k.sub.t]}

Where [C.sub.ij] is a trade complementarity index which relates the comparative advantage of the exporting country to the comparative disadvantage of the importing partner weighted against world trade (which accounts for all other supply sources), X is exports, k is commodity to the world, [X.sub.i] is country i's total exports, [M.sub.j] is country j's total imports, [M.sub.i] is country i's total imports, and [M.sub.w] is world imports.

(6) See also Khadan (2014) and Khadan and Hosein (2013).

(7) The trade complementarity index was applied to SITC three-digit level data for each aforementioned country and then aggregated across 264 SITC three-digit commodities to derive the country index for each year.

(8) The reference to Greenaway and Milner (2006) is to compare trade and welfare effects of CARIFORUM-EU Economic Partnership Agreement with the proposed CARICOM-Canada.

(9) The trade, revenue and welfare effects computed here are based on the assumption that an FTA is formed between Canada and CARICOM in either 1998 or in 2008 so that tariffs on imports originating from Canada (and other prospective preferential trading partners outlined in the various experiments) are eliminated.

(10) The CARIFORUM-EU Economic Partnership Agreement was signed in October 2008 and thus will therefore not affect the experiments undertaken for liberalizing EU imports or Canada imports.

(11) Greenaway and Milner computed the trade and welfare effects for full liberalization of tariffs on EU imports for 9 CARICOM countries for 1998; this study extends the list to 11 CARICOM countries' and compare the results with similar experiments for 2008.

(12) See Bernal 2013.

(13) These values are uniform for all the various experiments and represent the decline in import from the CARICOM market by each CARICOM member state.

(14) Organisation of the Eastern Caribbean States (OECS) members are Anguilla, Antigua and Barbuda, British Virgin Islands, Dominica, Grenada, Montserrat, St. Lucia, St. Kitts and Nevis, and St. Vincent and the Grenadines.

(15) https://caricom.org/jsp/community/cota/general_assembly/18cota-surveyontaxsystems.pdf

(16) It should be noted that the reductions in taxes reported are the maximum potential reduction in taxes.

(17) The welfare effects found here are heavily influenced by the change in tariff revenue and therefore these estimates should be seen as worst case scenarios.
Table 1: Categorization of the Balassa Index

States       Range                      Interpretation

Class a   0 < RCA < 1   Industries with a comparative disadvantage.
Class b   1 < RCA < 2   Industries with a weak comparative advantage.
Class c   2 < RCA < 4   Industries with a medium comparative advantage.
Class d   4 < RCA       Industries with a strong comparative advantage.

Source: Hinloopen and van Marrewijk 2001.

Table 2: Transition Probability Matrix of the RCA Index for Selected
CARICOM Countries in Relation to Canada (2000-02 to 2008-10)

                 Barbados                           Bahamas

From                 To            From                 To

            a     b     C     d                a     b     C     d

a          0.94  0.03  0.00  0.03  a          0.98  0.01  0.00  0.01
b          0.83  0.17  0.00  0.00  b          1.00  0.00  0.00  0.00
c          0.43  0.14  0.43  0.00  c          1.00  0.00  0.00  0.00
d          0.73  0.09  0.09  0.09  d          0.17  0.17  0.00  0.67
[M.sub.1]  0.79                    [M.sub.1]  0.78

                    Guyana                            Jamaica

From                 To            From                 To

            a     b     C     d                a     b     c     d

a          1.00  0.00  0.00  0.00  a          0.99  0.01  0.00  0.00
b          0.50  0.00  0.00  0.50  b          0.00  1.00  0.00  0.00
c          1.00  0.00  0.00  0.00  c          0.00  1.00  0.00  0.00
d          0.67  0.00  0.00  0.33  d          0.00  0.00  0.20  0.80
[M.sub.1]  0.89                    [M.sub.1]  0.40

                                                   St. Vincent
              Trinidad and Tobago               and the Grenadines

From                 To            From                 To

            a     b     c     d                a     b     c     d

a          0.99  0.00  0.00  0.00  a          0.94  0.02  0.01  0.03
b          0.67  0.33  0.00  0.00  b          0.25  0.25  0.50  0.00
c          1.00  0.00  0.00  0.00  c          0.75  0.00  0.00  0.25
d          0.14  0.00  0.14  0.71  d          0.50  0.00  0.13  0.38
[M.sub.1]  0.65                    [M.sub.1]  0.81

Note: RCA = revealed comparative advantage.
Source: Calculations based on UN Comtrade 2012.

Table 3: Trade Effects Associated With
the Proposed CARICOM-Canada FTA (US$m)

                                  Trade Creation
                                   on Existing          Change in
                                 Canadian Imports    CARICOM Imports

                                 Canada   Canada   Canada     Canada
                                 (1998)   (2008)   (1998)     (2008)

Bahamas                           7.12     1.44     -1.49      -8.48
Belize                            0.93     0.74     -2.73      -3.44
Barbados                          4.56     5.90    -34.17     -79.41
Dominica                          0.45     0.82     -8.87     -15.87
Grenada                           1.09     1.78    -13.95     -24.76
Guyana                            2.17     2.11    -17.80     -78.90
Jamaica                          16.16    22.11    -89.73    -303.97
St. Kitts and Nevis               0.56     1.08     -6.55     -12.30
St. Lucia                         1.71     1.87    -18.32     -47.61
St. Vincent and the Grenadines    0.65     1.23    -12.25     -23.77
Trinidad and Tobago              16.42    21.79    -25.56     -34.26

                                          Percentage change

Bahamas                          18.68    12.79     -34.9     -20.81
Belize                           16.01    11.18     -25.8     -28.12
Barbados                         11.06    10.20     -21.0     -17.96
Dominica                         16.42    13.05     -25.6     -22.33
Grenada                          17.25    17.66     -25.1     -22.88
Guyana                           13.02    11.71     -23.5     -19.62
Jamaica                          17.94    16.83     -28.9     -18.59
St. Kitts and Nevis              16.71    16.10     -23.6     -22.31
St. Lucia                        14.92    15.85     -26.0     -23.78
St. Vincent and the Grenadines   13.65    15.56     -26.0     -23.31
Trinidad and Tobago              15.79     8.40     -24.4     -27.93

                                   Change in Extra-
                                   regional Imports

                                  Canada)     Canada
                                  (1998)      (2008)

Bahamas                          -1009.22    -1522.70
Belize                            -144.06     -308.03
Barbados                          -492.94     -676.30
Dominica                           -54.63      -84.36
Grenada                            -80.28     -138.65
Guyana                            -197.70     -432.65
Jamaica                          -1580.60    -3000.23
St. Kitts and Nevis                -67.18     -163.58
St. Lucia                         -147.93     -285.26
St. Vincent and the Grenadines     -71.15     -142.95
Trinidad and Tobago              -1092.64    -3643.57

                                   Percentage change

Bahamas                            -57.81      -50.24
Belize                             -52.60      -48.93
Barbados                           -60.51      -54.81
Dominica                           -56.48      -55.00
Grenada                            -58.16      -56.66
Guyana                             -49.11      -46.80
Jamaica                            -63.29      -45.64
St. Kitts and Nevis                -57.31      -62.30
St. Lucia                          -58.79      -64.60
St. Vincent and the Grenadines     -50.77      -54.37
Trinidad and Tobago                -39.14      -39.64

Source: Calculations based on UN Comtrade 2012

Table 4: Trade Effects Associated With
the Economic Partnership Agreement (US$m)

                                  Trade Creation on   Change in CARICOM
                                 Existing EU Imports       Imports

                                     1998     2008      1998      2008

Bahamas                            13.62      7.61     -1.49     -8.36
Belize                              4.30      5.24     -2.73     -3.38
Barbados                           26.53     32.83    -34.17    -71.81
Dominica                            3.18      3.41     -8.87    -15.72
Grenada                             4.44      5.86    -13.95    -24.59
Guyana                             10.15     14.94    -17.80    -64.81
Jamaica                            44.93     85.32    -89.73   -294.12
St. Kitts and Nevis                 2.57      3.40     -6.55    -12.09
St. Lucia                           7.89      9.63    -18.32    -47.30
St. Vincent and the Grenadines      6.03      8.77    -12.25    -23.71
Trinidad and Tobago                59.51    150.18    -25.56    -32.47

                                            Percentage change

Bahamas                             14.6     19.26     -34.9    -20.66
Belize                              15.7     15.21     -25.8    -27.87
Barbados                            15.5     14.25     -21.0    -18.32
Dominica                            15.4     15.39     -25.6    -22.34
Grenada                             15.5     15.16     -25.1    -22.87
Guyana                              13.4     13.69     -23.5    -20.19
Jamaica                             15.8     16.75     -28.9    -18.22
St. Kitts and Nevis                 15.0     16.01     -23.6    -22.31
St. Lucia                           15.0     17.47     -26.0    -23.70
St. Vincent and the Grenadines      14.7     16.20     -26.0    -23.31
Trinidad and Tobago                 12.2     12.57     -24.4    -27.66

                                 Change in Extra-regional
                                         Imports

                                     1998         2008

Bahamas                           -982.56     -1500.49
Belize                            -121.69      -288.00
Barbados                          -311.22      -589.44
Dominica                           -41.38       -75.47
Grenada                            -62.77      -124.95
Guyana                            -171.50      -412.83
Jamaica                          -1310.64     -2842.30
St. Kitts and Nevis                -55.23      -154.85
St. Lucia                         -112.88      -258.87
St. Vincent and the Grenadines     -50.26      -119.85
Trinidad and Tobago               -969.14     -3312.19

                                   Percentage change

Bahamas                             -58.1       -49.97
Belize                              -48.2       -47.86
Barbados                            -45.5       -53.03
Dominica                            -52.2       -54.62
Grenada                             -54.3       -57.65
Guyana                              -50.5       -45.15
Jamaica                             -56.9       -45.72
St. Kitts and Nevis                 -54.2       -62.18
St. Lucia                           -54.9       -64.89
St. Vincent and the Grenadines      -48.4       -55.26
Trinidad and Tobago                 -39.9       -40.09

Source: Calculations based on UN Comtrade (2012) and Greenaway
and Milner (2006) for 1998 values for European Union only.

Table 5: Trade Effects of the Proposed CARICOM-Canada
FTA and the Economic Partnership Agreement (US$m)

                                                    Displacement in
                                 Trade Creation     regional imports
                                   Canada and          Canada and
                                 European Union      European Union

                                  1998     2008      1998       2008

Bahamas                           20.73    9.05     -1.49      -8.48
Belize                            5.22     5.98     -2.73      -3.44
Barbados                         31.56    38.72    -34.17     -79.41
Dominica                          3.86     4.23     -8.87     -15.87
Grenada                           5.54     7.63    -13.95     -24.76
Guyana                           12.32    17.05    -17.80     -78.90
Jamaica                          62.09    107.4    -89.73    -303.97
St. Kitts and Nevis               3.16     4.48     -6.55     -12.30
St. Lucia                         10.8     11.5    -18.32     -47.61
St. Vincent and the Grenadines    6.72       10    -12.25     -23.77
Trinidad and Tobago              76.65      172    -25.56     -34.26

                                         Percentage change

Bahamas                          15.75    17.83     -34.9     -20.81
Belize                           15.81    14.56     -25.8     -28.12
Barbados                         14.76    13.44     -21.0     -17.96
Dominica                         15.37    14.87     -25.6     -22.33
Grenada                          15.84    15.67     -25.1     -22.88
Guyana                           13.35    13.41     -23.5     -19.62
Jamaica                          16.26    16.76     -28.9     -18.59
St. Kitts and Nevis              15.11    16.03     -23.6     -22.31
St. Lucia                        14.45    17.18     -26.0     -23.78
St. Vincent and the Grenadines   14.32    16.11     -26.0     -23.31
Trinidad and Tobago              12.83    11.83     -24.4     -27.93

                                     Trade diversion
                                        Canada and
                                      European Union

                                     1998        2008

Bahamas                            -964.9    -1494.79
Belize                            -129.05     -284.97
Barbados                          -392.81     -551.30
Dominica                           -42.27      -71.97
Grenada                            -64.10     -118.24
Guyana                            -162.10     -376.82
Jamaica                          -1425.72    -2733.90
St. Kitts and Nevis                -57.78     -150.29
St. Lucia                         -114.78     -249.80
St. Vincent and the Grenadines     -51.37     -114.70
Trinidad and Tobago                -916.8    -3226.98

                                    Percentage change

Bahamas                            -58.41      -49.97
Belize                             -52.32      -47.89
Barbados                           -61.17      -54.95
Dominica                           -56.82      -54.86
Grenada                            -58.60      -57.39
Guyana                             -49.58      -46.22
Jamaica                            -64.64      -45.08
St. Kitts and Nevis                -57.99      -62.27
St. Lucia                          -60.96      -64.64
St. Vincent and the Grenadines     -52.41      -54.95
Trinidad and Tobago                -39.89      -40.35

Source: Calculations based on UN Comtrade 2012

Table 6: Dependence on Import Duties
for Selected CARICOM Countries, 2000-12

                                 % in current    % in tax
                                   revenues      revenues    % in GDP

Selected CARICOM countries (a)
Dominica                             14.74         16.69       3.75
Grenada                              21.21         22.84       4.23
Jamaica                               6.42          7.77       2.03
St. Kitts and Nevis                  16.38         22.49       4.45
St. Lucia                            21.58         21.58       5.08
St. Vincent and the Grenadines        9.44         10.51       2.30
Trinidad and Tobago                   4.89          5.89       1.47

Other developing countries and the United States

Bolivia                               3.88          5.41       0.81
Brazil                                2.38          3.59       0.55
Colombia                              3.93          6.93       0.88
Costa Rica                            3.17          5.48       0.78
Dominican Republic                    8.43          9.32       1.30
El Salvador                           5.32          7.38       0.93
Guatemala                             9.16          9.64       1.08
Honduras                              4.93          6.98       1.04
Peru                                  4.40          5.80       0.77
Paraguay                              7.38         12.75       1.43
United States                         1.11          1.90       0.19
Uruguay                               4.00          6.06       1.09

Source: Calculations based on World Development Indicators 2014.

Table 7: Revenue Effects Associated With Various Trade Agreements

                                     Change in Revenue (US$m)

                                                       European
                                  Canada     Canada     Union
                                  (1998)     (2008)     (1998)

Bahamas                          -132.06    -196.93    -133.21
Belize                            -18.63     -36.84     -19.36
Barbados                          -64.42     -88.65     -67.50
Dominica                           -7.44     -11.19      -8.08
Grenada                           -10.77     -18.89     -11.54
Guyana                            -24.43     -51.42     -27.38
Jamaica                          -228.91    -411.42    -234.99
St. Kitts and Nevis                -9.19     -23.39      -9.58
St. Lucia                         -21.33     -39.62     -22.35
St. Vincent and the Grenadines     -8.82     -18.81     -10.12
Trinidad and Tobago              -132.63    -429.04    -144.33

                          Percentage change in revenue decline

Bahamas                           -69.28     -61.87      -69.9
Belize                            -65.38     -59.98      -68.0
Barbados                          -74.47     -71.28      -78.1
Dominica                          -69.47     -68.17      -75.1
Grenada                           -69.39     -67.35      -74.4
Guyana                            -65.60     -59.49      -71.6
Jamaica                           -74.71     -60.93      -76.7
St. Kitts and Nevis               -69.19     -72.72      -73.0
St. Lucia                         -71.89     -72.06      -76.8
St. Vincent and the Grenadines    -62.75     -66.27      -72.0
Trinidad and Tobago               -57.22     -51.40      -61.8

                                     Change in Revenue (US$m)

                                            Canada and   Canada and
                                 European    European     European
                                  Union       Union        Union
                                  (2008)      (1998)       (2008)

Bahamas                          -197.82      -134.77      -198.16
Belize                            -37.58       -19.60       -37.80
Barbados                          -94.85       -69.18       -95.25
Dominica                          -11.82        -8.17       -11.95
Grenada                           -19.98       -11.75       -20.28
Guyana                            -57.72       -26.96       -55.36
Jamaica                          -428.74      -237.90      -427.85
St. Kitts and Nevis               -23.91        -9.79       -24.07
St. Lucia                         -41.08       -23.38       -41.35
St. Vincent and the Grenadines    -20.42       -10.30       -20.66
Trinidad and Tobago              -461.89      -147.07      -467.14

                              Percentage change in revenue decline

Bahamas                           -62.14       -70.70       -62.26
Belize                            -61.16       -68.78       -61.53
Barbados                          -73.77       -79.97       -76.58
Dominica                          -71.74       -76.31       -72.83
Grenada                           -71.07       -75.71       -72.31
Guyana                            -61.28       -72.40       -64.06
Jamaica                           -63.08       -77.64       -63.37
St. Kitts and Nevis               -74.13       -73.74       -74.84
St. Lucia                         -74.57       -78.78       -75.19
St. Vincent and the Grenadines    -71.84       -73.31       -72.76
Trinidad and Tobago               -55.28       -63.45       -55.97

Source: Calculations based on UN Comtrade (2012) and Greenaway
and Milner (2006) for 1998 values for European Union only.

Table 8: Effect of Revenue Decline on Tax Revenues and GDP

                                                    European Union
                                 Canada (2008)           (2008)

                                   Tax               Tax
                                 Revenue    GDP    Revenue    GDP
                                   (%)      (%)      (%)      (%)

Dominica                          -9.86    -2.42   -10.41    -2.56
Grenada                          -11.77    -2.27   -12.46    -2.40
Jamaica                          -11.55    -3.15   -12.04    -3.28
St. Kitts and Nevis              -15.03    -3.16   -15.36    -3.23
St. Lucia                        -14.79    -3.38   -15.33    -3.50
St. Vincent and the Grenadines   -11.36    -2.69   -12.33    -2.92
Trinidad and Tobago               -5.20    -1.53    -5.60    -1.65

                                 Canada and European
                                    Union (2008)

                                   Tax
                                 Revenue      GDP
                                   (%)        (%)

Dominica                          -10.53      -2.59
Grenada                           -12.64      -2.44
Jamaica                           -12.01      -3.28
St. Kitts and Nevis               -15.47      -3.26
St. Lucia                         -15.43      -3.52
St. Vincent and the Grenadines    -12.47      -2.96
Trinidad and Tobago                -5.66      -1.67

Source: Calculations based on UN Comtrade
(2012) and World Development Indicators (2012)

Table 9: Welfare Effects of Various Trade Agreements

Change in Welfare (US$m)

                                            European   European
                                  Canada     Canada     Union
                                  (1998)     (2008)     (1998)

Bahamas                           -89.66    -146.25     -90.64
Belize                            -12.89     -24.68     -16.10
Barbados                          -32.12     -50.56     -48.73
Dominica                           -5.38      -7.73      -5.54
Grenada                            -7.60     -13.99      -8.08
Guyana                            -15.23     -36.97     -18.03
Jamaica                          -126.30    -303.44    -203.61
St. Kitts and Nevis                -6.87     -17.89      -7.54
St. Lucia                         -14.79     -24.90     -15.78
St. Vincent and the Grenadines     -6.79     -13.46      -6.05
Trinidad and Tobago              -103.61    -359.63    -108.37

                                            Canada and   Canada and
                                             European     European
                                  Union       Union        Union
                                  (2008)      (1998)       (2008)

Bahamas                          -146.89       -91.87      -147.17
Belize                            -25.22       -13.65       -25.42
Barbados                          -55.83       -36.16       -56.12
Dominica                           -8.23        -5.94        -8.33
Grenada                           -14.91        -8.37       -15.11
Guyana                            -42.21       -17.32       -40.28
Jamaica                          -313.67      -133.01      -315.81
St. Kitts and Nevis               -18.26        -7.34       -18.38
St. Lucia                         -26.10       -16.40       -26.27
St. Vincent and the Grenadines    -14.76        -7.99       -14.92
Trinidad and Tobago              -387.55      -115.78      -392.00

Source: Calculations based on UN Comtrade (2012) and Greenaway
and Milner (2006) for 1998 values for European Union only.

Table 10: Impact of Welfare Decline on GDP (%)

                                                     Canada and
                                          European    European
                                 Canada    Union       Union
                                 (2008)    (2008)      (2008)

Dominica                         -1.67     -1.78       -1.80
Grenada                          -1.68     -1.79       -1.82
Jamaica                          -2.32     -2.40       -2.42
St. Kitts and Nevis              -2.42     -2.47       -2.49
St. Lucia                        -2.12     -2.22       -2.24
St. Vincent and the Grenadines   -1.93     -2.11       -2.14
Trinidad and Tobago              -1.28     -1.38       -1.40

Source: Calculations based on UN Comtrade
and World Development Indicators 2012

Figure 1. The Share of CARICOM Trade (%)

USA          42
ROW          22
EU           19
CARICOM      13
Canada        5

Notes: CARICOM = Caribbean Community;
EU = EuropeanUnion;ROW = rest of the world;
USA = United States.

Source: Calculations based on UN Comtrade 2013.

Note: Table made from bar graph.

Figure 3: Trade Complementarity between CARICOM
and Major Trading Partners for Services Trade

             2000-2002    2004-2006    2008-2010

EU            1.02       1.51         1.22
USA           1.06       1.44         1.17
Canada        1.14       1.73         1.58

Source: Calculations based on UN Comtrade 2012

Note: Table made from bar graph.
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Author:Khadan, Jeetendra; Hosein, Roger
Publication:Social and Economic Studies
Article Type:Report
Geographic Code:50CAR
Date:Sep 1, 2015
Words:14935
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