BUSINESS MONDAY: Trade in Focus: Time for enhanced trade policy
GOVERNMENTS all over the world have used trade policy to achieve varying ends. They pursue it to enhance exports, job creation, the earning of foreign exchange and economic growth.
At another level they used trade policy to correct certain economic imbalances through limiting imports from other countries. They do this by way of a range of Non Tariff Barriers (NTBs) to protect economic sectors and to stabilise their country’s balance of payments.
Such barriers as quotas, licences, sanitary and phytosanitary measures, the rationing of foreign exchange, subsidies to producers, and a host of other measures make up NTBs.
Currently Barbados is experiencing some very tough economic challenges with Covid-19 adding to that scenario. There is every reason why the current administration should used an enhanced trade policy to help to correct some of the economic imbalances.
Policies like import substitution, more support to domestic producers, an aggressive Buy Local programme and measures to further boost the country’s balance of payments should be included among the economic toolkit to deal with the job at hand.
While many trading partners are likely to fret once Barbados goes that route, that should be ignored given what is required in the country.
In any case, there are provisions within the World Trade Organization (WTO) and the Revised Treaty of Chaguaramas to which Barbados subscribes, that allow countries experiencing economic difficulties to take the corrective actions.
The issues are quite clear. While the economy has accumulated reserves following years of the slowdown in that area, based on the performance and earnings of the export sectors, more should be done outside of borrowing. That slowdown in export earnings stemmed also from the trade barriers including NTBs our manufacturers are up against with trading partners.
The pick up in reserves stemmed largely from borrowing from the multilateral financial institutions.
These inflows have released the pressure that was on the current account of the BOP, for a long time. Apart from borrowing, Tourism, International Business, Manufacturing, and Agriculture are the main areas through which Barbados earns foreign exchange.
So trade remains a very useful option for countries to boost their economy, earn vital foreign exchange and put them on the road towards an export led strategy.
The 2019 Central Bank of Barbados review outlined that Tourism services did well in that year. The other sectors did not, leaving the authorities to consider how best to get the overall economy performing the way the country expects.
Barbados’ expectations from the conduct of trade are clearly outlined in the country’s trade policy review. The review states that as a small developing economy, Barbados remains very much aware its small size and lack of natural resources can be a constraint to sustainable growth and development.
It is also aware that the nature and direction of the trade policy regime are critically important in determining the performance of the economy. Issues like the loss of trade preferences with respect to sugar, the stiff competition to the rum industry from subsidies by other producers in the region, other protectionist behaviour across the Caribbean, and the increasing world market price for oil, have created headaches for the authorities.
Economic growth has been disappointing falling 0.1 per cent between January and December last year, on top of no growth the previous year.
Against the background of these factors, Barbados has to take fresh guard and reorient its trade policy to give support to what other measures are being put in place to deal with the issues in the economy.
An aggressive Buy Local programme ought therefore be one of the policies going forward. The country has to get citizens to consume more of what is produced locally in an effort to save jobs, contribute economic activity and where necessary save foreign exchange since a
dollar save is a dollar earned.
Import substitution has to be given new meaning. This is where the country has the ability to produce some of the items which are imported. Currently there are a number of goods coming into the country which can be made locally once producers are given the necessary support to do so. Where necessary the use of NTBs can be used judiciously to aid this process of import substitution.
Article XII of the General Agreement on Tariffs and Trade (GATT 1947) addresses the subject of restrictions to safeguard the BOP. It says that (WTO) member countries may restrict the quantity or value of merchandise subject to certain provisions.
These include the requirement that import restrictions shall not exceed those necessary to forestall the imminent threat of, or to stop, a serious decline in its monetary reserves, or in the case of very low monetary reserves, to achieve a reasonable rate of increase in reserves.
Many would agree right now that there is no BOP problem in Barbados, and last year the external current account deficit improved.
However, since most of what transpired last year is likely to persist throughout 2020, with Covid-19 adding to the economic slowdown, then trade policy has to be given a lift.
This country has the ability to deal with the issues at hand and to forestall any further deterioration in its economic fortunes. A reorientation of our trade policy offers an opportunity to aid the process of economic revival.