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UNCLAS SECTION 01 OF 03 BRIDGETOWN 000553 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
SOUTHCOM ALSO FOR POLAD 
 
E.O. 12958: N/A 
TAGS: ECIN EFIN PGOV PREL UK XL
SUBJECT: EASTERN CARIBBEAN MOVES TOWARD ECONOMIC UNION 
 
REF: A. BRIDGETOWN 206 
     ¶B. PORT OF SPAIN 34 
     ¶C. 04 BRIDGETOWN 2833 
 
¶1. (SBU) Summary: The Eastern Caribbean's small island-states 
are creating an economic union that could lead to political 
integration.  Under a draft plan, the heads of government of 
the Organization of Eastern Caribbean States (OECS) would sit 
on a supranational body that has the authority to make 
binding economic decisions for all member states.  This 
arrangement could help promote development by harmonizing 
economic policies while providing leaders with the political 
cover necessary to lower public expenditures and reduce debt 
in an attempt to impose fiscal discipline upon their 
governments.  An economic union could also better position 
the OECS to compete in the wider CARICOM Single Market and 
Economy (CSME).  The willingness of the countries in the 
Eastern Caribbean to cede sovereignty to a supranational body 
suggests that they could also countenance political 
integration in the future.  End summary. 
 
--------------------------------------------- ------ 
Eastern Caribbean Proposes Common Economic Policies 
--------------------------------------------- ------ 
 
¶2. (U) OECS members are considering the establishment of a 
new legal mechanism that would allow their national leaders 
to establish common economic policies for the small-island 
states in the Eastern Caribbean.  Under the plan, the 
existing OECS Authority, comprised of the heads of government 
of all nine OECS members, would be given the power to pass 
binding legislation in specific economic areas, including 
fiscal policy.  Such a development would result in the closer 
integration of a region that already relies upon the OECS to 
coordinate its activities in a variety of areas such as 
aviation and legal affairs.  This would be the first time, 
however, that the OECS Authority would have the power to make 
decisions binding on all member states. 
 
¶3. (U) Note: The OECS Authority consists of the Prime 
Ministers of the six independent nations that are members of 
the organization, Antigua and Barbuda, Dominica, Grenada, St. 
Kitts and Nevis, St. Lucia, and St. Vincent and the 
Grenadines, and the Chief Ministers of the three 
self-governing British overseas territories in the OECS, 
Anguilla, Montserrat, and the British Virgin Islands.  End 
note. 
 
--------------------------------------------- 
OECS Authority to Become a Supranational Body 
--------------------------------------------- 
 
¶4. (U) The OECS member states are presently reviewing a draft 
treaty that would make the OECS Authority a supranational 
decision-making body.  If adopted, the new treaty would 
replace the 1981 Treaty of Basseterre that established the 
OECS.  The draft treaty would also remake the current OECS 
Secretariat, the organization's St. Lucia-based bureaucracy, 
 
SIPDIS 
into the Eastern Caribbean Commission.  Drawing on the 
European Union's model, the Commission would draft proposed 
legislation that would then be considered by the heads of 
government.  It is not clear at this time if the new treaty 
will require the passage of legislation by consensus or a 
simple majority vote by the OECS Authority.  The OECS 
Secretariat hopes to have the draft treaty and other 
 
SIPDIS 
documents related to the economic union available for public 
comment later this year. 
 
------------------------------- 
Parliaments Would Give Up Power 
------------------------------- 
 
¶5. (SBU) Granting the OECS Authority legislative power would 
require the parliaments of the six independent nations in the 
OECS to cede a significant aspect of their authority to 
determine the laws and policies of their individual nations. 
The governments of the British territories would take similar 
action after first obtaining approval from the U.K. to 
participate in the enhanced OECS Authority.  According to 
OECS Secretariat staff, the independent nations in the OECS 
are leading this move toward granting the organization's 
governing body greater power with the British territories 
reluctantly going along.  St. Vincent Prime Minister Ralph 
Gonsalves and St. Lucia Prime Minister Kenny Anthony are 
 
BRIDGETOWN 00000553  002 OF 003 
 
 
credited with being the driving force behind this effort. 
 
---------------------- 
Focus on Fiscal Policy 
---------------------- 
 
¶6. (U) Adopting a common fiscal policy would be at the heart 
of the move toward closer economic integration, with the OECS 
Authority potentially setting ceilings on both public debt 
and fiscal deficits.  This would force the highly indebted 
member states to rein in their borrowing and spending.  Such 
an IMF economic stabilization plan has required the 
Government of Dominica to adopt some tough measures in 
pursuit of this goal, which has aroused considerable domestic 
political opposition.  If the OECS Authority gains the power 
to create a common fiscal policy, it could, in effect, direct 
that all member states follow Dominica's lead.  (Note:  In 
2004, debt as a percentage of GDP for the six independent 
OECS states ranged from a low of 69 percent for St. Lucia to 
a staggering high of 162 percent for St. Kitts and Nevis. 
End note.) 
 
-------------------------------------- 
Political Cover for Government Leaders 
-------------------------------------- 
 
¶7. (SBU) Having the OECS centrally legislate fiscal policy 
would provide political cover for the region's leaders, 
according to Allister Mounsey, an OECS economist who is 
drawing up plans for the economic union.  The OECS member 
states desperately need to reduce their borrowing and public 
expenditures, which will require a fair amount of 
belt-tightening.  Necessary reforms include reducing the size 
of government payrolls and spending on public works and other 
employment-generating projects.  A prime minister will have 
an easier time politically if an OECS-wide decision can be 
blamed for any hardship caused to his citizens.  Mounsey 
explained to Poloff that the impetus behind this move to give 
the OECS Authority the power to set fiscal policy came, in 
part, from the inability of governments to make these 
politically difficult decisions themselves. 
 
------------------------------------ 
A Step Closer to Full Economic Union 
------------------------------------ 
 
¶8. (U) The adoption of a common fiscal policy would take the 
OECS significantly closer to full economic union.  The 
members (with the exception of the British Virgin Islands) 
already use the Eastern Caribbean dollar and share a common 
monetary policy set by the Eastern Caribbean Central Bank 
(ECCB).  Although the bank is technically independent of the 
OECS, the membership of the ECCB's governing body is almost 
identical to that of the OECS Authority, thereby providing a 
precedent for the manner of decision-making planned for an 
enhanced OECS.  After tackling fiscal policy, the OECS would 
likely move to harmonize trade and other policies, eventually 
making the Eastern Caribbean a full economic union. 
 
-------------------- 
CARICOM and the CSME 
-------------------- 
 
¶9. (U) The Eastern Caribbean's move toward closer economic 
integration is occurring parallel to the larger Caribbean 
region's evolution toward a single market, the CARICOM Single 
Market and Economy (CSME).  The CSME, with its focus on the 
movement of goods, services, and people, could have a great 
impact on the countries in the OECS sub-region, but would not 
affect their sovereignty to the same degree as the proposed 
economic union.  The small nations that make up the OECS have 
been wary of the single market forcing them to compete with 
larger economies such as those of Jamaica and Trinidad and 
Tobago, leading them to delay their entry into the CSME (ref 
A).  Closer economic integration and the imposition of fiscal 
discipline could offer the OECS members a better position 
from which to participate in and benefit from the CSME. 
 
---------------- 
Political Union? 
---------------- 
 
¶10. (SBU) Comment:  The willingness of the nations in the 
Eastern Caribbean to cede increasing amounts of their 
 
BRIDGETOWN 00000553  003 OF 003 
 
 
sovereignty to a regional economic union suggests that they 
could take the logical next step and begin moving toward a 
political union.  OECS-wide political integration would 
appear to be a more logical development than the periodically 
discussed integration of a select number of OECS member 
states with non-OECS member Trinidad and Tobago (refs B and 
C).  Should the proposed economic union prove effective, the 
small countries in the OECS are more likely to join 
politically with one another than to be subsumed by their 
larger and more powerful neighbor.  The senior politicians of 
these small-island states understand that their independent 
positions are becoming increasingly difficult to sustain in 
an era of globalization.  If these leaders are to share 
economic or even political control over the affairs of their 
nations, it should be easier to do so first among the OECS 
microstates, to prepare for the greater challenges of 
participating in the Caribbean-wide CSME and a potential 
hemispheric free trade area.  End comment. 
KRAMER