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The small island economies of the Caribbean Basin are presently engaged in negotiations with the European Union over the successor agreement to the Lome IV Convention which grants non-reciprocal preferential access to the European market for exports of Africa, Caribbean and Pacific countries. Preliminary discussions have suggested the establishment of a Free Trade Area (FTA) between CARIFORUM group of countries and the European Union, eliminating tariff and non-tariff barriers. This paper utilises the Almost Ideal Demand System (AIDS) to compute import elasticities for SITC product groups in selected Caribbean economies. These elasticities along with proposed average tariff reductions are utilised to forecast the potential revenue gain or loss resulting from the establishment of a FTA. The preliminary results indicate that the smaller economies of the Caribbean Basin would suffer greater fiscal revenue loss from the establishment of a FTA.