Trade Negotiations Insights • Volume 7 • Number 8 • October 2008

CARIFORUMʼS decision to sign the EPA

by Anthony Peter Gonzales (1)

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The recent decision by 13 out of the 15 CARIFORUM countries to sign the already initialled CARIFORUM-EU EPA marked the culmination of a long process of negotiations, extensive consultations with all stakeholders - both during and after the negotiations - and a review by each government of the initialled text. The decision was made in the context of intense national, regional and international debate on the pros and cons of the EPA. The two countries that decided against signing were Haïti and Guyana. Haiti had reservations on various provisions and wanted further clariﬁ cation before deciding whether or not to sign a full EPA. Guyana expressed interest in a ‘goods only’ agreement.

Charter new territory

The choice of a comprehensive EPA (involving goods, services, some trade-related issues and development cooperation) was indeed a difﬁ cult one for the region. This was especially true for the CARICOM countries, which unlike the Dominican Republic that had negotiated a full free trade agreement (FTA) with the US, were charting completely new territory. There were several contentious issues, namely the suitability of the liberalisation schedules, the inclusion of services and trade–related issues such as investment, competition and intellectual property, the compatibility of the EPA with the CARICOM Single Market and Economy (CSME), the nature of development cooperation and the most-favoured nation (MFN) clauses.

The decision to sign the EPA was therefore, a complex one. A key consideration was that the Cotonou Agreement signed in 2000 committed both the ACP and the EU to progressively remove trade barriers between one another and that any agreement they endorsed should be WTO-compatible. The CARIFORUM countries had to consider the most realistic WTO-compatible options available: either the EU’s generalised system of preferences (GSP) or a development-friendly asymmetrical reciprocal agreement. The latter option was preferable since the EU’s GSP would have entailed a substantial decline in export earnings due to the loss of the Cotonou special preferences.

Best deal on the table

Furthermore, the ﬂexibility available in the relevant WTO provisions governing regional trade agreements in goods and services was considered satisfactory to minimise the costs in relation to the beneﬁ ts. Both the CARIFORUM goods and services liberalisation schedules contain extended transition periods and the possibility to exclude sensitive sectors from liberalisation. In addition, even more ﬂ exibility was secured for CARICOM Lesser Developed Countries (members of the Organisation of Eastern Caribbean States – OECS - plus Belize) in terms of the pace of liberalisation and the possible exclusions.(2) The vast majority of countries, therefore, were convinced that it was not possible to secure a better deal that would still be WTO compatible.

In going beyond a goods only agreement, CARIFORUM had to recognise that the future of exports for the vast majority of countries lies in services. Focusing on goods only market access when the region already had duty-free access for almost all of its exports would not bring it any extra beneﬁ ts. Substantial additional WTO plus market access in services, coupled with asymmetrical protection of the local services industries, remained therefore, a sine qua non for the region. In terms of the level of liberalisation by CARIFORUM compared to the European Commission, there is clear asymmetry as expected. Based on the W120 list of services sectors, the European Commission opened more than 90 per cent of service sectors. In the case of CARIFORUM, countries aimed at a sectoral target coverage between 65 and 75 per cent; the CARICOM countries did not get to that target range.(3) Both in terms of sectors and modes of supply there has been the substantial elimination of trade barriers by the EU. In Mode 4 (temporary movement of natural persons), the EU went beyond what exists in its current bilateral and multilateral commitments.

Development cooperation dimension

The adequacy of the development cooperation provisions was - and remains - a highly debatable question, in particular the volume of the ﬁ nancial assistance, which was only marginally increased and remains inadequate. The EU, with its longstanding European Development Fund (EDF) aid programme towards this region, could not agree to increasing funds to deal with implementation and adjustment costs. However, it became difﬁ cult for the region to be too strident on additional development aid; many of the countries have been weaned off full grant aid such as that coming from the EDF, international aid agencies have often pulled out and there are now high GDP per-capita levels in the region.

Furthermore, the accompanying additional sources of funding from the EU Aid for Trade budgets and those of its member states, as well as from the All-ACP Facility of the EDF and directly from the Community Budget - not to mention the possibility of resources from other donors - made the case for additional resources even more untenable. This is especially true when the adjustment burden would be spread over long transitions and exclusions, as well as over several future EDF programmes. In their wisdom, the majority of countries ﬁ nally accepted the current aid package rather than argue for a few dollars more.

EPA barrier to single market

The EPA was also seen by some critics as preempting the CARICOM Single Market and Economy (CSME). However, the CSME is a deeper process of integration that should lead to free movementof labour, capital, goods and services, as well as free circulationof goods. The latter coupled with full policy harmonisation interms of a common currency and harmonised monetary and ﬁscal policy, are all part of this planned integration move that should already have been in place.

Incompatibility with the CSME was particularly argued inrespect of the trade-related areas of intellectual property,investment and competition policy. But the inclusion of these areas in the agreement with the EU was not perceived as inconsistent by many. In all these subjects the necessary safeguards are in place in terms of implementation periodsand exclusions. Some Caribbean countries have long put inplace arrangements with the US on investment and intellectual property, without feeling any negative effects. Furthermore,such issues can only serve to reinforce the basis of trading and modernise the trading environment in the region.

Most boxes ticked

In the ﬁnal analysis, the countries committed to signing were persuaded that they had achieved their basic objectives in the negotiations. These centered on securing some meaningful margin of preference for key traditional exports; extending market access to the uncovered areas in goods; breaking new WTO-plus ground in service areas where the region has the capacity or can quickly develop this capacity; and obtaining a reasonable level of development assistance for dealing with this new phase of liberalisation.

Naturally, some concerns remain, especially with the MFN clause and how the regional preference would be implemented. These outstanding issues, on which there is already mutual agreement for an early review, were not considered large enough to detain countries from signing given that prospects for an amicable settlement in the future are positive.

Stamp of approval

Overall, in terms of process and strategy, it should be noted that the 15 countries committed themselves to a comprehensive agreement, progressively approved the goods, services and trade–related decisions during the negotiations, and ﬁ nally initialled the agreement. The process therefore has the required legitimacy. One major concern to the region as it moves to sign at this time (after two postponements in June and September) is meeting the WTO requirement on the provisional application of the agreement and the legal implication of this. Furthermore, the majority in the region does not see any conﬂict between signing and maintaining ACP solidarity. It is understood in the ACP that the various countries and regions would negotiate in their best interests and there would be no EU discrimination against any ACP region and country based on its choice of option. The signing of the CARIFORUM EPA has thus been set for October 15 2008.

1. Dr Anthony Peter Gonzales was a former Acting Director of the Institute of International Relations, University of the West Indies, St. Augustine, Trinidad and Tobago.

2. The OECS is a nine member grouping comprising Antigua and Barbuda, Commonwealth of Dominica, Grenada, Montserrat, St Kitts and Nevis, St. Lucia and St Vincent and the Grenadines. Anguilla and the British Virgin Islands are associate members of the OECS. www.oecs.org

3. The W120 list was used as the basis for negotiations under the GATS in the WTO. These range from business services, communications, construction, distribution, environmental, ﬁ nancial, transport, tourism and recreation services.