Trade Negotiations Insights • Volume 7 • Number 10 • December 2008

Turning mode 4 commitments into business: The CARIFORUM –European Community EPA

by Natallie Rochester

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Following years of negotiations, the Caribbean Forum of ACP States (CARIFORUM) signed the Economic Partnership Agreement with the European Community in Barbados on 15 October 2008, after concluding talks in December 2007. (2) The EPA services provisions and market access commitments have the potential to transform the current CARIFORUM-European Community relationship by expanding market opportunities, stimulating investment for increased services, and growing export capacity and competitiveness.

What’s new?

There are a number of changes that will accompany the implementation of the full EPA. For one, the EPA has clearer rules for the temporary movement of natural persons (mode 4) than the General Agreement on Trade in Services (GATS): it categorizes services providers accessing the other party’s market by length of stay allowed, skill levels, and according to their link to a legal entity or self-employment. Moreover, because European Union EPA commitments on mode 4 go significantly beyond the EU GATS commitments and conditional services offers, better treatment is granted to CARIFORUM than to other WTO Members. Cross-border and mode 4 commitments in the Agreement will also help to increase prospects for supplying services cross-border. This growth is augmented by greater access to technological advances and services providers need to enter Europe for marketing and contract negotiation.

In addition, the European Commission made WTO-plus market access commitments on contractual service suppliers (CSS) in twenty-nine services sub-sectors and on Independent Professionals (IP) in eleven services sub-sectors. In many of these sectors, the European Commission indicated that any future offers made in the WTO would be subject to numerical ceilings or quotas. As it stands, European commitments in the EPA are not limited by quotas but some are subject to economic needs tests (ENTs), mainly in new EU members. Of the twenty-nine commitments for CSS, twenty-two activities have no restriction on market access, national treatment, or ENTs; between nine and sixteen European Commission states have made commitments for CSS in the different sub-sectors with no limitations.

With respect to commercial presence, the European Community has generally exercised a liberal approach. This is unchanged in the full EPA where there is a mode 4 link to commercial presence (mode 3) via an automatic commitment to key personnel, graduate trainees, and business services suppliers, where the European Community grants mode 3 access. This makes it easier for CARIFORUM firms that establish in the EU to relocate personnel that possess particular, needed skills. Importantly, commitments in non-traditional services activities, such as entertainment, directly respond to CARIFORUM’s stated interests.

Finally, EPA mode 4 commitments are strengthened by rules, cooperation, and dialogue on tourism, ‘infrastructural’ services, such as telecommunications and maritime transport, and e-commerce. Within the Agreement, provisions on intellectual property and innovation set a foundation for movement into knowledge-based, value-added services like research and development. Investment provisions also create a region-to-region framework that improves predictability for investors.

Targeting and entering the EU market

The EU is the largest importer and exporter of services, accounting for about 25% of world trade in services. Its market of 490 million people with relatively high incomes provides prime opportunities for CARIFORUM beyond the sizeable Caribbean Diaspora in Belgium, France, Germany, the Netherlands, Spain, and the UK. However, Caribbean firms first have to establish their credibility with European firms and standards.

To prepare to capitalize on opportunities in Europe, CARIFORUM organized a mission to Europe in September 2008 where small Caribbean firms met European institutions and industry associations to establish business contacts focused on Information and Communications Technology and creative industry sectors. A follow-up to this meeting is scheduled during the launch of a CARIFORUM-EU Business Forum in November 2008. Other similar initiatives, supported by European Commission programmes, are scheduled to follow next year for different services sectors with the intent of stimulating interest in the skills offered by CARIFORUM professionals while also exposing these individuals to different EU markets. The new ‘short term visitor’ category in the EPA should facilitate easier access of business persons seeking to research the EU market and to increase linkages with European firms.

At the same time, professional services sectors are expediting the regional accreditation process in the CARICOM Single Market and have begun to prepare for mutual recognition discussions with their European counterparts. The harmonized or equivalent definition of occupations sets a standard that the European Commission will use to compare against their own qualification and licensing systems. The EPA provides for negotiations on mutual recognition of qualifications in some priority sectors within three years. To effectively carry out such negotiations, CARIFORUM service providers must organize under representative bodies and develop relationships with their European counterparts. In anticipation of this, the Caribbean Institute of Certified Management Consultants (CICMC) has organized its first conference for late November with the aim of establishing region-wide standards based on international criteria. At the same time, the CRNM is commissioning studies on the regulatory regimes of certain professions in selected European countries to provide strategic information for Caribbean services professionals.

Even still, CARIFORUM services providers may face challenges when they test the EU market because of competition from recently acceded EU states. CARIFORUM firms will therefore need to provide specialized services and initially focus on networking with contacts and associates in Europe. Since most services contracts are granted on the basis of relationships and trust, it is important for Caribbean professionals to utilize EPA provisions regarding temporary entry to develop business relationships.

Next Steps for CARIFORUM

It is accepted that the real work for creating a successful new trading relationship with Europe starts after signature of the EPA. While governments in the region implement the relevant legislative instruments, businesses must increase export capabilities and ensure that services suppliers are eligible for entry under the EPA. The region has to increase its efficiency through affordable technologies for increased cross-border services exports, regional integration, policy harmonization, and enhanced regulatory frameworks for new business models (e.g., e-commerce). Active investment promotion is also required to increase Foreign Direct Investment flows to its territories and to encourage partnership with small Caribbean firms.

Notes
1. Natallie Rochester is Services Analyst at the Caribbean Regional Negotiating Machinery (CRNM), the entity responsible for coordinating external trade negotiations for the Caribbean region. The views expressed are those of the author and do not necessarily reflect the views of the CRNM.
2. All CARIFORUM states, except Guyana and Haiti, signed the EPA in Barbados on 15 October 2008. Guyana signed on 21 October 2008; Haiti has indicated that it is not in a position to sign at this time.
3. The Protocol on Cultural Cooperation provides for temporary movement of persons from CARIFORUM for co-production activities, and allows co-produced audiovisual content to be considered European works and satisfy cultural content rules across the EU.
4. Issues raised at the Business Forum may be sent to the Joint CARIFORUM-European Community Council, which was established by the EPA to implement the Agreement through the CARIFORUM-European Community Trade and Development Committee or the Consultative Committee once they are constituted.