Renegotiate the Cariforum EPA

1 April 2008

The EPA is a treaty that is legally binding, of indefinite duration and will be very difficult to amend once it is in force. It covers a wide range of subject areas that have hitherto been within the jurisdiction of domestic or regional policy, and which few people in the region know about or understand. Adequate time and effort must be put into public explanation, discussion and review of the provisions of the agreement before it is legally cast in stone. Here are several, non-exhaustive, concerns with the content of the EPA:

Sustainable development and resources take back seat

According to the mandate in the ACP-EU Cotonou Agreement, the EPA is supposed to promote sustainable development. However, the development component of the Cariforum EPA has taken a back seat to the trade and investment liberalisation component.

In a reciprocal trade agreement between two unequally developed partners, adequate resources must be transferred to the poorer partner to help build up their productive capabilities in infrastructure, human capital and technology. Without this, the process of trade liberalisation could worsen existing disparities as the richer partners are in a better position to take advantage of the opportunities. In Europe, the transfer of resources through generous ‘structural’ and ‘social cohesion’ funds has helped countries like Ireland, Spain and Portugal to significantly accelerate their rate of development.

However, resource transfers are not legally binding obligations under the EPA. And the resources provided by the European Development Fund (EDF) are not only slow to negotiate and disburse, but woefully inadequate. They amount to €165 million under the 10th EDF. When shared between 15 countries over five years, this equals € 2.2 million per country per year.

Resource transfers: ‘eyes wide-shut’

The potential effect of tariff elimination on 82.7% of imports from Europe within 15 years needs to be carefully evaluated for each country with respect to government revenue, income, production and employment. If a negative economic effect is detected, there may be a case for (a) a longer transition period or (b) compensatory resource transfers to cushion these effects. Without this kind of information the Caribbean is entering a binding arrangement with their ‘eyes wide shut’.

The Caribbean has had duty and quota-free access to EU markets for most of its exports since 1975 under the Lomé Accords. But growth of non-traditional exports to EU markets has been insignificant. ‘Market access’ has not automatically converted to ‘market presence’. There have been major complaints from the private sector about restrictive rules of origin and onerous technical barriers to trade, including sanitary and phytosanitary standards. Apart from some reported improvements to the rules of origin, we have no information that these obstacles have not been satisfactorily addressed by the EPA. For example, the EPA rules of origin exclude a number of sugar-based products from value-added ‘cumulation’ until at least 2015, which will inhibit the growth of regional sugar-based industries for export to Europe.

Furthermore, the EPA does not offer Cariforum firms - especially SMEs - targeted assistance to help raise their supply capabilities, preventing them from competing with duty-free imports from Europe or taking advantage of new export opportunities. The many references to ‘development cooperation’ in the EPA are neither quantified nor time-bound. Thus, the European Commission can decide what to support, when and by how much. The EU Commission has already signalled that the priority for the limited the Cariforum Regional Indicative and EPA Implementation Programme EDF funds will be EPA implementation.

Services: giving with one hand and taking with the other

Although the EU will open 29 service sectors and 11 professional sectors to Cariforum service providers and individuals working for contractual service suppliers, there are many conditions.2 Service firms can only have a maximum of a one-year contract, while their employees must have been working with them for at least one year already. Professionals must have ‘mutual recognition agreements’ between their own country and the EU country where they wish to practice. Furthermore, entry is subject to an ‘economic needs test’ in the EU. If a Cariforum firm manages to overcome all these barriers their stay is limited to a cumulative 6 months in any 12 month period or to the duration of the contract - whichever is less. This is like giving with one hand and taking with the other.

Entertainers, many of whom already had access to the EU to perform, will now have to register locally. Registration systems are at best embryonic in the Caribbean and, where already established, must meet EU approval. Additionally, the EU Commission has made no commitments on visas, immigration, work permits or residency regulations for service providers. These are very tight in Europe and relatively relaxed in the Caribbean due to tourism. Hence, Caribbean nationals will find it more difficult to make casual visits to Europe to scout out business opportunities or make contacts than vice versa.

Cariforum will open 75% of its service sectors to EU service providers for More Developed Countries and 65% for Least Developed Countries. This could lead to displacement or acquisition of domestic companies by much larger and richer EU firms.

Foreign decision-making could subsequently render Caribbean firms vulnerable, while the potential development of those regionally-owned firms that are capable of going global, could be stifled.

WTO compatibility

The inclusion of ‘WTO-plus’ commitments in the EPA on services, intellectual property, competition, public procurement, investment and e-commerce are not necessary for WTO compatibility. Although the European Commission promises development support for these obligations, these promises are not quantified and time-bound, while the obligations will require Cariforum states to adopt legislation, practices and policies that will be financially onerous and a drain on scarce technical manpower.

The ‘WTO-plus’ commitments pre-empt and proscribe Cariforum governments in key areas of development policy as well as the pending Caricom Single Market and Economy (CSME) in these areas. It would be more desirable to craft CSME regimes that reflect Caricom’s own circumstances, priorities and development objectives before making commitments to Europe.

Moreover, it is important to evaluate ‘national treatment’ requirements in the EPA, which forbid governments from discriminating in favour of local and regional firms. Such requirements may prejudice the ability of Cariforum governments to foster the development of local and regional firms capable of competing globally.

Under the EPA, where the whole dynamic is integration with the EU economy in goods, services, capital and economic policies, the CSME will be effectively sidelined.3 The CSME, which is not an alternative to integration into the world economy, was being developed as a platform for more efficient regional production and global export, and for pooled bargaining power.

Regional disintegration

The major institutional requirements for EPA implementation and governance will consume the limited money and manpower of Cariforum states. They will also give so-called ‘Joint Committees’ with the Europeans and the Dominican Republic, power to make legally binding decisions. Cariforum states will retain veto powers but the European Commission will take the upper hand with the leverage of market access and development ‘assistance’. There is a chance these powers may supersede Caricom’s own organs of governance.

The parties to the EPA are the European Commission and 15 Cariforum states ‘acting collectively’. Caricom as such is not a Party to the EPA. At the same time, in many instances in the text of the Agreement, the rights and obligations are those of the ‘Signatory Cariforum states’. This carries implications for the integrity of Caricom integration. It is not clear whether the Caribbean Community, under its present governance arrangements, has the legal power to act collectively like the European Commission does.4 Hence, where Cariforum states agree to act collectively, Caricom will need to make arrangements to establish joint positions among their membership, and also with the Dominican Republic. As such, they may be represented by a single representative on key EPA implementation bodies such as the Joint Council and the Trade and Development Committee. Where States have individual rights and obligations, or where joint Caricom or Cariforum positions do not yet exist, bargaining power will be tilted more heavily in favour of the European Commission and Cariforum states will be placed in competition with one another. This could widen intra-regional inequalities, as some countries are less well endowed than others to take advantage of the EPA, causing regional disintegration rather than integration.

Danger ahead

There are several other questionable and disadvantageous provisions in the EPA that will doubtless become evident as the details of the agreement are examined. These are rendered all the more dangerous given that the EPA provisions establish a precedent for up-coming trade agreements to be negotiated with the US and Canada.

It might have been better for Cariforum, or at least Caricom, to have negotiated an EPA limited to what was necessary for ‘WTO compatibility’. It could have incorporated carefully calibrated import liberalisation attuned to the development of local production capacities, specific commitments for assistance targeted at key infrastructure inputs and firm-level technical support, as well as establishing a presence in EU markets. The inclusion of ‘WTO-plus’ commitments in services, competition, public procurement, and investment could be deferred pending WTO agreement in these areas, or at least pending completion of the relevant CSME regimes.

Which options remain open?

It will be politically difficult and economically risky to adopt a change in approach to the EPA at this stage. Nevertheless, there may still be a ‘window of opportunity’ to try. The agreement, although initialled, has not yet been signed by national ministers or given provisional application (scheduled for no later than June 30) nor has the European Commission formally notified the WTO. To date, the European Parliament has not yet given its assent for signature at the European Commission level. Once all these procedures have been completed and the formal ratification processes begin, it will be virtually impossible to change what has been agreed. At the very least, revision - with the agreement of all the parties - would be a difficult and time-consuming process.

Caricom should therefore weigh the political costs and economic risks of seeking to change the EPA now; against the still unquantified longer-term political and economic costs of adopting the EPA in its present form. As such, it is important to remember that African countries that only initialled ‘interim’ EPAs in December 2007, have been given until the end of 2008 to complete their EPA negotiations and that there is considerable pressure for the terms of these provisional agreements to be re-negotiated.

A possible course of action for Caricom

Caricom could signal to the European Commission that it has every intention of concluding an agreement that meets existing WTO rules and obligations, but that it cannot proceed to the signing and provisional application of the initialled EPA as there has been inadequate time for public consultation and official evaluation of its developmental impact and the implications for its own regional integration process.

Caricom could also point out that, in concluding a WTO-compatible agreement, it is not prepared to include any ‘WTO-plus’ provisions at this time, or until either (i) agreement is reached in the WTO on these subjects, or (ii) the relevant Caricom regimes are completed; whichever is earlier. Under these conditions, a review clause that triggers negotiations on these subjects may be included in the agreement.

With respect to the trade in goods, Caricom could request additional time to review the market access commitments under the initialled EPA until the end of 2008. This assessment could look at their likely fiscal and employment impact and propose amendments, targeted infrastructure and company-level support for the development of supply and marketing capabilities. This would need to be supported by appropriate diplomatic and political action aimed at mobilising support from (i) the Caribbean public, (ii) other ACP countries (around a collective position on the issues) including the important support of the Dominican Republic (iii) EU member states, the EU Parliament and European Civil Society and (iv) The Caribbean Diaspora; in order to bring pressure on the European Commission Trade Directorate and its Commissioner.

An ideological battle is currently unfolding in the Caribbean over the merits and demerits of the EPA negotiated between Cariforum and the EU. The conflict springs from two main elements: the process used to negotiate the EPA and the substance of what was won or lost at the negotiation table. For those who negotiated the Agreement it was the best and only option to secure Caribbean development.

In response to the above Memorandum, the CRNM issued a written rebuttal:

“The Memorandum clearly does not represent the text of the EPA and the issues contained within it; is replete with errors and innuendos; dismisses the hard work of regional officials and stakeholders through the intense coordination process and well targeted analysis of relevant issues; and makes little or no contribution to the intended consideration of the regional negotiating process and recommendations for its improvement.”

To read the full text of this refutation see:

1 Havelock Brewster and Norman Girvan are Senior Associates with the Caribbean Regional Negotiating Machinery (CRNM). Vaughan Lewis is Professor of International Relations of the Caribbean at the Institute of International Relations, UWI.

2 See: The EPA: a critical evaluation, Norman Girvan, PowerPoint presentation March 23 08

3 Plus integration with the Dominican Republic.

4 This matter is among the subjects addressed by the Report of the Technical Working Group on Governance appointed by Caricom Heads of Government, Managing Mature Regionalism (2006).

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