Dr. Fraser- Point of View
December 14, 2007
The Economic Partnership Agreement Issue

Over the past three months, there has been a lot of discussion in the region about the Economic Partnership Agreement, with Europe, with Caribbean governments anxious to meet the end of year dead line to finalise, at least, an interim agreement, and calls by regional NGOs and some academics to delay signing such an agreement. Those opposed to meeting the deadline fear that the region will put itself at a serious disadvantage, and some even argue that no agreement is better than a bad agreement.{{more}} There are complex issues at stake with all African, Caribbean and Pacific countries (ACP) not necessarily sharing the same level of interest, since there are to some extent different factors at play.

Now, what is this all about? Under the current Cotonou partnership agreement and preceding Lome Conventions, exports from ACP countries had non-reciprocal preferential access into European markets. The World Trade Organisation, following challenges to the current trading relationships with Europe, have declared the existing regime to be inconsistent with international rules and ordered that they be brought to an end by December 31, 2007. All of this takes place in the context of World Trade Organisation rules and regulations and the general movement toward reducing or removing trade barriers between countries on the international market. A special exemption from the WTO was required to allow the existing relationship to continue, with 31st December, 2007, being the expiration date for the reduction of preferences enjoyed by the ACP countries. What are the implications for not meeting the December 31st deadline?

If Caricom countries do not sign the EPA agreement by the deadline, the fear is that exports to Europe would be subjected to high duties from January 1, 2008, under what is called the General System of Preferences (GSP) regime. Given the challenges to the trade regime that have become quite common, there is a view that obtaining another waiver will not only be difficult but unlikely. The GSP makes access to developing countries in general, thus removing the advantages that the Caribbean countries currently hold. Only a few products will receive duty free access with a tariff applied to the other products. There will still be some eligibility for those countries labelled as Least Developed, but only Haiti in the Caribbean falls under this label. It is for this reason that some argue that the region will be worse off without the EPA agreement being put in place by January.

What is the stumbling block to the signing of an agreement?

The European countries had been objecting to the inclusion of some items among those to be excluded from liberalisation. But these included items that were yielding high government revenue. There were also objections to the length of the phasing in period for some products. At a recent meeting in Guyana, the Caribbean countries, including the Dominican Republic, agreed to a fifteen percent reduction in the list of European Union goods that were to be excluded from entering the Caribbean markets duty free. Automobiles, mobile phones and gasoline were removed from the exclusion list to the list of phased goods, allowing those products to receive duty free treatment beginning in 2018. The Prime Minister of Barbados said that CARICOM was prepared to draw a line in the sand, declaring that “no liberalization for our cultural workers, no agreement.” They had agreed to open up their markets to certain European goods on condition that entertainment workers from the Caribbean are allowed free access to Europe. This has apparently been a stumbling block, since France has been very reluctant to open up its entertainment market.

Bruce Golding, the Jamaican Prime Minister, stated the Caribbean position. He is quoted as saying that “Our firms may only be able to take advantage of market access in most services offered by the European Community (under the EPA) in the medium term, since it will require capacity building, mutual recognition of qualifications, among other processes.” The region’s entertainers and artistes were singled out for special mention because it was felt that they were in a position to supply services and be competitive immediately. Meetings to be held this week will provide a response from Europe on this matter and determine the ability to finalise an agreement.

When a call was made by Economist Norman Girvan and Caribbean NGOs, among others, to get Caribbean people more involved in understanding the implications of the signing of an EPA agreement, even though it came quite late, they were quite aware of the implications to the people of the Caribbean. The region was concerned about protecting its tariff revenues, but the standard response of the European Union was that revenue could be had from consumption taxes. All of this has to be seen within the context of the growth of globalisation and liberalisation. This is why, for instance, the IMF is against removing Value Added taxes on items, even when they affect the poor. These are serious matters for the Caribbean, for as more products/goods are removed from duties, governments will have to look increasingly at making up the shortfalls from consumption taxes, which are generally quite regressive, in that they fall heavily on the poor, at least for those items consumed by the poor and people on fixed incomes.

Then the opening up of the markets to European goods, some of which are subsidised, creates a problem for local manufacturing. Africans are perhaps even more concerned about this. One can argue that the other side to this is that it will make these goods cheaper to the local consumer but this has to be weighed against the negative impact on local manufacturing. Given the circumstances within which the Caribbean countries find themselves, taking a stand for the entertainment industry is one of the few options left. When we look at a small country like ours with our bananas already a victim of liberalisation, we have to ask what we have to export to Europe that can be competitive. Certainly, the entertainment industry offers some hope. But what else is there? Our service industry is still relatively undeveloped, and in any event at different stages of development throughout the region.

Our focus is on the Economic Partnership Agreement with Europe but the issue is much broader because behind it all is the desire to remove barriers to trade which puts small countries like ours at a disadvantage in a world where the playing field is not level. Really, what we are seeking in all of this is time and space through the phasing in period for access and the call for development assistance in helping us to make the necessary adjustments, in an effort to find alternatives and to be in a better position to compete. I am not sure after all of this that there really is a light at the end of the tunnel.