Time is running out Part II

Last week we began by looking at the proposed Economic Partnership Agreement (EPA) currently being negotiated between the CARIFORUM countries and the European Union. We concluded the first part by saying that any such treaty would have profound implications for us in the Caribbean. There are two basic ways in which we can be affected, in our imports and export Trade.

Because of the sensitivity of the banana issue, we have tended to focus more on our access to the European market under an EPA, especially the conditions under which our bananas would be permitted to enter the European Market.{{more}} But the other side of the coin, our import trade is of no lesser significance and depending on what type of Agreement is crafted, there can be very serious repercussions. This is because in any “Free Trade” Arrangement, which is essentially what the EPA will be, the Governments which are signatory to it, would have to embark on what is called “Tariff Liberalization”, that is, progressively tariffs or import duties would have to be lowered leading to a complete removal over time.

Now, in order for any such “Free Trade” Agreement (and please, let us stop confusing free trade with FAIR TRADE) to be compatible with the rules of the World Trade Organization, the infamous WTO, a significant part, called in trade jargon “substantially all trade”, must be subject to this liberalization on tariff reduction. But these tariffs are important, very important to the governments of such countries for two reasons. First, they have the effect of protecting legal production and secondly they provide revenue for governments.

In the case of local production, it was long established practice for governments to impose tariffs on imports of products which are either produced or could be produced locally. In fact in times past governments even banned the import of any such products, remember Mitchell’s attempts to protect and stimulate local agricultural production by banning several imports in the 1972/74 period and the reaction to it? Today however, in the new international trading environment, such actions are no longer acceptable; trade liberalization is the new gospel.

Yet within this, it is recognized for one reason or another, for example, food security, cultural reasons, revenue dependence, countries may wish to designate some products as special products and are permitted to exclude these from the liberalization, at least for given periods. This is the stage at which Caribbean governments have arrived. At the meeting to which I referred last week, technocrats from the various CARIFORUM countries were involved in such an exercise. Difficult it is proving to be, because each country has its own national interests, real or imagined, but the negotiations with the European Union is on a regional scale, necessitating some give and take concessions which not all countries are willing to make unless forced to do so.

As such tariffs are lowered or removed altogether; local industry and agriculture will have to face the competition of goods from developed countries without the shield of tariff protection. It means that in our negotiations, efforts and resources to build our production capacity and competitiveness are essential. Otherwise we can find ourselves flooded by cheap imports destroying regional production, jobs and economic progress.

There is also the worrying factor that such liberalization will significantly reduce governments’ revenue earnings. Much of what our government rakes in comes from the port, especially in the case of countries like ours with limited natural resources and tiny manufacturing capacity. If overnight these are reduced substantially or removed altogether, where will government generate revenue for its programmes? Government as we know, can collapse altogether. In fact this progressive lowering of tariffs is the primary driving force behind the introduction of the Value Added Tax or VAT. By the end of this year, most Caribbean countries would have gone this route.

It is because of these concerns that Countries, not just in the Caribbean but in Africa and the Pacific as well, are wary about signing any EPA which does not safeguard their interest. Our negotiations will have to insist that the fundamental development needs of underdeveloped and very vulnerable nations are provided for and taken care of under any EPA. Unequal partners cannot enter into any equitable agreement unless the interest of the weak are protected and unless there is equity in the arrangements. The treatment of our bananas and the hardline stance of EU negotiations give reasons for serious concern and vigilance. December 31, 2007 is only 270 days away.

LOOK OUT! APRIL 19 IS EPA ACTION DAY