(www.ecdpm.org/inbrief14c)

The purpose of this InBrief series is to provide a synthesis of the main elements and issues at stake for the 6 African, Caribbean, and Pacific (ACP) groupings negotiating an Economic Partnership Agreement (EPA) with the European Union (EU). Each InBrief offers an overview of the economic and regional integration dynamics influencing the structure, pace, and outcome of the EPA negotiation process for each region. It also focuses on the main issues and challenges to be tackled by each region in order to make the new trade arrangement a development oriented instrument. Each regional InBrief is complemented by an update on the ongoing EPA negotiation process. Every 6 months until the conclusion of the EPAs, a new update will be produced.

Introduction

The Caribbean region is composed of many small islands that are greatly dependent on trade for their economic development. In 1999, the share of trade in the region’s gross domestic product (GDP) amounted to 80%, compared to 49% for sub-Saharan Africa and 46% for the world on average. Despite the importance of its external trade relations, particularly with the United States and the European Union, the Caribbean has experienced a sharp decline in its share of world trade, falling from 1.7% in 1950 to 0.2% in 2000 with regard to world merchandise exports. The region has therefore been unable to benefit from global trade liberalisation. Furthermore, the Caribbean economies are scarcely diversified, with services, especially travel and tourism, and agriculture currently playing the major role.

At the regional level, the Caribbean is pursuing its own economic integration process through the implementation of the CARICOM Single Market and Economy (CSME), whose first component, the single market, was launched in January 2006. The Caribbean countries are also simultaneously involved in a series of external trade negotiations at the multilateral level in the context of the World Trade Organization (WTO), as well as in bilateral trade talks with regional partners. With the European Union, the region is currently negotiating an Economic Partnership
Agreement (EPA) which will replace, by end 2008, the thirty-year-old Lomé non-reciprocal trade regime.





The Caribbean Regional Integration Process

The Caribbean Community and Common Market (CARICOM)¹ was established in 1973 by the Treaty of Chaguaramas, which was revised during the 1990s.² Historically, CARICOM replaced the Caribbean Free Trade Association (CARIFTA) which was set up following the collapse of the short-lived British West Indies Federation.

CARICOM’s main areas of activity are three: (i) economic integration, (ii) functional cooperation and (iii) coordination of the foreign policy of the member states.

Looking at economic integration, CARICOM member states agreed in February 2002 to implement the CSME by end December 2005. The CARICOM single market was launched in January 2006, and the CARICOM single economy is due to be established by 2008. When complete, the CSME will provide for the free movement of goods, services, capital and labour and for the right of establishment within the Community. It will also provide for a common external trade policy, effectively coordinated macroeconomic and sectoral policies and harmonised laws and regulations affecting trade.

The Organisation of Eastern Caribbean States (OECS) was created in 1981 within CARICOM by seven small eastern Caribbean islands.³ It represents a deeper form of regional integration, as exhibited in its monetary union and common judiciary system.

In August 1998, CARICOM and the Dominican Republic concluded a free trade agreement (FTA), which provisionally entered into force in December 2001.⁴ This agreement contains provisions on market access for goods, including on rules of origin, technical barriers to trade, sanitary and phytosanitary (SPS) standards, customs procedures and trade promotion. It also covers investment (reciprocal promotion and protection) and provides for the asymmetrical application of the reciprocity principle in favour of the less developed countries within CARICOM that are signatories to the treaty.⁵ It further provides for future negotiations in the areas of trade in services and government procurement. A review of this FTA was initially planned for 2004, but due to lack of finance was not carried out.

CARICOM also signed a trade and economic agreement with Cuba on 5 July 2000, which will lead to a strengthening of economic ties between the region and that country.

The Caribbean Forum of ACP States (CARIFORUM) includes the CARICOM member states plus the Dominican Republic and Cuba. This political group was created in 1992 with the aim of providing a regional-level interlocutor for interactions with the European Commission (EC), above all to coordinate European aid under the European Development Fund (EDF). The geographical configuration of the Economic Partnership Agreement (EPA) negotiations with the Caribbean coincides with the CARIFORUM member states except for Cuba, which is not a signatory to the Cotonou Partnership Agreement.

International Trade Negotiations

Caribbean countries are currently engaged in a variety of external trade negotiations that should foster their integration into the world economy. These include negotiations in the Doha Development Round of the WTO, continuing talks on the Free Trade Area of the Americas (FTAA), and negotiation of an EPA with the European Union and of a FTA with Canada. CARICOM has also started discussions on deepening trade relations with MERCOSUR through the conclusion of a free trade arrangement with this South American region.⁶ Concerning bilateral trade relations, CARICOM has concluded trade agreements with Venezuela, Colombia and with Costa Rica.

EPA Negotiations

In previous ACP-EU cooperation agreements, all ACP countries enjoyed non-reciprocal tariff preferences for their exports to the EU market. Under the Cotonou Agreement this will change after 2008, when reciprocal free trade agreements negotiated between the EC and the six ACP regions will replace the previous preferential trade regime. These new agreements are to be compatible with WTO rules, development-oriented and build upon ACP regional integration initiatives. The new regime is also expected to incorporate and improve on the Lomé/Cotonou instruments regarding access to the EU market for the ACP countries.

CARIFORUM-EU EPA negotiation principles

The CARIFORUM-EU negotiations towards an EPA are to be based on the following principles, which are enshrined in a plan and schedule agreed by the negotiating parties in April 2004.⁷

The CARIFORUM-EU EPA is, first and foremost, to be conceived as an instrument for development, forged within the broader context of the ACP-EU partnership and consistent with – and complementary to – the Cotonou Agreement’s goals and principles. That means the EPA should be mutually reinforcing and supportive of the Cotonou Agreement’s political dimensions and development cooperation strategies, and thus contribute to the global objectives of sustainable development, smooth and gradual integration into the world economy and poverty eradication in the Caribbean states. Furthermore, the EPA should promote sustained growth, increase production and supply capacities, foster economic structural transformation and diversification and support regional integration in a way that is consistent with the development policy objectives and strategies of the CARIFORUM countries and regional groupings. To achieve these goals, consideration should be given to the economic, social, environmental and structural constraints of the Caribbean country or region concerned, as well as to their capacity to adapt their economies to the EPA process. During the preparatory period of the negotiations, capacity-building measures will be implemented, particularly to enhance competitiveness, modernise infrastructure, foster supply capacity and strengthen regional integration processes.

Another fundamental negotiation principle is that the CARIFORUM-EU EPA should build upon and support the Caribbean’s own regional integration process. This relates mainly to the completion of the CSME scheduled for 2008, but also to the free trade agreement between CARICOM and the Dominican Republic. The regional integration and market consolidation should precede the bilateral trade liberalisation aspects of the negotiations.

The need for differentiation, flexibility and asymmetry across the Caribbean is a third key negotiation principle. Differences in size, vulnerability and levels of development between the Caribbean economies, call for the consideration of special and differential treatment, not limited to transitional periods. Technical assistance may also be provided. The CARIFORUM-EU EPA should be flexible enough to allow individual countries to calibrate the pattern and schedule of implementation depending on their national circumstances and constraints. In that respect, special attention is needed for the case of Haiti which is the only United Nations (UN)-recognised least developed country in the region.

Other negotiation principles include WTO compatibility and the inclusion of and improvement on the Lomé/Cotonou instruments regarding access to the EU market for Caribbean exports.

CARIFORUM negotiating structure

Negotiation of the CARIFORUM-EU EPA is taking place in three tiers: the ministerial level, the principal negotiators’ level, and that of the technical experts. At the ministerial level, CARIFORUM has appointed Senior Minister Dame Miller of Barbados as its lead spokesperson. Dame Miller is assisted by a ministerial troika comprising representatives of the Dominican Republic, St. Lucia and Belize. The Director-General of the Caribbean Regional Negotiating Machinery (CRNM) has the role of CARIFORUM Principal Negotiator. Technical experts from regional institutions (including CRNM, the CARICOM Secretariat and regional academic institutions) as well as from the private sector and member states have formed the EPA College of Negotiators in charge of conducting negotiations at the subject-specific level. The Regional Secretariats from CARICOM and the OECS also play an important role in providing technical support to the negotiation process. Moreover, participation in all of the components of the negotiating structure is open to CARIFORUM member states.

Key issues and challenges

Negotiation of the CARIFORUM-EU EPA presents clear challenges, many of which are interlinked.

Coherence across the various trade negotiation processes
Despite the temporary suspension of the Doha Round, the progress made and its final outcome will influence the EPA process to a large extent, especially regarding the revision of the GATT provisions (particularly article 24 on regional trade agreements), special and differential treatment, the enabling clause, subsidies and agriculture, trade in services and the so-called “Singapore issues” (competition, investment, trade facilitation and government procurement). The outcome of disputes on issues of interest to Caribbean countries, such as sugar and bananas, in the context of the WTO Dispute Settlement Mechanism (DSM) is also of great importance. These are areas in which the multilateral process will have significant spillovers into bilateral negotiations with the European Union.

In addition to the multilateral negotiation process, the Dominican Republic and CARICOM are actively involved in negotiations to establish the FTAA. Despite the breakdown since February 2004 and the lack of any meaningful progress, if these FTAA talks resume they will have a strong impact on the unilateral trade preferences granted by the United States to the Caribbean countries in the context of the Caribbean Basin Initiative and they could be significant for the EPA process, notably with regard to the “most favoured nation clause” contained in the Cotonou Agreement⁸, This clause compels Caribbean countries to grant the European Union market access concessions not less favourable than those conferred to other non-developing countries (in this case, the United States and Canada in the context of the FTAA process). This clause could also be called into effect with regard to the recent trade agreement concluded between the Dominican Republic and the United States, which was incorporated in the Central America Free Trade Agreement (CAFTA).

Links with the Caribbean regional integration process

Economic regional integration is a central issue in the EPA negotiations. That process in the Caribbean is currently moving forward, but is far from complete. While the first component of the CSME, the single market, came into force in January 2006, significant differences and exceptions remain in tariff systems, and other barriers, such as import licenses and discriminatory fiscal measures, are yet to be tackled. Various legislative and administrative programmes are also still to be implemented to enable the free movement of persons, services and capital. The so-called CSME “implementation deficit” is most pronounced in the areas of harmonisation of laws, sectoral programmes and common support measures related to the establishment of a single economy, where considerable work remains. Two CARICOM countries (Haiti and the Bahamas) as well as the Dominican Republic are currently not party to this process.

Other main obstacles to the economic regional integration process in the region are linked to the Caribbean regional configuration and differences among countries in terms of levels of development, economic profiles and trade regimes (especially in the case of Haiti, which has the most open trade regimes in the region and whose obligations under the CSME remain to be fulfilled). There is a lack of resources for the integration process, but also intermittent political will and a strong attachment to national sovereignty. To illustrate, CARICOM does not benefit from supranational legislative and executive powers to fast track the CSME implementation process.

Impact of changes in EU policy

Changes in EU policies have important implications for the Caribbean region in its EPA negotiation process. The reform of the EU Common Agricultural Policy (CAP) and its impacts in terms of trade distortion and market price declines is one such issue. The erosion of trade preferences is another issue that may strongly impact the EPA negotiation process and which requires careful scrutiny from the Caribbean negotiators, considering the economic and social importance of agriculture in most Caribbean countries. Revision of the EU sugar regime, which is currently under way, and the cut in reference prices it implies, and the introduction of the EU “tariff only” regime for banana imports, which has been in place since 1 January 2006, will have similar impacts. The market access implications of these processes for the Caribbean should be addressed in the context of the EPA negotiations, especially through the review of the commodity protocols. Furthermore, specific assistance mechanisms have been or will be set up to improve the competitiveness of Caribbean producers and to support economic diversification where competitiveness is not sustainable.

Market access/cost of reciprocity

The cost of granting the European Union enhanced access to the Caribbean market is another central issue of the negotiation process, especially due to the OECS countries’ heavy dependence on revenues from border tariffs and taxes. Enhanced EU access will also introduce greater competition in Caribbean domestic markets. Hence the necessity for the region to use all of the flexibility and asymmetry allowed in WTO agreements when defining the product coverage and sequencing of the liberalisation process. On the other hand, the question of improving Caribbean access to the EU market will not be tackled solely by awarding tariff preferences. Indeed, while it is widely assumed that the EC will award each ACP region an “Everything But Arms”-style duty and quota-free market access, this alone will not address the trade needs of the Caribbean exporters. Emphasis should therefore also be put on assisting the region’s entrepreneurs in building compliance capacity to EU SPS, technical barriers to trade and rules of origin requirements.

Key sectors: Agriculture, services

Agriculture’s economic and social importance in the Caribbean goes far beyond trade concerns. Furthermore, some Caribbean countries, particularly the Windward Islands and Guyana, are still heavily dependent on a limited number of agricultural commodities, such as sugar, rice, bananas and rum, for their export earnings and socioeconomic stability. As a result, any liberalisation request from the European Union, as well as any proposal or process which could further affect the value of Caribbean trade preferences in the agricultural sector (particularly in the sugar and banana subsectors in the context of the CAP reform), should be treated with extreme caution by Caribbean trade negotiators.

Apart from agriculture, services are a key sector for Caribbean economic and social welfare, in particular travel and tourism but also education and health-related services, transport and financial services, which are gaining in importance. The prospect of liberalisation of trade in services under an EPA, coupled with possible negotiations at the level of FTAA and WTO in the context of the General Agreement on Trade in Services (GATS), should result in greater international competition, posing serious economic, social and environmental challenges to the region. However, it could also lead to gains in terms of greater access to the European market (notably for exports under GATS Mode IV: Temporary Movement of Natural Persons) and attraction of foreign direct investment. Caribbean negotiators must further make full use of the flexibility allowed in GATS provisions in terms special and differential treatment, and ensure that adjustment and support measures to foster competitiveness and supply-side capacity are efficiently delivered in the region.

Figure 1. CARIFORUM-EU EPA configuration and overlapping regional and sub-regional economic integration groupings

Box 1. The Caribbean Regional Negotiating Machinery (CRNM) What is the CRNM Established in 1997, the Caribbean Regional Negotiating Machinery (RNM) is the principal regional intergovernmental organization mediating the Caribbean’s encounter with the global trading system. Tasked by Caribbean Community (CARICOM) Governments, the CRNM has primary responsibility for coordinating and spearheading a cohesive, coherent regional trade policy, both strategically and on technical issues under negotiation. This entails developing and maintaining an effective framework for the coordination and management of the Caribbean Region’s trade negotiating resources and expertise, and undertaking/leading negotiations where appropriate Mission To assist Member States in maximizing the benefits of participation in global trade negotiations by providing sound, high quality advice, facilitating the generation of national positions, coordinating the formulation of a unified strategy for the Region and undertaking/leading negotiations where appropriate. Organisational and Funding Structure The CRNM was originally established as a programme, not an institution. As such it does not have permanent status, which has created difficulties for example in terms of accreditation in the ACP-EU context. It has developed into a substantial organisation with over 20 professional staff members and four senior associates to assist the director general. The director general, Richard Bernal, provides technical leadership of all negotiating fora, speaks on behalf of the Caribbean in the FTAA and provides advice to the region’s prime ministers. His position de facto combines the responsibilities of chief negotiator and chief technical adviser. The CRNM has its head office in Jamaica and its main office in Barbados (which has the fiduciary responsibility. It also has representatives in Geneva and Brussels, who are responsible for monitoring activities, preparing reports and coordinating diplomatic representatives With regards to the funding structure, member states’ contributions make up for around 50% of the total; the rest is provided by institutional donors such as the Caribbean Development Bank (CDB), the Canadian International Development Agency (CIDA), the UK’s Department for International Development (DFID), the EC, the Inter-American Development Bank (IDB), and the United States Agency for International Development (USAID). Negotiating Theatres At present, CARICOM is involved in a packed agenda of trade negotiations, and is engaged in its most formidable negotiations of the post-independence period, both in respect of scale and complexity. The four negotiating theatres in which the Region is simultaneously involved are: (i) World Trade Organization (WTO); (ii) Free Trade Area of the Americas (FTAA); (iii) Economic Partnership Agreements (EPAs) (where CARICOM is paired with the Dominican Republic to form CARIFORUM); and, (iv) bilateral negotiations, which currently are primarily focused on possible negotiations with Canada and Mercosur. Source: CRNM website and Dunlop, Van Hove, and Szepezi, 2004

List of acronyms

ACP African, Caribbean and Pacific
CAFTA Central America Free Trade Agreement
CAP Common Agricultural Policy
CARICOM Caribbean Community and Common Market
CARIFORUM Caribbean Forum of ACP States
CARIFTA Caribbean Free Trade Association
CDB Caribbean Development Bank
CIDA Canadian International Development Agency
CRNM Caribbean Regional Negotiating Machinery
CSME Caribbean Single Market and Economy
DFID UK’s Department for International Development
DSM Dispute Settlement Mechanism
EC European Commission
EDF European Development Fund
EPA Economic Partnership Agreement
EU European Union
FTA Free Trade Agreement
FTAA Free Trade Area of the Americas
GATS General Agreement on Trade in Services
GATT General Agreement on Tariffs and Trade
GDP Gross Domestic Product
HIPC Highly Indebted Poor Countries
IDB Inter-American Development Bank
IMF International Monetary Fund
MERCOSUR Southern Common Market
MFN Most Favoured Nation
OECS Organization of Eastern Caribbean States
SPS Sanitary and Phytosanitary measures
TBT Technical Barriers to Trade
UN United Nations
US United States
USAID United States Agency for International Development
WTO World Trade Organization




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Notes

1 CARICOM is composed of fifteen members: Antigua and Barbuda, the Bahamas, Barbados, Belize, Dominica, Grenada, Guyana, Jamaica, St. Kitts and Nevis, St. Lucia, St. Vincent and the Grenadines, Trinidad and Tobago, Montserrat (British), Suriname (since 1995) and Haiti (since 2002).
2 The revised Treaty of Chaguaramas was signed in 2001 by all CARICOM member states except the Bahamas and Montserrat.
3 The OECS member states include: Antigua and Barbuda, Dominica, Grenada, St. Kitts and Nevis, St. Lucia, St. Vincent and the Grenadines and Montserrat.
4 The Agreement was signed on 22 August 1998 and a Protocol to implement the Agreement was agreed in the middle of 2000.
5 The CARICOM Less Developed Countries signatories to the Treaty are defined in article I, point 4 of the Agreement as: Antigua and Barbuda, Belize, Dominica, Grenada, Montserrat, St. Kitts and Nevis, St. Lucia and St. Vincent and the Grenadines.
6 MERCOSUR is composed of Argentina, Brazil, Paraguay and Uruguay. Chile and Bolivia are associate members.
7 See “Plan and Schedule for CARIFORUM EC Negotiation of an Economic Partnership Agreement”, a joint document accepted by the first CARIFORUM-EC Ministerial EPA negotiations, Kingston, Jamaica on April 16, 2004.
8 Annex V of the Cotonou Agreement, article 5 (1b)

Overview of regional EPA negotiations InBrief series for 2006-2008 The purpose of this InBrief series is to allow a wide range of ACP and EU stakeholders to have a clear overview on the structure, phasing, key challenges and main developments in the negotiations of economic partnership agreement (EPA) by each of the six ACP negotiating regions: the Caribbean, West Africa, Central Africa, East and Southern Africa, Southern Africa and the Pacific. For each ACP EPA regional grouping, reference is made to other international trade negotiations and their regional economic integration processes. In addition, each InBrief will be complemented by a regular Update that summarises the current state of negotiations. The Overview of Regional EPA Negotiations InBrief series is part of the effort by ECDPM to provide regular information and analysis related to the EPA negotiations. Other contributions include the Negotiating EPA InBrief series which provides non-techincal overviews and syntheses of specific issues that are to be addressed in the EPA negotiations (www.ecdpm.org/epainbriefs), and the Comparing EU FTA InBriefs series which provides a detailed overview of the trade and trade-related provisions of free trade agreements (FTAs) recently concluded by the EU with developing countries (www.ecdpm.org/ftainbriefs). The ECDPM acknowledges the generous support of the Swiss Agency for Development Cooperation, the Ministry of Foreign Affairs in Sweden and the Netherlands for the production of this series. The InBriefs are available online at www.acp-eu-trade.org and www.ecdpm.org/regionalepainbriefs This Overview of Regional EPA Negotiations InBrief series is an initiative by the European Centre for Development Policy Management with contributions of FSanoussi Bilal, Camille Donnat, Nicolas Gerard, Francesco Rampa and Kathleen Van Hove (ECDPM) under the editorial supervision of Sanoussi Bilal (sb@ecdpm.org) and Kathleen Van Hove (kvh@ecdpm.org).

'InBrief' provides summarised background information on the main policy debates and activities in ACP-EC cooperation. These complementary summaries are drawn from consultative processes in which the European Centre for Development Policy Management (ECDPM) engages with numerous state and non-state actors in the ACP and EU countries. The Centre is a non-partisan organisation that seeks to facilitate international cooperation between the ACP and the EC. Information may be reproduced as long as the source is quoted. The ECDPM acknowledges the support it receives for the InBrief from the Ministries of Foreign Affairs in Finland, Luxemburg, the Netherlands and Sweden, the Directorate-General for Development Cooperation in Belgium, Irish Aid, the Swiss Agency for Development and Cooperation, the Instituto Português de Apoio ao Desenvolvimento in Portugal, and the Department for International Development in the United Kingdom.

European Centre for Development Policy Management Onze Lieve Vrouweplein 21 NL-6211 HE Maastricht The Netherlands Tel +31 (0)43 350 29 00 Fax +31 (0)43 350 29 02 info@ecdpm.org www.ecdpm.org ISSN 1571-7437