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InInNo. 14CBriefBrief- November 2006 Overview of the regional EPA negotiations -EU Economic Partnership Agreement

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 . 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. www.ecdpm.org/inbrief14c

Introduction Organization (WTO), as well as in bilateral Agreement (EPA) which will replace, by end trade talks with regional partners. With 2008, the thirty-year-old Lomé non-recip- The Caribbean region is composed of many the European Union, the region is currently rocal trade regime. small that are greatly dependent on negotiating an Economic Partnership 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 and 46% for the world on average. Despite Caribbean-EU EPA regional configuration the importance of its external trade rela- tions, particularly with the United States and the European Union, the Caribbean has Bahamas 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 there- fore been unable to benefit from global St. Kitts and Nevis trade liberalisation. Furthermore, the Caribbean economies are scarcely diversi- Dominican fied, with services, especially travel and Republic tourism, and agriculture currently playing the major role. At the regional level, the Caribbean is and the pursuing its own economic integration process through the implementation of the CARICOM Single Market and Economy Trinidad & Tobago (CSME), whose first component, the single market, was launched in January 2006. The Caribbean countries are also simultane- Surinam ously involved in a series of external trade negotiations at the multilateral level in the context of the World Trade

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CARICOM by seven small eastern Caribbean sion of a free trade arrangement with this CARICOM (14) islands.3 It represents a deeper form of South American region.6 Concerning bilat- Trade in Goods with regional integration, as exhibited in its eral trade relations, CARICOM has concluded the European Union, 2005 monetary union and common judiciary trade agreements with , system. and with . Trade flows • EU-bound exports: !3,349 million In August 1998, CARICOM and the (growth 2004-2005: 23.7%) concluded a free trade EPA Negotiations • Imports from the European Union: agreement (FTA), which provisionally !3,891 million (growth 2004-2005: entered into force in December 2001.4 This In previous ACP-EU cooperation agreements, 20.4%) agreement contains provisions on market all ACP countries enjoyed non-reciprocal • Trade balance: !542 million access for goods, including on rules of tariff preferences for their exports to the EU origin, technical barriers to trade, sanitary market. Under the Cotonou Agreement this Share of agriculture in trade and phytosanitary (SPS) standards, customs will change after 2008, when reciprocal free • EU-bound exports:22% procedures and trade promotion. It also trade agreements negotiated between the • Imports from the European Union: 7% covers investment (reciprocal promotion EC and the six ACP will replace the and protection) and provides for the asym- previous preferential trade regime. These Participation in EU trade: metrical application of the reciprocity prin- new agreements are to be compatible with • EU-bound exports: 0.36% ciple in favour of the less developed WTO rules, development-oriented and build • Imports from the European Union: 0.28% countries within CARICOM that are signato- upon ACP regional integration initiatives. ries to the treaty.5 It further provides for The new regime is also expected to incorpo- Main trade partners (2003): future negotiations in the areas of trade in rate and improve on the Lomé/Cotonou • Exports: United States (50%), services and government procurement. A instruments regarding access to the EU European Union (18%), other (27%) review of this FTA was initially planned for market for the ACP countries. • Imports: United States (27%), 2004, but due to lack of finance was not European Union (19%), other (25%) carried out. CARIFORUM-EU EPA negotiation CARICOM also signed a trade and economic principles The Caribbean Regional agreement with on 5 July 2000, which Integration Process will lead to a strengthening of economic The CARIFORUM-EU negotiations towards ties between the region and that country. an EPA are to be based on the following The and Common principles, which are enshrined in a plan and Market (CARICOM)1 was established in 1973 The Caribbean Forum of ACP States (CARI- schedule agreed by the negotiating parties by the Treaty of Chaguaramas, which was FORUM) includes the CARICOM member in April 2004.7 revised during the 1990s.2 Historically, CARI- states plus the Dominican Republic and COM replaced the Caribbean Free Trade Cuba. This political group was created in The CARIFORUM-EU EPA is, first and fore- Association (CARIFTA) which was set up 1992 with the aim of providing a regional- most, to be conceived as an instrument for following the collapse of the short-lived level interlocutor for interactions with the development, forged within the broader British Federation. European Commission (EC), above all to context of the ACP-EU partnership and coordinate European aid under the consistent with – and complementary to – CARICOM’s main areas of activity are three: European Development Fund (EDF). The the Cotonou Agreement’s goals and princi- (i) economic integration, (ii) functional coop- geographical configuration of the Economic ples. That means the EPA should be mutu- eration and (iii) coordination of the foreign Partnership Agreement (EPA) negotiations ally reinforcing and supportive of the policy of the member states. with the Caribbean coincides with the CARI- Cotonou Agreement’s political dimensions FORUM member states except for Cuba, and development cooperation strategies, Looking at economic integration, CARICOM which is not a signatory to the Cotonou and thus contribute to the global objectives member states agreed in February 2002 to Partnership Agreement. of sustainable development, smooth and implement the CSME by end December gradual integration into the world economy 2005. The CARICOM single market was and poverty eradication in the Caribbean launched in January 2006, and the CARI- International Trade states. Furthermore, the EPA should COM single economy is due to be estab- Negotiations promote sustained growth, increase produc- lished by 2008. When complete, the CSME tion and supply capacities, foster economic will provide for the free movement of Caribbean countries are currently engaged structural transformation and diversifica- goods, services, capital and labour and for in a variety of external trade negotiations tion and support regional integration in a the right of establishment within the that should foster their integration into the way that is consistent with the develop- Community. It will also provide for a world economy. These include negotiations ment policy objectives and strategies of the common external trade policy, effectively in the Doha Development Round of the CARIFORUM countries and regional group- coordinated macroeconomic and sectoral WTO, continuing talks on the Free Trade ings. To achieve these goals, consideration policies and harmonised laws and regula- Area of the (FTAA), and negotia- should be given to the economic, social, tions affecting trade. tion of an EPA with the European Union and environmental and structural constraints of of a FTA with Canada. CARICOM has also the Caribbean country or region concerned, The Organisation of Eastern Caribbean started discussions on deepening trade rela- as well as to their capacity to adapt their States (OECS) was created in 1981 within tions with MERCOSUR through the conclu- economies to the EPA process. During the

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preparatory period of the negotiations, EPA College of Negotiators in charge of States, which was incorporated in the capacity-building measures will be imple- conducting negotiations at the subject- Free Trade Agreement mented, particularly to enhance competi- specific level. The Regional Secretariats from (CAFTA). tiveness, modernise infrastructure, foster CARICOM and the OECS also play an impor- supply capacity and strengthen regional tant role in providing technical support to integration processes. the negotiation process. Moreover, partici- Links with the Caribbean regional pation in all of the components of the nego- integration process Another fundamental negotiation principle tiating structure is open to CARIFORUM is that the CARIFORUM-EU EPA should build member states. Economic regional integration is a central upon and support the Caribbean’s own issue in the EPA negotiations. That process regional integration process. This relates in the Caribbean is currently moving mainly to the completion of the CSME Key issues and challenges forward, but is far from complete. While the scheduled for 2008, but also to the free first component of the CSME, the single trade agreement between CARICOM and Negotiation of the CARIFORUM-EU EPA market, came into force in January 2006, the Dominican Republic. The regional inte- presents clear challenges, many of which significant differences and exceptions gration and market consolidation should are interlinked. remain in tariff systems, and other barriers, precede the bilateral trade liberalisation such as import licenses and discriminatory aspects of the negotiations. Coherence across the various trade fiscal measures, are yet to be tackled. negotiation processes Various legislative and administrative The need for differentiation, flexibility and Despite the temporary suspension of the programmes are also still to be imple- asymmetry across the Caribbean is a third Doha Round, the progress made and its mented to enable the free movement of key negotiation principle. Differences in size, final outcome will influence the EPA persons, services and capital. The so-called vulnerability and levels of development process to a large extent, especially regard- CSME “implementation deficit” is most between the Caribbean economies, call for ing the revision of the GATT provisions pronounced in the areas of harmonisation the consideration of special and differential (particularly article 24 on regional trade of laws, sectoral programmes and common treatment, not limited to transitional peri- agreements), special and differential treat- support measures related to the establish- ods. Technical assistance may also be ment, the enabling clause, subsidies and ment of a single economy, where consider- provided. The CARIFORUM-EU EPA should be agriculture, trade in services and the so- able work remains. Two CARICOM countries flexible enough to allow individual coun- called “Singapore issues” (competition, (Haiti and ) as well as the tries to calibrate the pattern and schedule investment, trade facilitation and govern- Dominican Republic are currently not party of implementation depending on their ment procurement). The outcome of to this process. national circumstances and constraints. In disputes on issues of interest to Caribbean that respect, special attention is needed for countries, such as sugar and bananas, in the Other main obstacles to the economic the case of Haiti which is the only United context of the WTO Dispute Settlement regional integration process in the region Nations (UN)-recognised least developed Mechanism (DSM) is also of great impor- are linked to the Caribbean regional config- country in the region. tance. These are areas in which the multi- uration and differences among countries in lateral process will have significant terms of levels of development, economic Other negotiation principles include WTO spillovers into bilateral negotiations with profiles and trade regimes (especially in the compatibility and the inclusion of and the European Union. case of Haiti, which has the most open trade improvement on the Lomé/Cotonou instru- regimes in the region and whose obliga- ments regarding access to the EU market for In addition to the multilateral negotiation tions under the CSME remain to be Caribbean exports. process, the Dominican Republic and CARI- fulfilled). There is a lack of resources for the COM are actively involved in negotiations to integration process, but also intermittent establish the FTAA. Despite the breakdown political will and a strong attachment to CARIFORUM negotiating structure since February 2004 and the lack of any national sovereignty. To illustrate, CARICOM meaningful progress, if these FTAA talks does not benefit from supranational legisla- Negotiation of the CARIFORUM-EU EPA is resume they will have a strong impact on tive and executive powers to fast track the taking place in three tiers: the ministerial the unilateral trade preferences granted by CSME implementation process. level, the principal negotiators’ level, and the United States to the Caribbean coun- that of the technical experts. At the ministe- tries in the context of the rial level, CARIFORUM has appointed Senior Initiative and they could be significant for Impact of changes in EU policy Minister Dame Miller of Barbados as its lead the EPA process, notably with regard to the spokesperson. Dame Miller is assisted by a “most favoured nation clause” contained in Changes in EU policies have important ministerial troika comprising representa- the Cotonou Agreement8,This clause implications for the Caribbean region in its tives of the Dominican Republic, St. Lucia compels Caribbean countries to grant the EPA negotiation process. The reform of the and Belize. The Director-General of the European Union market access concessions EU Common Agricultural Policy (CAP) and its Caribbean Regional Negotiating Machinery not less favourable than those conferred to impacts in terms of trade distortion and (CRNM) has the role of CARIFORUM other non-developing countries (in this case, market price declines is one such issue. The Principal Negotiator. Technical experts from the United States and Canada in the context erosion of trade preferences is another issue regional institutions (including CRNM, the of the FTAA process). This clause could also that may strongly impact the EPA negotia- CARICOM Secretariat and regional academic be called into effect with regard to the tion process and which requires careful institutions) as well as from the private recent trade agreement concluded between scrutiny from the Caribbean negotiators, sector and member states have formed the the Dominican Republic and the United considering the economic and social impor-

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tance of agriculture in most Caribbean Caribbean trade preferences in the agricul- (GATS), should result in greater international countries. Revision of the EU sugar regime, tural sector (particularly in the sugar and competition, posing serious economic, social which is currently under way, and the cut in banana subsectors in the context of the CAP and environmental challenges to the region. reference prices it implies, and the introduc- reform), should be treated with extreme However, it could also lead to gains in terms tion of the EU “tariff only” regime for caution by Caribbean trade negotiators. of greater access to the European market banana imports, which has been in place (notably for exports under GATS Mode IV: since 1 January 2006, will have similar Apart from agriculture, services are a key Temporary Movement of Natural Persons) impacts. The market access implications of sector for Caribbean economic and social and attraction of foreign direct investment. these processes for the Caribbean should be welfare, in particular travel and tourism but Caribbean negotiators must further make addressed in the context of the EPA negotia- also education and health-related services, full use of the flexibility allowed in GATS tions, especially through the review of the transport and financial services, which are provisions in terms special and differential commodity protocols. Furthermore, specific gaining in importance. The prospect of liber- treatment, and ensure that adjustment and assistance mechanisms have been or will be alisation of trade in services under an EPA, support measures to foster competitiveness set up to improve the competitiveness of coupled with possible negotiations at the and supply-side capacity are efficiently Caribbean producers and to support level of FTAA and WTO in the context of the delivered in the region. economic diversification where competitive- General Agreement on Trade in Services ness 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 coun- tries’ heavy dependence on revenues from Figure 1. CARIFORUM-EU EPA configuration and overlapping regional and sub-regional border tariffs and taxes. Enhanced EU access economic integration groupings 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 liberalisa- tion process. On the other hand, the ques- tion 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 require- ments.

Key sectors: Agriculture, services

Agriculture’s economic and social impor- tance in the Caribbean goes far beyond trade concerns. Furthermore, some Caribbean countries, particularly the 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

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Box 1. The Caribbean Regional Negotiating Machinery (CRNM)

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

List of acronyms

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

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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, , (British), (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)

Key References Lombaerde, P, De.. 2005. Monitoring Regional Integration in the Dunlop, A., Van Hove, K. and S. Szepesi. 2004. Organising trade negotiat- Caribbean and the Role of the EU. (UNU-CRIS Occasional Papers 0- ing capacity at the regional level. (ECDPM Discussion Paper No 54). 2005/16). Bruges-UNU-CRIS Maastricht: ECDPM. www.ecdpm.org/dp54 World Bank. 2005. A Time to Choose. Caribbean Development in the 21st European Commission. CARIFORUM. 2004. Plan and Schedule for CARI- Century. (Report No. 31725/LAC). April 26. Washington: World Bank FORUM EC Negotiation of an Economic Partnership Agreement, Brussels Additional Sources Gasiorek, M. et al. 2006. The impact of the EPAs of the Cotonou Agreement on trade, production and poverty alleviation in the • CARICOM: www.caricom.org/ Caribbean region. Final Report. January. Sussex University. • Caribbean Regional Negotiating Machinery: www.crnm.org/ • Portal on ACP-EU trade matters www.acp-eu-trade.org Grant, G.. A. Winters. 2004. What Role for the EPAs in the Caribbean? • Bilaterals.org www.bilaterals.org (Volume 27 Issue 9 Page 1335). September. Nottingham: The World • RNM Updates www.crnm.org/rnm_updates.htm Economy • European Commission's website, DG Trade, EPA Regional negotiations: http://ec.europa.eu/trade/issues/bilateral/regions/acp/regneg_en.htm Lodge, J. , S. Bilal. 2006. A Caribbean-EU EPA:Towards an Enhanced http://trade.ec.europa.eu/doclib/cfm/doclib_section.cfm?sec=148&lev Partnership? In Navigating New Waters. A Reader on ACP-EU Trade =2&order=date Relations. S. Bilal, R. Grynberg, eds. London: Commonwealth Secretariat

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 related provisions of free trade agreements (FTAs) recently concluded EU stakeholders to have a clear overview on the structure, phasing, by the EU with developing countries (www.ecdpm.org/ftainbriefs). key challenges and main developments in the negotiations of economic partnership agreement (EPA) by each of the six ACP negoti- The ECDPM acknowledges the generous support of the Swiss Agency ating regions: the Caribbean,West Africa, Central Africa, East and for Development Cooperation, the Ministry of Foreign Affairs in Southern Africa, Southern Africa and the Pacific. For each ACP EPA Sweden and the for the production of this series. 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 The InBriefs are available online at www.acp-eu-trade.org and summarises the current state of negotiations. www.ecdpm.org/regionalepainbriefs

The Overview of Regional EPA Negotiations InBrief series is part of the This Overview of Regional EPA Negotiations InBrief series is an initiative effort by ECDPM to provide regular information and analysis related to by the European Centre for Development Policy Management with the EPA negotiations. Other contributions include the Negotiating EPA contributions of Sanoussi Bilal, Camille Donnat, Nicolas Gerard, InBrief series which provides non-techincal overviews and syntheses of Francesco Rampa and Kathleen Van Hove (ECDPM) under the editorial specific issues that are to be addressed in the EPA negotiations supervision of Sanoussi Bilal ([email protected]) and Kathleen Van Hove (www.ecdpm.org/epainbriefs), and the Comparing EU FTA InBriefs ([email protected]). series which provides a detailed overview of the trade and trade-

'InBrief' provides summarised background information on the main policy debates and European Centre for Development Policy Management activities in ACP-EC cooperation. These complementary summaries are drawn from consultative Onze Lieve Vrouweplein 21 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-parti- NL-6211 HE Maastricht san organisation that seeks to facilitate international cooperation between the ACP and the EC. The Netherlands 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 Tel +31 (0)43 350 29 00 Fax +31 (0)43 350 29 02 Affairs in Finland, Luxemburg, the Netherlands and Sweden, the Directorate-General for [email protected] www.ecdpm.org 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. ISSN 1571-7542