Implications of EU-CARIFORUM Economic Partnership Agreement for Belize – A Forward Assessment David M. Gomez (Launchpad Consulting) Trade Capacity Building for Enhanced Private Sector Engagement Project (Project 123 – Belize) Belize Chamber of Commerce & Industry Belize City, Belize February 2007 ©BCCI 2007. This Study is produced by the Belize Chamber of Commerce and Industry (BCCI) under the Business Advocacy for Trade Capacity Building Project (Project 123 – Belize) with the support of the EU-ACP Project Management Unit (PMU). The views expressed are those of the author. Publication does not imply endorsement by the BCCI nor the PMU of any of the views expressed. 2 Implications of EU-CARIFORUM Economic Partnership Agreement for Belize – A Forward Assessment David M. Gomez February 2007 Abstract For nearly three decades Belize benefited from preferential trade in particular commodities under the Lomé Agreements. The Cotonou Agreement came into effect in 2000, and while temporarily extended those preferences through the end of 2007 at the same time it committed the ACP and EU to move towards establishing trading arrangements which offered reciprocal preferences and were WTO compatible. The proposed Economic Partnership Agreements (EPAs) which are expected to succeed the Cotonou Agreement are also expected to have economic impact effects on the economies of the ACP countries party to the negotiating. In the case of Belize, a small preference dependent developing economy which is negotiating as part of the CARIFORUM (CARICOM + Dominican Republic) EPA regional grouping there are likely to be effects arising from reciprocity and regional integration. This paper has found that such impacts include loss of fiscal revenues as a result of having to liberalize substantially all trade (i.e. interpreted to mean at least 80% of current imports from the EU if the EU liberalizes 100% of imports from Belize), and the contraction of its two key export sectors (bananas and sugar) as a result of the continued erosion of preferences. More importantly however is that for sectors in which Belize has export potential – agriculture and agri-food including beef and fisheries, exports would face market access constraints including as it relates to rules of origin, and food safety (standards) issues. Finally, the paper has found that EPAs are likely to have import-source substitution effects that have differing welfare effects for the Member States of CARICOM…one of which will cause imports in CARICOM to be sources from the EU rather than non-EU countries, and the other will cause switching from regional to EU sources of supply. Although Belize is expected to suffer negatively from trade diversion it will likely do so in only a small way as CARICOM is not its most important trading partner. Moreover if the composition of EU imports to the region remain the same then it is unlikely that Belize would suffer competition from such imports for its primary agriculture and low-value added food products. 3 List of Acronyms ACP African, Caribbean, Pacific ATPSM Agriculture Trade Policy Simulation Model BCCI Belize Chamber of Commerce & Industry CA Cotonou Agreement CAP Common Agricultural Policy CARICOM Caribbean Community CARIFORUM CARICOM + Dominican Republic CBI Caribbean Basin Initiative CCCT Commonwealth Caribbean Countries Tariff CET Common External Tariff COTED Council for Trade and Economic Development CRNM Caribbean Regional Negotiating Machinery CSME CARICOM Single Market & Economy DR Dominican Republic EBA Everything But Arms EPA Economic Partnership Agreement FTA Free Trade Agreement GPT Generalized Tariff Preference GSP Generalized System of Preferences GTAP Global Trade Analysis Project INTAL Institute for the Integration for Latin America and the Caribbean OECS Organization of Eastern Caribbean States PDE Preference-Dependent Economy S&D Special and Differential Treatment SFA Special Framework of Assistance SME Small and Medium-Sized Enterprises SSA Special System of Assistance TRQ Tariff Rate Quota UR Uruguay Round URAA Uruguay Round Agreement on Agriculture WTO World Trade Organization 4 Table of Contents Introduction......................................................................................................................... 7 Section 2: Background............................................................................................... 10 Section 2.1: Context & Purpose................................................................................ 10 Section 2.2: Research Methodology ......................................................................... 11 Section 2.3: Structure of the Negotiations ................................................................ 12 Section 3: Economic/Trade Analysis of Belize ......................................................... 13 Section 3.1 Key Trade Policy Issues........................................................................ 19 Section 4: Economic/Trade Analysis of CARICOM................................................. 22 Section 4.1 Integration & Trade Frameworks.......................................................... 27 Section 5: Impact Assessment of EPA – Key Issues ................................................. 38 Section 5.1 Reciprocity............................................................................................ 38 5.1(a) Tariff Liberalization and Related Issues................................................... 39 5.1(c) Fiscal Impacts................................................................................................. 48 Section 5.2 Market Access....................................................................................... 54 5.2(a) Residual Tariffs & Non-Tariff Barriers .................................................... 58 5.2(b) – Special Arrangements for Exempted Products............................................ 59 5.2(c) Rules of Origin.......................................................................................... 62 5.2(d) Erosion of Preferences:............................................................................. 64 Section 5.3 Regional Trade Liberalization .............................................................. 74 Section 5.4 Services Trade Liberalization ............................................................... 80 5.4 (a) Tourism.......................................................................................................... 81 5.4(b) Information and Communication Technnology ............................................. 85 5.4 (c) Maritime Transport........................................................................................ 88 5.4 (d) Architectural/ Engineering Services.............................................................. 88 Section 6: Conclusions............................................................................................... 89 Annex 1: Items Attracting Tariffs of 50 -80% in 2004..................................................... 98 Annex 2: Exclusion List - Belize at 80% Liberalization ............................................ 100 Annex 3 – Belize’s Sensitive Agricultural Products....................................................... 110 Annex 4: Sectoral Recommendations............................................................................. 121 Tables: Table 1: Social and Demographic Indicators - Belize ...................................................... 13 Table 2: Major Economic Indicators 2000/05 .................................................................. 14 Table 3: Sectoral Origin of Real GDP ............................................................................... 15 Table 4: Major Domestic Exports 2000-2005 .................................................................... 16 Table 5: Domestic Exports by Destination ....................................................................... 17 Table 6: Gross Imports by Destination ............................................................................ 17 Table 7: Gross Imports by Products.................................................................................. 18 Table 8: EU Main Imports from Belize ............................................................................ 18 Table 9: Basic Indicators for CARICOM, 2004 ............................................................... 22 Table 10: Composition of Exports, 2002 .......................................................................... 23 Table 11: Direction of Merchandise Exports by Country (2002) ..................................... 25 Table 12: OECS Exports to CARICOM/ World 2000-2003 ............................................ 33 Table 13: Share of Imports Intra-CARICOM ................................................................... 33 5 Table 14: Socio-Economic Indicators for the Dominica Republic 1998-2004................. 35 Table 15: CARICOM Exports to DR, 2004...................................................................... 36 Table 16: CARICOM Imports from DR, 2004 ................................................................. 37 Table 17: High Tariff, High Value Items in 2004 ............................................................ 42 Table 18: Tariff Distribution – Imports from EU.............................................................. 43 Table 19 : Regional Differences ....................................................................................... 45 Table 31: Losses on ACP sugar-protocol earnings from final agreed EU sugar