Reflections on the CARIFORUM - EC Economic Partnership Agreement: Implications for CARICOM
| Author | Clive Thomas |
| Pages | 258-290 |
REFLECTIONS ON THE CARIFORUM-EC
ECONOMIC PARTNERSHIP AGREEMENT:
IMPLICATIONS FOR CARICOM 1
Clive Thomas
19
Introduction
This chapter offers, basically from a
CARICOM perspective, a strategic appraisal of
the external trade policy changes encapsulated in
the CARIFORUM-EC Economic Partnership
Agreement (EPA). This has been recognised
as the first “full and comprehensive” EPA
among the six that are being negotiated by the
European Commission, (EC) and the African-
Caribbean-Pacific (ACP) group of countries.
At this point, the EPA is both a legal agreement
and an instrument designed to promote
specified development objectives. Ultimately,
its strengths, weaknesses, the opportunities
it will create and the threats it will face, will
unfold during its implementation. How this is
actualized will be a principal determinant of its
success in attaining those objectives.
The first Section contrasts key forecast
long-run benefits of the EPA with front-
loaded implementation costs that are already
occurring in the Region. Section II assesses why
this is the case. Section III comments on the
EU assistance commitments in the Agreement,
while Section IV assesses the consultations
process in CARICOM during the negotiations
and draws attention to some important issues
of economic governance. The final Section (V)
considers a number of contextual and related
issues important for the future of the Region
under the EPA.
Forecast Long-Run Benets and
Front-Loaded Costs
Long-run benets
Without even the limited assurance of:
1) Any supporting long-term quantitative
economic and trade assessment, or
the customary computable general
equilibrium multi-sector multi-country
model projections of the likely effects of
trade policy changes;
2) Any of the standard social impact
assessment studies;
3) Quantitative estimations by the EU of the
difference in the margins of preference on
offer at the WTO and those on offer to
the CARIFORUM-EC EPA; or
4) Revenue or other estimations of the
likely impact on CARIFORUM States
in a situation where subsequent trade
negotiations take place with the Region’s
primary trading partner,
it has nevertheless been confidently
asserted (speculated) that, with the EU’s offer of
substantial market access for CARIFORUM’s
goods and services in the Agreement and
the expectation of foreign direct investment
(FDI) flows to the Region that with built-in
reciprocity, after full liberalisation kicks-in (in
about two-and-a-half decades), the agreed to
development and trade-related measures in the
EPA would have secured for CARIFORUM:
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Reflections on the CARIFORUM-EC Economic Partnership Agreement: Implications for CARICOM 259
1) Substantial trade-creation following the
dismantling of barriers to trade;
2) Deep-rooted development reforms;
3) A sustainable path for regional integration
and development;
4) An endogenous capacity to contain, if not
eradicate, poverty and other deep-seated
social and economic ills besetting the
Region;
5) An economic regime in which trade will
be routinely at the service of development;
and
6) Such other economic reforms would
demonstrate to the world the earnestness
of the Region in meeting its EPA
objectives, thereby ensuring that it
becomes a substantial net private capital-
importer and also recipient of official
resource inflows.
This modernisation is crucially dependent
on the coherence of policies in CARIFORUM,
as well as EU’s development assistance and the
provision of assured access to EU markets for
goods and services as the EPA intends.
We are also assured that despite:
1) the absence of a CARIFORUM Customs
Union area;
2) substantial liberalisation of trade-in-goods
(56% of EU imports in 5 years, 61.1% in
10 years and 82.7% in 15 years, 83.7% in
20 years and 86.7% in 25 years);
3) as well as trade-in-services (based on
the W120 list of services, immediate
sectoral coverage of 50-62%, and tariff-
line coverage of 75% for CARICOM
developed countries and 65% for lesser
developed countries, with 80% for the
Dominican Republic);
4) the removal of export duties (within 3
years);
5) the removal of “other duties and charges”
(within 10 years);
6) the existence of trade-related provisions
(Singapore issues) in the EPA; and
7) the EU’s “denunciation” of the Sugar
Protocol, a substantial foreign exchange
earner, that there are adequate safeguards
and protections from economic disaster.
These protections take the form,
principally, of:
1) Improved rules-of-origin for
CARIFORUM exports;
2) A 3 year moratorium and phase-in
periods for meeting CARIFORUM’s
obligations;
3) Safeguard mechanisms, such as the
designation of sensitive industries/
sectors, and “zero for zero treatment”
of agricultural subsidies; and
4) Not explicitly linking market
access opportunities for the EU
to agreements seeking to build
institutional capacity of the region
in trade-related areas (Singapore
issues), for example, government
procurement.
A list of proposed reviews, safeguards,
exclusions, and sensitive items, (with long-
term phase-in periods of up to 25 years) is
included in the EPA, as well as transitional
arrangements for rice and sugar, the only two
products not immediately assured of duty-
free and quota free entry to the EU market.
Assurances are repeatedly given that the EU is
not seeking market access opportunities in the
trade-related areas as its main goal. Its concerns
are primarily to build regional institutional
capacity and skills.
In addition to immediate duty-free
and quota free access to the EC market and
improved rules of origin, aid is also offered to
support the process through the 10th EDF
and aid-for-trade. However, as we shall see, no
incremental aid is clearly associated with the
EPA.
Taking the above at its face value for the
time being, what has not been identified (and
this requires little forecasting/speculation) are
the significant front-loaded costs already being
attached to the EPA in CARICOM. Some of
these costs are listed below. As can be seen,
they are simultaneously economic, political,
CARICOM: POLICY OPTIONS FOR INTERNATIONAL ENGAGEMENT
260 CARICOM: POLICY OPTIONS FOR INTERNATIONAL ENGAGEMENT
260
diplomatic and geostrategic. Consider the
following examples of front-loaded costs:
Front-loaded costs
Eight (8) of these costs are indicated
below. Space prevents a full analysis of each
of these, but based on the observations made
in this sub-Section, readers should not find
it too difficult to envision the fuller-range of
considerations involved.
Sugar Protocol (SP)
Reduced to five main sugar producers at the
time of the signing of the EPA, CARICOM’s
sugar exports to the EU still remain a
considerable foreign exchange earner, source of
employment and provider of rural livelihood.
The Sugar Protocol (SP) was a mainstay of this
achievement. The SP is usually referred to as a
“preference” arrangement between the EU and
the ACP group of countries. This is not correct.
It was an indefinite commercial Treaty agreed
to in 1975 between the EU and the ACP for
the commercial supply on penalty, of definite
annual quantities by eligible Member States,
of sugar (a total quota of 1.34 million tonnes
for the ACP) at agreed negotiated prices. The
CARICOM region was allotted its own quota
within the overall quota, with prices negotiated
annually. Befitting its commercial nature, the
SP was a bankable guarantee, which regional
cane sugar producers used to finance ongoing
production. The SP provided its guaranteed
supplies of sugar to the EU at agreed prices
at a time when the world faced acute primary
product shortages and an explosion of many
commodity prices, including sugar.
Legally, neither the EU nor the ACP
could have unilaterally abrogated the Treaty
(SP). CARICOM, however, agreed to Europe’s
“denunciation” of it in 2007 so as to facilitate the
establishment of the EPA and simultaneously,
Europe’s reform of its overall internal sugar
production and marketing arrangements. This
reform included a price fall of 36 percent over
the period 2006/2010, with later adjustments
over the period 2013/15. Based on the Region’s
quota (443,000 tonnes), the estimated annual
financial cost of the full 36 percent price cut is
approximately US$100 million. For Guyana,
the largest quota producer, the amount is
US$40 million (equivalent to G$8 billion,
annually).
The EPA provides for CARICOM’s sugar
quota up to 2009, to increase by 30,000
tonnes, or about 7 per cent (as a Member of
CARIFORUM, the Dominican Republic’s
quota is placed at 30,000 tonnes). Total sugar
revenue earned from the SP, if this quota
were to be filled, will substantially decline
as this compares very unfavourably with the
36 per cent price reduction. As a matter of
detail, provision is made for the intra-regional
reallocation of any quota shortfalls among
regional producers. However, after the 2009
delivery period, there will be no fixed quota.
Unlimited access will be provided at the EU
price then in force, which will in all probability
be lower. As mentioned, a further round of
price adjustments in the EC is also due over
the 2013-2015 period.
Interestingly, as part of its domestic sugar
production and marketing reforms to which
the EPA is accommodating, the EC is paying
producers of sugar in its French Overseas
Territories, €2 billion for the period 2007-
2013, to cover an output of about 280,000
tonnes (see Thomas, Clive and Haraksingh,
Kusha, 2006).
Special Preferential Sugar (SPS)
The SPS was introduced in 1995 to meet
the EU’s sugar needs following the expansion
of refinery capacity consequent to the
entry of Portugal and Spain to the EU. The
erosion of this quota began as early as 2001,
after the granting of Ever ything But Arms
(EBA) preferences by the EU to LDCs. The
original ACP quota was 325,000 tonnes and
this had fallen to less than half that amount.
CARICOM’s share of the quota was originally
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