Norman Girvan, Guest Commentator

Girvan

Last week, Professor Norman Girvan addressed the broad scope of the new Cariforum-European Commission Economic Partnership Agreement. This week he analyses development cooperation and import liberalisation in the trade pact.

The Economic Partnership Agreement (EPA) begins with a chapter on a trade partnership for sustainable development which speaks to several development issues of interest to the region and endorses a range of development-supporting measures.

The text as a whole is replete with laudable references to development cooperation in different sectors and subject areas.

The question is how far these are stated in a way that binds the European Commission and European Union states to undertake specific actions and measures and within specific deadlines, to which they can be held to account.

No funding commitments

The agreement itself contains no funding commitments.

These are contained in the European Development Fund, which is part of the Cotonou Agreement that runs until 2020.

It would appear that the European Development Fund is now being conveniently regarded by the EC as a complement to the EPA.

According to a Caribbean Regional Negotiation Machinery release, the 10th EDF "is estimated at €165 million) with €132 million allocated to Cariforum to be applied to the Regional Indicative Programme, with euro33 million allocated directly to EPA participation and commitment making.

As such, the €132 million would be programmed in such a way that 85 per cent would go to the Focal Area of Regional Cooperation/Integration and EPA capacity building, and 15 per cent would go to the non-focal area of vulnerabilities and social issues."

Help for Dominican Republic

However, the Foreign Minister of the Dominican Republic is reported as stating that 'the EU would be assisting the Dominican Republic with programmes for competitiveness (€80 million/US$120 million) and development (US$169 million) over the 2008-2013 period'.

It is not clear if this is additional to the funding in the 10th EDF, but it is in any case available for the Dominican Republic only.

Considering the 10th EDF, €165 million, shared between 15 countries over the five-year period of the 10th EDF amounts to €2.2 million per country per year. To call this a modest contribution would be somewhat of an understatement.

The amount may be set against the likely fiscal costs of adjusting to the extensive upfront elimination of import duties required of the EPA, the economic costs of the possible fall-out on local production, incomes and employment, and the resource costs of providing improved infrastructure and capital upgrading for firms to boost their export competitiveness.

Further, a possible reading of the CRNM statement is that a major portion of the 10th EDF will be used for the direct costs of EPA implementation itself.

The Cariforum-EC Joint Declaration on Development Cooperation also prioritises EPA implementation. The question arises as to what will be the source of funding of the development cooperation 'measures' that are mentioned throughout the text of the EPA, and what is the likely scale of resources that these sources can provide.

Hence, it may be significant that the references in the EPA text to development cooperation in the sectors of greatest importance to economic transformation, such as agriculture, innovation and enterprise development are stated in very general terms.

Few, if any, are time-bound, or state specific actions that will be undertaken by identified agencies.

In contrast, cooperation measures are spelt out in considerable specificity for EPA implementation in areas like customs administration, trade facilitation, and the strengthening of intellectual property protection — areas that are of especial interest to EU exporters and investors.

There is also the issue of the need for reform of the cumbersome and bureaucratic procedures of the EDF, which result in EDF allocations being regularly underutilised.

This matter is not addressed in the EPA. According to the CRNM statement, the EU proposes to address the disbursement problem "using the tools of budgetary support (EU 340 M)'; and by allocations to a Regional Development Fund (RDF).

It is not clear if the budgetary support is additional to the EDF, if it is for the entire ACP and if it is a firm commitment; nor what the amount of the contribution to the RDF is likely to be.

The absence of clearly specified and time-bound commitments in support of economic adjustment and transformation contributes to a major asymmetry in the architecture of the EPA.

In contrast, Cariforum's import liberalisation commitments in goods and services are defined by international classification categories and are time-bound; with specified implementation procedures, provisions for dispute settlement, and authority to apply trade sanctions in the event of non-compliance. Clearly the EC and the 27-member EU have vastly superior resources to those of Cariforum states to devote to the monitoring of implementation obligations.

This asymmetry is going to be a major factor in the on-going relationship between the two sides.

IMPORT LIBERALISATION

Cariforum has undertaken to eliminate the duties on 82.7 per cent of its imports from Europe in the first 10 to 15 years of the EPA.

Caricom states will also grant the Dominican Republic the same treatment they give the EU, and vice versa.

The undertaking represents a considerable up-front liberalisation that the region and other ACP states resisted almost to the very end; only agreeing at the eleventh hour under threat of the imposition of higher tariffs on ACP exports by the EU under the Generalised System of Preferences.

It also means de facto implementation of a Caricom-DR free trade agreement at a higher level than originally negotiated independently between the two.

A number of social and economic questions now arise:

Which products have been liberalised, and how is this phased?

Whether phasing has been related to the raising of competitiveness and efficiency levels of local firms in the liberalised industries;

Exactly what safeguards against surges of EU imports have been provided and the conditions under which they may be used;

To the extent that local production and employment are displaced by EU imports, what will be the social fall-out, and has consideration been given to provision of social safety nets to protect the livelihoods of women, farmers, and others affected?

Effects on government revenue and expenditure;

Consequences for the equity of the tax burden as fiscal systems shift over from reliance on import duties to reliance on value-added taxes, income and property taxes, and the like;

Ability to use the fiscal system to provide incentives to foster local and regional industries and regional production integration.

Commitments

In services the EPA also involves commitments by the Caribbean and by the EU that go beyond the WTO agreement on trade in services (GATS).

Cariforum countries will liberalise access to EU firms and service providers in 75 per cent of their service sectors for the More Developed Countries of the region and 65 per cent in the Less Developed Countries.

The same treatment will be extended from Caricom to the Dominican Republic and vice versa.

As in the case of goods, therefore, the region's producers are facing the prospect of direct competition from large, financially endowed and technologically sophisticated EU firms over a wide range of activities.

norman.girvan@sta.uwi.edu

Part 3 next week