Norman Girvan, Guest Commentator

Girvan

The economic Partnership Agreement guarantees the Caribbean permanent duty-free quota-free (DFQF) access to the European Union market for its exports, with the exceptions of sugar and rice, which have short transition periods.

Sugar exporters will benefit by an expanded annual quota of 60,000 tons in 2008 and 2009, split between CARICOM and the Dominican Republic.

The immediate effect is to remove the threat of economic dislocation that would have resulted from the imposition of higher tariffs by the European Commission under the General System of Preferences (GSP) due to the expiry of the WTO waiver for the Cotonou Agreement with the ACP.

Fear of this happening was the main driver of the EPA agreements in the final stages.

But the claim is also made that the EPA opens up significant new export opportunities in goods and services for the region.

In evaluating this potential benefit, one needs to take into account the conditions that exporters and service providers need to satisfy in order to get into EU markets.

Sales affected

Sales will also be affected by competition from other sources of supply.

Looking first at exports of goods; There is the impact of 'preference erosion' — the diminishing relative advantage enjoyed by Caricom exporters vis-ˆ-vis other exporters, which exposes the former t competition from lower-cost sources of supply. For instance, once sugar and banana quotas are abolished, Caricom exporters of these commodities will be exposed to full competition from the Dominican Republic, other ACP exporters, especially African countries, and non-ACP exporters that are Least Developed Countries and benefit from the EU's 'Everything But Arms' initiative.

In addition there will be increased competition from exporters from 15 other developing countries, mostly in Latin America, that are beneficiaries of partial preferences under the EU's 'GSP-plus' scheme.

Prices received for Caribbean sugar exports to the EU market are also set to come down by as much as 35 per cent due to changes in the EU Common Agricultural Policy.

Preference erosion reduces the relative advantage of DFQF market access for all Caribbean exports including manufactured goods. The relief afforded by the EPA to the region's traditional exports, therefore, will be temporary; and the expansion and even maintenance of existing exports will be dependent on the ability to reduce production costs. It is quite possible to envisage a situation where exports to Europe fall rather than rise; a situation that banana exporters from the eastern Caribbean banana producers are said to fear.

Conditions of access

Regarding conditions of access, ACP exporters of non-traditional products have complained for many years of restrictive rules of origin for the definition of qualifying products and onerous technical barriers to trade and sanitary and phytosanitary standards for agricultural products.

These non-tariff barriers have impeded their ability to take advantage of DFQF access available to most of their industrial and non-traditional agricultural exports under the Lome agreements since 1975. One needs to examine how far these obstacles have been addressed in the EPA.

With regard to rules of origin, these are said to have been made more flexible for garments, tobacco and flour and flour-based products; while regional 'cumulation' of value added has been extended to neighbouring countries in the greater Caribbean. Cumulation allows the value of imports from another country that is used in local manufacturing to be counted as part of the local value added to qualify for export to the EU market. However, a number of sugar-based products are said to have been excluded from regional cumulation of value added at least until 2015.

In general, the language of Protocol I which deals with rules of origin is highly convoluted and, one would think, inaccessible to the average exporter. A fuller evaluation will have to wait more detailed examination.

Regarding technical barriers to trade and sanitary and phytosanitary standards, the CRNM says that the private sector can 'expect assistance' from the Europeans. However, the text of the EPA chapters on these subjects yields no identifiable specific commitments.

Turning to services, the claim has been made that the EPA represents a major breakthrough in the ability of Caribbean professionals and entertainers to access the EU market.

Overall, 29 sectors have been liberalised for entry for employees of Caribbean firms and 11 sectors have been liberalised for temporary entry (90 days per calendar year) by self-employed professionals.

Here again, the devil is in the detail. For employees, the firm in question must have a contract of at least one year's duration; and the employees must have worked with that firm for at least one year.

The question is: If I am a small service firm set up to market my services in Europe, how do I get into the market to win contracts in the first place, and what if I can only win short-term contracts of less than one year's duration while I am establishing my reliability as a provider?

Requirements

Further, what if I recruit highly experienced employees who have worked elsewhere, but who have worked for me for just a few months? These requirements appear to discourage and deter all but the largest and longest established service firms.

In the case of self-employed professionals, access appears to be conditioned by an 'economics needs test' and the relevant professional bodies in accounting, architecture, engineering and tourism concluding mutual recognition agreements that establish mechanisms of equivalency for similar skill groups in sending and receiving countries. Negotiations on this are to commence within three years of the EPA coming into force. Since the EU has 27 member states, most with different languages, legal systems and professional certification systems from the English-speaking Caribbean, one wonders how economically and speedily it will be possible to negotiate these mutual recognition agreements.

Once agreement is reached among professional associations, further negotiation must take place between Cariforum and the EC to incorporate the agreement into the EPA.

It may well be many years, therefore, before Caribbean professionals will be able to market their services in Europe on a significant scale.

The claim has been also been made that the EPA guarantees Caribbean artistes and entertainers the right of access to the European market. But the new export opportunities in goods and services are likely to be highly conditioned.

The conditions need to be examined with a view to identifying the kinds of programmes, institutional developments, et cetera, that would be involved in upgrading firms and certifying individuals to fulfill them.

These requirements, which are the true cost of market access, will not necessarily be provided by the EPA itself.

Clearly, it would be misleading to think that doors to the European market that were previously closed have suddenly been opened wide to the entry of Caribbean exporters and service providers.

National treatment requirements

The principle of 'national treatment' is entrenched in the EPA in trade in goods, trade in services, and investment.

It requires EU firms that are exporting, supplying services or investing in the Caribbean to be treated exactly the same as local firms.

They expressly forbid governments from providing protection or any kind of preferential treatment for firms that are locally or regionally owned.

The same applies in reverse in the EU market. But whereas the EU has tens of thousands of large, well-established firms, the Caribbean has just a few. For example, Caricom has just nine pan-Caribbean firms of any significant size.

The effect of 'national treatment' is to deprive Caribbean governments of a means of fostering the development of national firms and cross-border production integration by regionally owned firms by providing them preferentially with import protection, government purchases, tax incentives, preferential credit, or subsidies such as training grants and grants for research and development.

These are the kinds of measures that most European countries have in the past used to foster the development of their own businesses.

How then will Caribbean firms be developed to the point where they can compete on equal grounds with EU firms? This is a scenario in which Caribbean firms will either be driven out of business by EU firms, or, in the case of the most profitable firms in fast-growing industries, be acquired by their European counterparts.

Such a scenario is hardly consistent with the development objectives of the EPA. One needs to know, therefore, where and how far 'national treatment' requirements are extended in the EPA, what exceptions if any are permitted, what criteria and enforcement mechanisms are stated and how much latitude Cariforum governments are afforded by these.

norman.girvan@sta.uwi.edu