The View From Europe

Dr Henry Jeffrey
Dr Henry Jeffrey

As this is being written Caribbean Heads of Government are meeting in Barbados. There, amongst the many other issues they will be considering, will be the initialled but not yet signed Economic Partnership Agreement (EPA) with Europe. Although the outcome is uncertain, the mood is for delaying signing until September at the earliest and for finding a basis for reconsidering some of what has been negotiated.

Dr Henry JeffreyWhile there are many uniquely Caribbean reasons for this – the subject of a future column – what is apparent is that it is occurring as there is a change of political mood in many small states across the world about trade liberalization.

This is because of the social, economic and political uncertainty that global economic trends are creating and a consequent fear amongst governments that it will become ever more difficult to finance national budgets and provide the social provision that electorates expect.

Against a background of escalating food and energy prices, a global financial crisis, rapidly increasing inflation and the probability of falling tax revenues, many governments are now looking ahead and weighing very carefully the positive and negative aspects of trade liberalization. They are reviewing how best to relate their day-to-day concerns to the pressure they are under to move the global trade agenda forward. They are doing so at a time when they see the world’s developed economies teetering on the edge of recession and emerging and oil rich nations seizing the moment to rebalance global economic power.

While this is not the reason why delay will almost certainly be the region’s chosen approach on the EPA, structural changes in the global economy suggest that all trade negotiations and relationships will need careful re-evaluation to ensure that the outcome does not create long-term instability, particularly in states and regions that have relatively fragile or poorly integrated economies.

So serious has the effect of rapidly rising food and energy prices become on international stability that the US and a number of European government leaders have in the last months requested national security briefings on the impact on developing regions. The trigger for their concern was the food riots in Haiti and similar but earlier developments in Mexico. However, more potently they have been observing growing unrest in Pakistan, India, China, Vietnam Indonesia and Malaysia where governments cannot bear the burden of high food prices.

In part, the developed world’s response is to urge rapid movement forward on trade liberalisation on the basis that this will increase the velocity of global trade. But for the most part without real and substantial movement on issues such as agricultural production subsidies this is self-serving.

Recognising that developed countries should take advantage of the currently high commodity prices to reduce their agricultural subsidies, the Organisation for Economic Cooperation and Development (OECD) in a recent paper argued that this was a moment for the OECD to reduce significantly the US$258 billion in 2007, or roughly 23 per cent of OECD farmers’ gross receipts for the year.

Despite this change seems unlikely; the US Farm Bill replete with subsidies was passed in June and in France the incoming EU president has said that defending Europe’s Common Agricultural Policy will be one of his priorities.

Almost unnoticed in all of this is the continuing debate on liberalisation at the World Trade Organisation (WTO) in the run up to a mini-ministerial meeting that will take place in Geneva on July 21 or the implications that some of the recent discussions there on agriculture may have for a Caribbean increasingly wary about making trade concessions.

By way of background the WTO’s Director General Pascal Lamy hopes to use the meeting to move forward the level of areas of agreement in order to lock in gains before the negotiating process goes into hibernation awaiting the outcome of the US presidential elections. However, whether the political will to do this is there among key players is far from certain as the domestic political mood in all nations is not conducive to the concessions that are required.

To provide a practical Caribbean related example of how difficult resolution of differences will be can be seen in relation to discussions affecting sugar, bananas, rice and rum. That is to say whether the tariff reductions and phasing that might be applied to these products recognises their long-standing preferences with Europe or, as Latin nations would wish, become described as tropical products and thus subject to much faster liberalisation.

While much of the discussion has centred on the grace period before liberalisation, a more significant point that is not widely understood in the region is that whatever is agreed will result in much greater competition in the EU and probably the Caribbean market.

In what appears to be the only public commentary on this in the region, Guyana’s Foreign Trade and International Cooperation Minister, Dr Henry Jeffrey, said recently that the rate cut would negatively affect Guyana and Suriname in respect of rice.

According to reports he pointed out that while tropical products are supposed to be treated to deep cuts, preference-related products are not. He noted that goods such as rice should be regarded as products coming from countries that enjoyed long traditional preferences and should therefore not face harsh reductions.

“The WTO had said that they should work to try to maintain those preferences for as long as possible to ease these countries as they restructure themselves to become part of the general world… but the proposal is, if a product is on both lists, it should be given a tropical product treatment,” he explained.

Dr Jeffrey said that the Guyana government was proposing that rice be put on what the WTO would call an ‘x’ list. “That is products are treated specifically and would not be subject to the overall cuts,” he said.

Global sentiment on trade is changing. It is ceasing to be a subject for intellectual and often obscure exchanges in meeting rooms without full reference those whose lives and livelihoods are most at risk. It has potentially become an issue for the streets as the price of everyday living accelerates beyond governments’ ability to control.

Although reluctance over moving forward on the EPA has its origins in peculiarly Caribbean issues, the chances of any future trade agreement being reached in the near future is remote without a genuine broad consensus forged through social partnerships involving government and all of civil society.

Previous columns can be found at www.caribbean-council.org