The View From Europe

The gap between the Caribbean and Europe over the text of a regional Economic Partnership Agreement (EPA) is narrowing.

The unspoken message coming from days of intense negotiations between trade negotiators on both sides is that it is possible but by no means certain that negotiations may be completed by November 5 if remaining differences can be bridged.

To understand what has been happening one has to look back to the October 4/5 meeting in Montego Bay between Caribbean Heads of Government and the European Commissioners for Trade and for Development.

This meeting enabled both sides at the highest levels to recognise the areas of difference and the need for political compromise and textual convergence if the region and Europe’s desire for agreement before January 1, 2008 was to be achieved.

Before and during that meeting, Europe’s Trade Commissioner, Peter Mandelson and its Development Commissioner, Louis Michel, adopted a significantly more conciliatory tone; in part in response to concerned briefings from some EU Member States. Gone were any threats associated with World Trade Organisation deadlines. In their place was conciliatory language recognising the issues that still had to be resolved.

Despite frank exchanges about the insensitivity and probable illegality of the EC unilaterally denouncing the EU/ACP sugar protocol and the need for Europe to demonstrate that it was negotiating in good faith, detailed discussions proceeded.

Where this left Europe was with a much clearer understanding of the strength of regional political feeling on certain issues and where there were political red lines that could not be crossed. While for the Caribbean, the meeting confirmed to Heads that regionally supported compromise and agreement on a number of areas of divergence was necessary if an EPA was to be achieved.

The outcome was that while difficult, both sides would seek to achieve a comprehensive EPA text for signature before the year’s end. It was also accepted that if necessary certain aspects of the negotiations could continue after that date as long as a WTO compatible text was in place by December 31, 2007.

Since then trade negotiators have been involved in intense discussions based on the guidance the meeting provided. This has resulted in a refreshed joint text and a commitment to produce rapidly new language on services, joint declarations on traditional agricultural products and development co-operation, and a complete tariff reduction schedule.

This process is still underway as this is being written and revolves around a number of central issues that require final resolution before an agreement can be initialled.

Caribbean Heads accepted in Montego Bay that for an EPA to be WTO compatible, the liberalisation of substantially all trade meant that in total, no more than 15 per cent of EU products -mainly agricultural – would be excluded. This means that all governments now have to finalise their tariff liberalisation schedules. These divide imported items from the EU into six baskets that range from excluded to in some cases, tariff reductions phased over 25 years. The approach agreed makes use of a harmonised base rate for all but four hundred or so tariff lines.

Secondly there remains concern about the revenue implications. Although EC research suggests that an average of only four per cent of overall government revenues come from duties on EU products, some Caribbean Governments remain concerned about the implications for the loss of revenue from other customs charges. In response, the region is seeking a moratorium on tariff liberalisation during an initial four-year adjustment period, whereas Europe’s is seeking to limit this to one to two years.

Thirdly sugar remains contentious. An agreement is required to replace the existing sugar protocol. Although there is an outline text in the EPA, the final text will require explicit language on a regional quota; the regional reallocation of shortfalls; the EC’s proposed safeguard mechanism on Caribbean exports; and a commitment from the EC in respect of a reference price and what happens after 2015.

Fourthly Caribbean Heads recognised that there was a need to improve the Caribbean services offer while continuing to protect small and medium sized industries such as those engaged in construction or running restaurants. Here again some Caribbean Governments are having to revise their offers if agreement is to be achieved. For its part the EC is working towards a more substantive tourism text and trying to resolve how to accede to Caribbean requirements relating to the unimpeded entry into the EU market of Caribbean professionals and entertainers.

Fifthly concerns remain about the level and source of transitional development assistance. While most Caribbean governments have identified EPA related projects for support under the tenth European Development Fund, Caribbean Heads remain unhappy with the quantum of additional financial support available. In particular they are unhappy that the amount, direction and delivery of new aid from EU member states. In this latter respect the EC’s Development Commissioner remains cautious limiting himself to noting only that some EU ministers have confirmed ‘that Europe needs to ensure that all the ACP regions benefit equitably’ ‘and that they would contribute’. Caribbean leaders also continue to press for Europe to make such sums available to the proposed Caribbean Regional Development Fund rather than bilaterally as EU member states presently wish.

And sixthly there are continuing difficulties over a range of crucial technical issues. Space does not permit for any detail but they include the Caribbean’s red line in respect of liberalising government procurement; one that Europe is likely to accept and a number of far more difficult to resolve issues. These relate to: the EU’s proposal that Caribbean agree to grant it Most Favoured Nation status or the same trade concessions as the region it might negotiate with other nations or groupings; acceptance of similar rules to those imposed by the OECD on tax governance; and on a complex range of issues relating to rules of origin.

Speaking in the days after the Montego Bay summit the Prime Ministers of Jamaica, Barbados and St Vincent all made clear that the region is committed to substantially freer trade, WTO compatibility, tariff liberalisation and an EPA by the year’s end.

If Europe also wants this of the Caribbean, one of the smallest and most vulnerable regions in terms of world trade, it must find a developmental basis on which it can resolve the remaining areas of disagreement.

David Jessop is the Director of the Caribbean Council and can be contacted at david.jessop@caribbean-council.org

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

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