Last week we considered the first contentions plank on which the EPA is based. This combines trade reciprocity with a WTO-plus (or so-called “new generation” arrangement) despite 1) the marked asymmetry in development capacities of the two areas, and 2) failure to complete the Doha Development Round. Without this there are no conclusive “benchmarks” for establishing “WTO-compatibility.”
How the EU sees preferences
Today we consider the second contentious plank (2), which is the EU view that preferences uniformly hurt the region. The EU claims that it is not mercantilist intentions which prevent it from being more generous and developmental, but its own certitude that preferences have, and will always fail the region. Preferences can be tolerated for the LDCs, because existing LDCs as defined by United Nations criteria, will graduate from this status.
Insistence by the region to the contrary has been treated as “shooting ourselves in the foot.” The EU says it knows best and indeed such certitude has become the perceived wisdom in the region. Thus: “EPAs end the ACP dependence on preferences, waivers and exclusions from the multilateral system that have helped lock them into basic commodity trade for more than thirty years.” (Source: Global Europe, January 11, 2008).
It may surprise readers to learn, however, that there has never been a counter-factual study of preferences in Caricom to assess their value on a with-without basis. To the best of my knowledge, only one partial study related to the Guyanese sugar industry and the Sugar Protocol has been published ? Analysis of the Economic Value of Agricultural Trade Preferences for Guyanese Sugar: A Case Study (Weatherhead, 2004 FAO, Rome).
Despite lacking empirical underpinnings, at last count I found eight weaknesses of preferences circulating in the economic literature. One is that, when export firms get preferences this hampers the development of competitiveness in the broader economy. Second, preferences protect inefficient sectors and enterprises from competition. Third, shielded from competition, preferences discourage dynamic responses to trade challenges. Fourth, preferences inhibit diversification and foster continued dependence on traditional lines of activity.
Fifth, in the broader national economy linkages between preferences-dependent export sectors and the domestic economy are not encouraged. Sixth, many preference-dependent sectors remain “enclaves” isolated from both the domestic economy and other exporting sectors. Seventh, export earnings are not maximized and so balance of payments and other macroeconomic instabilities emerge.
Finally, all preferential arrangements are “voluntary.” The countries that give them, can unilaterally remove them, because they are not products of binding multilateral global agreements.
No empirical foundation
These are formidable sounding arguments. However, they are unsupported by empirical evidence showing that taking costs with benefits; the costs outweigh the benefits to the detriment of the country (region) concerned.
Some of the arguments are also not as sound as they might first appear. Thus, while in theory countries that give preferences can revoke them, in today’s global community, buttressed by norms and obligations to observe due process, whimsical, capricious, and arbitrary removal of preferences given to a region, even one as small as Caricom, would not be attempted by any preferences-granting nation.
There is the additional consideration that, even if it is shown preferences were harmful in the past, the continuation or not of this harm into the future will depend on policy responses. One would have to make the extreme assumption that there is no learning curve to claim that, evidence of past policy errors is itself proof of these recurring in the future. I had earlier made this reasoning in the study referred to last week: Making Trade Work For the People: The Concerns of Small States in the Global Trading Regime (Clive Thomas, United Nations, 2004).
Readers should also be aware that this is principally a European assessment of preferences. It is not shared by the United States. Official reviews of US previous preferences-granting regimes found qualified successes. Based on this, the US passed the African Growth Opportunity Act in 2000 and has since officially indicated a willingness to recommit to the principles of the original Caribbean Basin Initiative.
Pure hypocrisy
It is possible to take a cynical and self-serving view of the EU’s position, when one considers the Nice Treaty, which has committed the EU to support what is termed its “overseas ultra periphery territories.” These are its colonial dependencies, including those in the Caribbean.
Article 299 of the Nice Treaty states: “Taking account of the structural, social and economic structure in the French Overseas Departments, the Azores, Madeira and the Canary Islands, which is compounded by their remoteness, insularity, small size, difficult topography and climate, economic dependence on a few products, the permanence and combination of which severely restrain their development, the Council
