Breaking trade rules

The results of 25 years of Lome Conventions have been mixed. The need to adapt to global developments has become obvious: economic and trade globalisation processes must be consistent with the World Trade Organisation (WTO). Globalisation and technological change are recent economic trends which threaten to exclude the poorest countries and the poorest sections of populations, and the rise in private direct investment flows to the developing countries over the last decade has not benefited the majority of ACP countries.

The new Agreement is underpinned by a commitment to economic development, the reduction and eventual eradication of poverty, and the smooth and gradual integration of ACP States into the world economy. In order to accomplish these objectives, the Cotonou Agreement provides for the conclusion between the ACP and the EU of new WTO compatible trading arrangements, known as Economic Partnership Agreements (EPAs).

EPAs are scheduled for negotiation during the period September 2002 until December 31, 2007. The process began with an engagement encompassing all members of the ACP-EU, and since then each of the six ACP regions have conducted separate negotiations with the EU.

DEFINE TRADE
Our region, which encompasses both Caricom and the Dominican Republic and is called Cariforum, began EPA negotiations in April, 2004. The timetable for negotiations includes four phases, and currently negotiations between Cariforum and the EU have reached Phase III, where both parties will delineate the bi-regional market access commitments. The major issues at this stage are to establish an agreement on the structure of EPA, consolidate the outcome of the discussion on the priority issues for Cariforum regional integration; and to define the approach to trade liberalisation.

Issues with respect to the negotiations will take place under four groupings: market access; services and investment; trade-related issues (intellectual property rights, government procurement, competition policy, anti-dumping, trade and the environment, trade and labour, consumer protection, etc); and legal and institutional issues.

EPAs are not considered trade agreements since they contain a developmental aspect — their main objective is to help the ACP countries to deal with the challenges of globalisation by developing stronger regional economies. The EPA are designed as instruments to facilitate the sustainable development and structural transformation of Caribbean economies and to strengthen the regional integration process within Cariforum.

Negotiations are based on four principles. EPAs must:
•Support and build upon the regional integration process;
•Promote and be consistent with development objective and priorities;
•Include special and differential treatment provisions to address the constraints to growth and development imposed on Cariforum countries by their small sise; and
•Improve market access possibilities for Cariforum exports.
The ACP-EU nations have recognised that unless ACP countries can overcome the limits imposed by capacity constraints and underdeveloped economic and social infrastructure, they will not be able to reap the benefits from greater market access. Therefore, trade provisions included in trade agreements must be complemented by policies to build the required domestic capacity.

It is also recognised that initially there may be negative effects on trade flows and the balance of payments, primarily through losses in export revenues and increases in imports, due to an erosion of trade preferences. The decrease in tariffs may also lead to increase in imports.

At the same time, EPAs are expected to induce greater flows of foreign savings, which, if properly channelled can lead to an expansion in productive capacity, and thereby to a higher level of economic growth. Greater level of foreign savings would soften external constraints and growth would allow the expansion of government revenue.

Data analysis shows that Caricom exports to the EU represent roughly a quarter of total regional exports. At the aggregate level Caricom economies have lost market share in the EU, however this loss affects mainly primary produce and agricultural commodities. Trinidad and Tobago and Caricom now have the opportunity to gain market share in products that have a higher degree of value added and technological content.

EPAs will also provide an incentive for Caricom to accelerate the regional integration process, which is viewed as a pre-condition for extra-regional integration. The region can be a training ground for firms to acquire the skills and competitiveness to export to extra-regional trade partners. The challenge is to ensure that the process of regional integration adapts to the situation it is trying to change, and addresses the needs of the signatory member states. One key issue that needs to be addressed in this regard is how to transform the impending polarisation at the country and firm level into a growth pole for the region.

BRING ON INVESTMENT
Also, the EPAs could accentuate the economic tendencies that are developing in Caricom, eg the stagnation of agriculture, the decline of the manufacturing sector in some of the smaller states, and the continued dynamism of the services sector regionally. EPAs must be negotiated to ensure that their provisions do not lead to a process of economic duality, marginalisation of the traditional sectors of the economy, and annihilation of the manufacturing investment.

The EPAs will also provide an opportunity for Caricom countries to restructure or to continue to restructure their economies to adapt to the constantly evolving global environment. In fact, many firms in the Caribbean have already begun a process of restructuring of production aimed at reducing costs through activities such as expansion of their installed capacity; changes in production methods and diversification of product lines.

Economists and business gurus engaged in negotiations over critical issues such as EPAs cannot exclude from their considerations the possibility that the very act of developing this new form of economic relationship may alter forever the circumstances in which these decisions were made. Since crucial decisions are often an act of creative destruction, all parties to the EPA process are determined to ensure that the restructuring process accomplishes its overall objectives to the benefit of all involved.