Bridges • Volume 12 • Number 5 • November 2008

EU, Former Colonies Sign First New Generation Trade Pact

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After nearly seven years of negotiations, the Caribbean has become the first region to sign a comprehensive economic partnership agreement (EPA) with the European Union.

The EU and thirteen of the fifteen Caribbean Community (Caricom) member states1 formally signed the agreement on 15 October. The EPA covers trade in goods and services, as well as commitments in areas such as intellectual property protection, investment, government procurement, and protection of labour rights and the environment.

With regard to trade in goods, the EU will immediately remove all tariffs and quotas on all Caribbean exports, except for sugar and rice, which will get full duty-and quota-free access by October 2009 and December 2009 respectively. The Caribbean will offer duty-free access to 61.1 percent of EU goods within ten years. The percentage will rise to 82.7 percent after 15 years and to 90 percent in 2033. The remaining 10 percent of Caribbean tariff lines – mostly, but not exclusively, agricultural products – will not be liberalised at all.

While services markets will be opened more gradually by both sides, the European Commission has pointed out that the EU’s commitments under the Caribbean partnership treaty go “far beyond anything offered by Europe in any other trade agreement.”

Caricom countries will be able to draw –165 million from the EU’s Development Fund between 2008 and 2013, and a development co-operation declaration commits the EU to using its Aid for Trade financial support to help Caribbean countries implement the EPA.

Unease over MFN Clause
One controversial element in the new agreement is the so-called most-favoured-nation (MFN) clause, which requires all parties to extend to each other any EPA-plus market access terms that they negotiate with other significant economies in the future. The application of this principle will apply to agreements with all ‘major trading economies’, i.e. those whose exports account for more than 1 percent of the world total individually, or 1.5-percent collectively if the free trade agreement is signed with a group of countries. While the MFN clause is a standard requirement of all comprehensive EPAs, parties may waive the obligation by mutual consent.

In February 2008, Brazil drew the WTO General Council’s attention to this provision, which it said could seriously impact South-South trade as ACP countries would not have “any incentive to negotiate agreements with other developing countries containing market access conditions that are more favourable than those the EU might enjoy.” Likewise, the MFN obligation would discourage non-ACP developing countries from entering into free trade agreements with ACP states if the preferential market access they offer would automatically be extended to the EU (Bridges Year 12 No.1 page 8). In practice, the MFN clause is likely to have an impact on potential future ACP trade agreements with developing countries such as Brazil, China, Mexico, Malaysia, India and Indonesia.

Guyana Obtains Mandatory EPA Reviews
Guyana, which had held out due to fundamental reservations about certain aspects of the treaty, signed on a week later. Among the country’s main concerns were the inclusion in the EPA of such issues as services, investment, government procurement and competition policy, as well as the MFN clause. In addition, Guyana had expressed unease about “the absence of provisions to address supply side deficiencies [inluding] its anti-developmental character and its propensity to be inimical to Caribbean integration.”

Guyana’s President Bharrat Jagdeo said his country had decided to join the pact “in the spirit of compromise and given our strong commitment to regional integration and solidarity” after the EU agreed to a mandatory review of the agreement every five years, and committed to making changes if it was found to have adverse impacts. This, Mr Jagdeo sressed, was a ‘huge development’ that would benefit the entire region.

President Jagdeo was less successful in obtaining the EU’s commitment to giving precedence to the revised Chaguaramas Treaty, which establishes a Caricom single market and economy. The EU promised only to take the treaty ‘into account’ in reviewing the EPA.

Haiti is also likely to join the Caribbean EPA in the near future even if, as a least-developed country, it can keep its duty- and quota-free market access to the EU without signing on to the region-wide pact.

Other EPAs: Not Until 2009
Roughly half of the ACP’s 79 members countries initialled (but did not formally sign) ‘interim’ agreements covering only trade in goods at the end of last year. Had they not done so, they would have lost long-standing preferential market access to the European Union since the WTO waiver that allowed the EU to treat ACP states more favourably than other developing country WTO Members expired on 1 January 2008.

The EU’s original intention was to conclude negotiations on ‘comprehensive’ EPAs – such as that now signed by the Caricom bloc – with five other regional ACP groupings by end-2008. However, EU Development Commissioner Louis Michel admitted in September that it would take at least an extra year before the deals could be wrapped up.

Some WTO Members, including Brazil, have noted that the interim agreements are in a ‘legal limbo’, since they have not been signed, ratified or notified to the WTO. The EU stressed that the signing of the full Caribbean EPA made trade relations between the two blocs “safe against legal challenge by other developing countries.”

ENDNOTE
1 Antigua and Barbuda, the Bahamas, Barbados, Belize, Dominica, the Dominican Republic, Grenada, Guyana, Haiti, Jamaica, Saint Lucia, Saint Vincent and the Grena-dines, Saint Kitts and Nevis, Suriname, and Trinidad and Tobago.