|
Getting To Know The EPA
December 5, 2007
Prepared by the Information Unit of the Caribbean Regional Negotiating Machinery (CRNM), this electronic newsletter focuses on the RNM, trade negotiation issues within its mandate and related activities.
Getting to Know the EPA
is one of a series of guides produced by the Caribbean
Regional Negotiating Machinery (CRNM) on the subject of the
Economic Partnership Agreement (EPA) between African,
Caribbean and Pacific States and Europe. This Frequently
Asked Questions (FAQ) guide is designed to clarify basic
facts about the EPA.
Background
The Cotonou Agreement, signed in 2000, is a partnership pact
between the Europe Union (EU) and the African, Caribbean and
Pacific Group of States or ACP. Before the Cotonou
Agreement, European – ACP trade relations were facilitated by
what was primarily
a trade and aid agreement known as the Lomé Convention,
which was originally signed in 1975. The Lomé Convention,
which facilitated ACP trade access to Europe in preference
to goods from other countries, was renewed and renegotiated
successively thereafter creating four agreements - Lomé I,
Lomé II, Lomé III, and Lomé IV. The Cotonou Agreement, which
will run for 20 years, is the successor to Lomé IV and was
created to help the ACP deal with challenges that hinder
their development such as poverty, lack of economic
opportunities and conflict.
The Cotonou Agreement is based on three broad areas of
partnership namely, Development Cooperation, Trade and the
Political Dialogue.
While the
Lomé
Convention and the Cotonou Agreement share similar
objectives, the Cotonou provides
a
comprehensive framework to address the political,
economic, social, cultural and environmental aspects of ACP
development.
Though the Cotonou Agreement allowed for the continuation of
Lomé IV non-reciprocal trade preferences, it also provides
for the replacement of those preferences by the end of 2007.
What is the EPA?
The Economic Partnership Agreement or EPA is an instrument
of trade partnership required by the Cotonou Agreement to
replace the trade component of Lomé IV. It is expected that
it will help ACP countries, including CARIFORUM, to reduce
poverty and achieve economic growth through sustainable
trade with Europe.
What is CARIFORUM?
CARIFORUM is an abbreviation of Caribbean Forum, the
Caribbean Group of States which are Members of the African,
Caribbean and Pacific (ACP) Group of States. These countries
include the independent States of the Caribbean Community,
Cuba and the Dominican Republic. In the EPA negotiations,
Cuba, though an ACP member from the Caribbean Group, is not
party to the Cotonou Agreement, and therefore has not
participated in the EPA negotiations.
Why do we need an EPA at this time?
The current ACP trade relationship with the EU under the
Cotonou Agreement is based on Lomé IV duty-free
non-reciprocal preferential access of most ACP goods to
European markets. The access is described as preferential
because other states both developed and developing, do not
enjoy the same degree of access. In this sense it is also
discriminatory. It is non-reciprocal in that these ACP
states are not obliged to provide the same access to EU
goods.
After Lomé IV was signed in 1989, other negotiations were
taking place at the international level to reduce barriers
to trade between countries on the international market. The
ACP States and Europe, as participating Members in that
round of negotiations which culminated in the establishment
of the WTO Agreement in 1994, agreed to the principle that
countries should not discriminate against each other, except
in a few exceptional cases. This obligation to uphold this
principle of non-discrimination compelled ACP States and the
EU to make provision for the replacement of Lomé preferences
under the Cotonou Agreement of 2000.
Until these preferences can be terminated, the trade
relationship has required special exemption or waiver from
the WTO. This WTO waiver that covers the current
preferential access was granted only because of ACP and
Europe’s agreement to reduce the preferences granted to ACP
countries. This waiver will expire on 31st
December 2007.
The Lomé IV preferences present implications for the
treatment of non-ACP WTO Members that seek better access in
to Europe. Though the preferences are technically covered by
a waiver, they have generated angst and disquiet amongst
these interested WTO members. For example, in the case of
bananas, both the ACP and Europe were also compelled by the
pressures of WTO litigation to find a WTO compatible
replacement to the Lomé preferences that would facilitate
market access for traditional ACP exports. Disputes lost by
Europe and initiated in 1996 by Latin American countries and
the US, and again in 2006 by Ecuador, challenged Europe’s
import regime for bananas, a traditional ACP export covered
by Lomé IV.
Obtaining a waiver for another preferential non-reciprocal
trade agreement after the current one expires is therefore
considered improbable because of the political and economic
interests of non-ACP WTO members in the discontinuation of
ACP preferential access to Europe.
In addition to the consideration of the expiring WTO waiver,
the Cotonou has built-in a schedule for the discontinuation
of the Lomé preferences by the beginning of 2008. We have
until that date to negotiate a new agreement that is WTO
compatible. By replacing the current WTO incompatible
non-reciprocal preferential trade arrangements with Europe,
the EPAs
should
prevent other countries from
successfully
challenging the ACP’s privileged access to European markets.
What makes the EPA WTO compatible?
Under the new relationship between the regions, trade
liberalization in goods between the EU and the ACP is
required to ensure that the EPAs in goods are compatible
with the rules on non-discrimination under the World Trade
Organization. While non-discrimination is a pillar of the
WTO, there are permitted exceptions where the principle need
not be applied. Though the EPA in goods will in practice be
discriminatory against non-ACP WTO members, it qualifies as
a Regional Free Trade Agreement (RFTA) and therefore is
technically permissible under the WTO rules, specifically
the General Agreement on Tariffs and Trade (GATT) Article
XXIV.
Under these rules the ACP and EU must exchange market access
offers. This means they must exchange schedules for the
liberalization of their respective goods markets. However,
it is not necessary that the offers share the same degree of
liberalization commitment.
GATT
Article XXIV is clear on the test that must be passed in
order for an RFTA to be considered WTO compatible. The most
important elements of that test are that firstly, the RFTA
must not raise the overall level of protection and make
access to products of other countries not participating in
the RFTA more difficult. Secondly, there is an obligation to
liberalize “substantially all trade” amongst the
participants of the RFTA.
The
first test reflects an obligation to the principle to keep
the level of discrimination at a minimum so that global
trade is not excessively distorted. The second test is much
more controversial in that “substantially all trade” is not
defined by the WTO rules. The EPA obligates both the ACP and
the EU to open their markets.
On one
hand, the EU has offered duty-free, quota free access for
all ACP goods, with some delay for rice and sugar. On the
other, in the CARIFORUM negotiations, reaching consensus on
the degree to which CARIFORUM must liberalize to satisfy
this WTO criterion has been particularly challenging and
controversial. CARIFORUM liberalization presents difficult
fiscal implications for CARIFORUM economies.
Though
an EPA must address market access in goods, it may also
address services and investment. If services are included,
then the EPA as a RFTA, must also meet similar requirements
under the WTO rules on trade in services.
What if there is no EPA by the beginning of 2008?
In light of the expiring Cotonou waiver, without an EPA, the
only alternative is to use the EU’s Generalized System of
Preferences (GSP) from which all developing countries,
including the ACP, may benefit. Obtaining a waiver on
another non-reciprocal preferential trade agreement is
unlikely. Therefore the EU can no longer legally continue
these trade arrangements after 2007.
For ACP countries that considered themselves not in a
position to enter into an EPA, Article 37.6 of the Cotonou
obligated them to request the EU to examine in 2004, all
possible alternatives for ACP countries, to ensure that ACP
countries are provided market access that is equivalent to
the current preferential market access.
However, the Cotonou Agreement is quite clear that any
alternative arrangement must be compatible with the
rules of the WTO. After consultation and examination, GSP
was found to be the only legally compatible alternative to
the EPA but it facilitates less generous access than which
is currently available under the Cotonou Agreement.
Furthermore, GSP is not based on the principle of
partnership and development between Europe and the ACP. In
recognition of this, CARIFORUM during that consultation and
examination period in 2004 did not indicate an inability to
enter into an EPA with Europe.
What is GSP?
Under WTO rules, developed countries are allowed, at their
discretion, to offer to all developing countries in a
non-discriminatory fashion, non-reciprocal market access to
their markets. The arrangement through which this form of
preferential access is offered is known as the Generalized
System of Preferences. The European Union offers different
levels of access under their GSP regime. The main ones are
described below.
-
Under the Standard GSP scheme the available access is open
to developing countries in general so the margin of
preference which Caribbean exports currently enjoy will be
cancelled out. Under GSP only a few products are eligible
for duty-free access. A tariff will be applied to the
other products allowed under the Standard GSP that are
ineligible for duty free treatment. This means that there
would be a significant tariff jump for most ACP exports,
including CARIFORUM’S largest exports. The resultant
higher prices will make most of the region’s current
exports to the EU uncompetitive.
-
For some developing countries the Standard GSP is not the
only option. Without an EPA the world’s poorest countries
or Least Developed Countries (LDC), some of which are ACP
countries, would still be eligible to benefit from the
special ‘Everything but Arms’ arrangement under the GSP
scheme. This arrangement grants duty-free access to LDCs
for all products except ammunition and guns. While Haiti,
a CARIFORUM member, is a LDC, the rest of CARIFORUM do not
qualify as LDCs. Therefore,
most CARIFORUM States would not be eligible for this
arrangement.
-
The last and newest arrangement under the Scheme is the
GSP+ arrangement. This offers duty-free access to
significantly more items than under Standard GSP. However,
for most CARIFORUM Countries GSP+ would not be beneficial.
For example, of the top twelve CARIFORUM exports, eight
would face tariffs that will be prohibitive to competitive
export. In addition, sugar, bananas, rice and rum and
alumina, all of which are significant CARIFORUM exports,
are excluded from the EU GSP regime. Only a few CARIFORUM
industries would realize beneficial market access under
GSP+ compared to standard GSP.
The effect of GSP would be damaging and would inhibit the
ability of current exporters to continue exporting to
Europe, and offers little prospects to new producers that
seek to penetrate the European market. Furthermore, the
entire GSP scheme does not incorporate any framework for
trade in services such as tourism and cultural services.
What will the EPA cover?
The EPA is primarily
designed to replace the current trade arrangement for goods,
which will cease to exist at the beginning of 2008. The core
of the EPA is trade in goods. CARIFORUM is however,
especially interested in negotiating trade in services,
investment and trade related issues like innovation, as well
as development assistance, within its EPA.
Given the Caribbean’s declining eligibility for
international aid and the decline of preferential market
access, for the small developing countries of the Caribbean
few avenues remain to support the process of diversifying
their economies and developing in a sustainable way. The EPA
presents a unique opportunity for CARIFORUM to obtain such
support.Given
the importance of these areas to the regional economy and
its future, the EU has also been prepared to negotiate these
areas.
What opportunities will the EPA provide?
1.
The EPA will broaden access for CARIFORUM goods and services
to the European markets, including the French territories of
Guadeloupe, Martinique and French Guiana.
2.
Like ordinary RFTAs, the EPA will also open up ACP markets
to European exports. But unlike most regional free trade
arrangements the EPA will allow ACP countries as much time
as possible to adjust to opening up their own markets to
European goods. In addition to these flexibilities the EU
has pledged to provide financial and non-financial parallel
development resources.
3.
Under the EPA, opportunities will be provided
for investment promotion and for local firms to improve
their international competitiveness.
4.
The CARIFORUM EPA also seeks to avoid having
development compromise the environment and the rights of
workers.
5.
Mention has already been made of the
obligation to open markets to EU exporters. The positive
side of this coin is that it can help to reduce the cost of
imports.
Therefore inputs for CARIFORUM producers and
service providers sourced from Europe could become cheaper,
which could result in the reduction of the price of local
goods and services for consumers within CARIFORUM.
6.
In addition to duty-free, quota-free access,
a number of financing and technical assistance measures
contained in the EPA, can help to reduce the cost of
exporting to Europe, especially where these arise from
administrative and processing inefficiencies and
obligations.
7.
Through improved competition between local goods and
European goods, local consumers can expect lower prices and
wider variety of merchandise, making it easier on household
budgets.
8.
If new as well as established local
industries take advantage of the many measures and
opportunities negotiated to date in the EPA, they will be in
a position to competitively develop, produce and sell high
quality CARIFORUM goods and services on international
markets.
Recipients of RNM UPDATE are
authorised to forward this newsletter to other
addresses. We welcome suggestions for additions to our
mailing list. If, on the other hand, you wish to be
removed from the list, kindly inform us.
For More Information Contact:
Marsha Drakes
Programme Officer-Trade Information
Caribbean Regional Negotiating Machinery (RNM)
3rd Floor The Mutual Building
Hastings Main Road
Hastings, Christ Church, Barbados
Tel: (246) 430-1678
Fax: (246) 228-9528
marsha.drakes@crnm.org
Previous issues of RNM UPDATE are archived on and can be downloaded from the RNM website:
http://www.crnm.org/rnm_updates.htm
The ‘RNM DRAFT CALENDAR 2007 ', that provides an account of hemispheric and multilateral trade meetings, is available on the RNM website.
|
