RNM UPDATE 0804

May 16, 2008

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.

-   WHITHER CBTPA?

-   ADDRESSING MFN IN THE EPA

-   WTO UPDATE

-   EPA TO BE SIGNED

-   NEWS BRIEF

-   UPCOMING EVENTS

WHITHER CBTPA?

The Caribbean Basin Initiative (CBI) was initially launched in 1983 through the Caribbean Basin Economic Recovery Act (CBERA), and was expanded in 2000 through the US-Caribbean Basin Trade Partnership Act (CBTPA). These two acts which together are known as CBI were designed to provide unilateral preferences to a specific group of qualifying countries. For this reason, the legal implementation of CBI has required WTO waiver. The CBERA waiver expired on December 31, 2005. US efforts to renew the CBERA waiver have been unsuccessful as Paraguay has continued to block progress in this regard. Paraguay has blocked the U.S. requests for a waiver on grounds that it should be compensated for alleged trade damage caused by exclusion from U.S. programs.

In the absence of a waiver, the US has unilaterally continued to provide CBERA preferences.  This has been possible because the legislation facilitating CBERA has no termination date for CBERA preferences and as such is considered permanent. CBTPA preferences, on the other hand, were designed to give NAFTA parity to products previously excluded under CBERA and were set to be terminated either on September 30, 2008 or upon entry into force of the Free Trade Areas of the Americas (FTAA), whichever came first. The absence of a CBERA waiver and the imminent expiration of the CBTPA have created uncertainty in the proximate future of CARICOM trade relations with the United States.

 It is within this context that during the 28^th Meeting of the Conference of Heads of Government of the Caribbean Community an understanding was reached between CARICOM and the US about the scope of future relations. During that Meeting which featured a dialogue with the Chairman of the US House Committee of Ways and Means, Congressman Charles Rangel, it was jointly agreed to strengthen existing trade arrangements, which includes an upgrade and extension of CBI scheduled to expire in September 2008.

This commitment was apparently honoured in February 2008 when Congressman Charles Rangel introduced H.R. 5264, the Trade Preference Extension Act of 2008. This bill was crafted to extend until 2010 three trade preference programs scheduled to expire in 2008 including the Andean Trade Preference Act (ATPA), the Generalised System of Preferences and the CBTPA program. However, the political climate within Congress was not conducive to the approval of the extension of the all the Preferential agreements introduced under H.R. 5264. The Bush Administration has prioritized consolidation of Congressional support for and consideration of the free trade agreement with Colombia, a beneficiary of the ATPA. The extension of ATPA is considered politically linked to the leveraging of Congressional consideration of the Colombia FTA. These political tensions contributed to the approval of ATPA extension until December 2008 under the Bill. However, the extension of the other preferential agreements, including CBI preferences, was dropped from the Bill.  

Notwithstanding this setback, Congressman Rangel has been able to leverage the resurgence of the CBI extension back to the political agenda through the Congressional negotiation of the new five year H.R. 2419, the Food and Energy Security Act, otherwise known as the Farm Bill. Earlier in July 2007, the House passed their version of what should constitute the Farm Bill. The Senate on the other hand, passed their unique version of the Farm Bill in December last year. The formulation of the final version of the Farm Bill required that the House and the Senate reconcile the differences between the two versions of the Bill through negotiations in what is called a Conference. After months of negotiations, the Conference reached a resolution of the Farm Bill in what is called a Conference Report.  The Final outline of the Farm Bill includes the inclusion of a two year extension of CBI preferences and the expansion of the original Haitian Hemispheric Opportunity through Partnership Encouragement (HOPE) Act. Congressman Rangel was able to wrangle the Conference to agree to the inclusion of these provisions in exchange for other concessions in the final round of negotiations.

CARICOM would be appreciative of this small but significant Congressional victory. However, there are further challenges ahead which must be conquered before the extension of CBI and the HOPE Act may be secured under the Farm Bill.

The House and the Senate have passed the Conference Report but the final Bill must still be signed by the President. It should be noted with some apprehension that the President Bush is not supportive of some aspects of the Farm Bill and is expected to veto it. If vetoed, the Bill will be sent back to Congress for a vote by 2/3 majority in both the House and the Senate to override the President’s veto. Failing 2/3 majority, the Bill will not become law and the entire ‘deal’ will be permanently dismissed.

At this juncture, CARICOM must exercise trade diplomacy to encourage a favourable outcome in this regard. Already, CARICOM has had some success in the exercise of trade diplomacy in this regard, as the Prime Ministers of the Bahamas and Barbados have been able to attain reassurances from President Bush about the extension of CBI preferences during their meeting with him in March this year.

Though the Bush administration support for CBI extension has been signalled in the Joint Statement emanating from the 28^th Meeting of Conference of Heads and during diplomatic engagement with CARICOM Prime Ministers, uncertainty prevails about the feasibility of an appropriate political mechanism to secure CBI extension before the expiration of the CBTPA on September 30, 2008. CARICOM must, therefore, utilize all avenues of political leverage, including amongst the Congressional Black Caucus, to improve the probability of achieving 2/3 majority in both the US House and Senate. Top Menu

ADDRESSING MFN IN THE EPA

During discussions about the ACP-EU Economic Partnership Agreements (EPA) at WTO General Council Meeting held in February 2008, Brazil raised concerns about the inclusion of a Most Favoured Nation clause (MFN) in the ACP EPAs.

Brazil’s arguments, which were proposed in its Statement delivered at the General Council Meeting, may be summarised as follows:

1. The EPA MFN clause obliges “ACP countries to extend to the EC on a line by line basis, any treatment they might negotiate with third parties.”
2. The EPA MFN clause severely undermines the Enabling Clause and South -South trade because the MFN clause provides disincentive for ACPs to negotiate agreements with other developing countries that may contain more favourable market access conditions than those enjoyed by the EC under the EPAs with ACP countries.
3. The MFN clause will “prevent” third countries from negotiating FTAs with EPA parties and constrain South-South trade.

However, closer analysis would indicate that Brazil’s principal arguments misrepresent the application of the EPA MFN clause. The following will address Brazil’s concerns within the context of the CARIFORUM-EC EPA.

The Scope of EPA MFN Clause

The EPA MFN clause obliges “ACP countries to extend to the EC on a line by line basis any treatment they might negotiate with third parties.’

In contrast to what is otherwise suggested by Brazil’s statement, the EPA MFN clause as applied in relation to the treatment of both goods and services in the EPA is limited in scope with respect to the CARIFORUM obligations. The articulation of the clause with respect to goods in Article 19 of the Agreement reflects that the principal of asymmetry is sustained in the Agreement well beyond the treatment of market liberalization.

Article 19 obliges the EU to give to CARIFORUM any more favourable treatment that it provides to third states as a result of Europe’s engagement in a FTA with that third state. Given that Europe has already provided duty-free quota-free access for all CARIFORUM goods, with respect to goods, there is little significance to this application of the MFN principle with respect to Europe’s engagement with a third state.

However, that provision stands in contrast to Article 19 reference to the asymmetrical obligation which only requires CARIFORUM to accord Europe any more favourable treatment that it may provide to a major trading economy in a FTA. The caveat is clear in the delineation of the MFN trigger to affect CARIFORUM trading relations with third countries which, as defined for the purposes of the EPA only, individually have a world market share above 1% or any group of countries acting individually or collectively or through a FTA which collectively accounts for global market share above 1.5% before the entry into force of the free trade agreement.

It should also be noted that the EPA MFN application with respect to the treatment of commercial presence and cross border supply of services under EPA Article 70 and Article 79 respectively has a similar asymmetric character. Europe is obligated to accord treatment no less favourable to CARIFORUM cross border supply, commercial presences and investors than which may be extended to those of third countries within the context of an economic integration agreement. The CARIFORUM MFN obligation, in contrast, is restricted to the comparative treatment of a third country that is a major trading economy. In the treatment of services as in the treatment of goods therefore, the conditions for the triggering of the MFN obligation are in effect the same.

This means that future CARIFORUM trade relations with most developing countries or South-South relations in the context of an FTA would be unaffected by the application of the MFN clause. At the moment, the main developing countries which would qualify as major trading economies would include India, China and Brazil. Of course, if the future path of ascent for other developing third countries allows such countries to develop an export market share in excess of 1%, then CARIFORUM trade relations with such third states under an FTA would also be affected by the MFN clause.

The triggering of the MFN clause is further disciplined by the condition that the status of the third state as a major trading economy must be in effect before the entry into force of the FTA. It follows therefore that though the third state may be a major trading economy during the negotiations of the FTA, it must retain that status at the time when the FTA comes into force. In a hypothetical scenario where CARIFORUM and India were engaged in FTA negotiations, that FTA may not be prejudiced by the EPA MFN clause unless India, whose global export market share tends to fluctuate, continued to have global market share of exports above 1% at the time of entry into force of the agreement.

There is another assumption about the scope of the MFN clause implicit in the arguments made by Brazil that should also be addressed. The comment from Brazil indicates an assumption that with respect to the treatment of goods, MFN will be applied on a tariff line by tariff line basis. However, Article 19 bears no textual specificity about the procedural application of MFN.  In the GATT, the procedural application of MFN is outlined on a line by line basis evidenced by the requirement that the favourable treatment given on any product must be given to ‘like’ products of a third party. In the GATT the purpose of the MFN to inhibit discrimination in the competitive relationship between states vis-à-vis market access is clear.

Article 19 of the EPA bears no such conditionality in the application of MFN. Article 19 is sufficiently ambiguous that it does not preclude other approaches to the assessment of more favourable treatment. This is particularly important when one considers that CARIFORUM liberalization in the EPA is expressed as an application of asymmetric reciprocity. 

Therefore, an evaluation of more favourable treatment is complicated by phased approaches to CARIFORUM liberalization and the degree to which the liberalization burden is shared to meet ‘substantially all trade’ requirements under Article XXIV. Would it not be relevant to compare the extent of the third state’s liberalization concessions against the EC’s absolute duty-free/quota-free liberalization commitment for all goods? In a FTA with a third party, would the liberalization of a good which has otherwise been exempted from liberalization under the EPA but which is of little competitive interest to Europe be considered as according more favourable treatment to the third party at Europe’s expense? Shouldn’t the pace of liberalization also be considered? Such questions beg a weighing and balancing of the overall picture vis-à-vis the competitive positions of the EC party relative to the third state. Clarity on these matters is not provided under Article 19.

The EPA MFN vs. the Enabling Clause

The EPA MFN clause severely undermines the Enabling Clause and South -South trade because the MFN clause provides disincentive for ACPs to negotiate agreements with other developing countries that may contain more favourable market access conditions than those enjoyed by the EC under the EPAs with ACP countries.

It is important to consider that the MFN clause would only be triggered by CARIFORUM trade relations with major developing economies in the context of FTAs only. This means that, with respect to goods, such trading relations between CARIFORUM and qualifying third states would be governed by GATT Article XXIV and not the Enabling Clause which does not cover FTAs. The rights of developing countries to facilitate South–South trade by extending preferential arrangements amongst each other as is allowed under the Enabling Clause are therefore not compromised by the EPA MFN.

Brazil appears to be concerned that the EPA MFN clause constrains the policy space of ACP developing countries to offer preferential concessions to a developing country partner. However, WTO rules imply that tariff liberalization within those types of preferential arrangements facilitated by the Enabling Clause would not be at the depth of that expected under an FTA, which would otherwise be disciplined by the provisions of GATT Article XXIV.

It is challenging therefore to reconcile how CARIFORUM or another ACP EPA party, within a preferential arrangement facilitated by the Enabling Clause, would be able to offer market access conditions and concessions that are more favourable than those extended to the EC under the EPA. This notwithstanding, from a political standpoint, it would be difficult to imagine why a developing country interested in facilitating South–South partnerships with an ACP EPA partner, in the interest of development of both parties, would be motivated to exact more demanding liberalization concessions from the ACP developing country than which is afforded to a developed country under the EPA. 

The EPA MFN Clause and the prevention of substantial South-South trade liberalization

The MFN clause will “prevent” third countries from negotiating FTAs with EPA parties and constrain South-South trade.

While, the EPA MFN clause clearly does not prejudice the legal effect of the Enabling Clause, what is left to be examined is Brazil’s assertion that the MFN clause would prevent ACP countries from negotiating FTAs with developing countries.

As evidenced by the preceding illustrations, the MFN Clause does seek to protect the future competitive position of the EC against competing third states. It also protects CARIFORUM, especially in the case of services, from losing preference in the EC market to a third state. Any constraint in the ability of developing countries that are major trading economies to secure wider margins of preference in an FTA with an ACP EPA party would of course act as a disincentive to negotiating an FTA with that ACP party. However, the MFN clause falls short of preventing such major trading economies from engaging in an FTA.

It is essential to consider that Article 19 (and Article 70 and Article 79) is quite clear to outline that while the MFN Clause would be triggered by the accord of more favourable treatment to a third party, the reciprocal accord of that treatment to the EC by CARIFORUM is by no means inevitable. Instead, CARIFORUM and the EU are obligated to consult on the matter to determine whether CARIFORUM may deny the EC party the more favourable treatment. Therefore, the EPA MFN clause may be designed to discipline the competitive position of the EC against third States but it also affords CARIFORUM some flexibility in the treatment of other major trading partners, including those that are developing countries.              Top Menu

WTO UPDATE

Though, WTO Director-General has been optimistic about the conclusion of the Doha Round this year, recently such optimism has been compromised by delays. The lack of progress in the Agriculture negotiations has pushed back the delivery of new Agriculture and NAMA texts. The texts are considered critical to the successful convening of a WTO Ministerial which should facilitate the finalization of the modalities of a Doha Deal though the implementation of the horizontal negotiations.  The Ministerial may now be postponed until June or July this year.

However, the Chair of the WTO Agriculture negotiations has told Members that he would circulate a revised blueprint deal soon. However, this will not be the final text and will reflect primarily formulae configurations for subsidy and tariff cuts. Outstanding  and controversial issues related to, for example, sensitive products such as the methodology for calculating domestic consumption are still to be addressed. Other issues also include the treatment of special products and tropical products. Top Menu

EPA TO BE SIGNED

Christ Church, Barbados – The Economic Partnership Agreement between CARIFORUM (CF) and the European Community (EC) will be signed in July this year. This timeframe differs from that which was previously projected.

CRNM Director-General, Ambassador Dr. Richard L. Bernal emphasized that the rescheduling of the timeframe is not cause for alarm.

“The rescheduling of the dates from June to July has been occasioned by the requirement for a legal review of the document by both contracting parties.  It has also been necessary for the European Commission to translate the Agreement into the official languages of the Community. Those operational considerations aside, the challenge logistically has been to identify the date convenient for all member states of CF as well as the European Union to sign the Agreement.”          Top Menu

NEWS BRIEFS

REGIONAL News

Guyana examines bilateral engagement with India

Head of the Guyana Presidential Secretariat (HPS) and Cabinet Secretary, Dr Roger Luncheon told the media that Cabinet, at its last meeting on Tuesday, May 13, considered in great detail the important elements of the Guyana strategy in its bilateral engagement with India under the terms and conditions of the Guyana/India Joint Commission.

Minister of Foreign Trade and International Cooperation Henry Jeffrey and India’s Minister of State in the Ministry of External Affairs Anand Sharma recently signed the agreed minutes at the conclusion of the one-day meeting of the Guyana/India Joint Commission

Speaking at the end of the meeting Jeffrey said that the two sides were able to conclude the agenda. He said that Guyana was able to reorient its bilateral arrangements with India towards agricultural production.

International News

WTO Says EU’s banana regime not in compliance with trade rules

The WTO has concluded that the European Union's regime for importing bananas, which gives preferential treatment to bananas from former European colonies is not in conformity with international trade rules. A WTO compliance panel issued on 19 May 2008 its report on the case “European Communities — Regime for the Importation, Sale and Distribution of Bananas — Recourse to Article 21.5 of the DSU by the United States” (DS27). Click here to view the conclusions

The EU/LAC Summit

The EU/LAC Summit held in Lima Peru on May 16-17 2008, provided another important opportunity for political dialogue at the highest level in order to address major challenges in a frank and open way and to assess recent developments in both regions. Click here to view the Final Declaration                 Top Menu

UPCOMING EVENTS

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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.