1. Negotiations
2. EU-ACP EPAs

The anti-development dimension of the European Community’s EPA for the Caribbean

April 2008

THE ANTI-DEVELOPMENT DIMENSION OF THE EUROPEAN COMMUNITY’S ECONOMIC PARTNERSHIP AGREEMENT FOR THE CARIBBEAN

By Havelock R. Brewster [1]

Introduction
The basic development problem of the African-Caribbean-Pacific Group of Countries (ACP), including those with relatively high incomes due to their endowment with petroleum and tourism resources, is inadequate, uncompetitive and undiversified productive capacity. Yet the present Agreement that the European Community (EC) has designed for them, that purports to be an Economic Partnership Agreement (EPA), is almost entirely about market access and other trade-related modalities. The EC makes no secret of their theory that they expect “the trade policy framework to deliver development”. And this is so notwithstanding the fact that, over the thirty-two year history of these Agreements with the EC, this has just not happened. In fact, the ACP has fallen far behind Asia and Latin America in terms of their export share to the European market.

More specifically this is how the European Commission rationalizes its position: “by establishing a stable, predictable and transparent framework for economic and trade relations between the ACP countries and the EU, EPAs are intended to mobilize economic operators at local, national, regional, and international levels, and to promote local activity and attract regional and international investment . By removing border measures to trade between parties, as well as other factors causing market fragmentation, they will enlarge the markets of ACP countries which will allow for economies of scale, will improve the level of specialization, will increase the competitiveness of the ACP States and will help then attract investment.”

In other words, the ACP countries, by opening up their markets freely to European goods, services and companies (and by regional integration), will be transformed into a state of development - via an impressive chain of unproven, theoretical assumptions. The EPA itself is replete with development rhetoric, and references to the development objectives of the Agreement, beginning with Part 1, Article 1- Objectives, most, if not all, of which are compromised by the content of the Agreement itself. Nowhere in the Agreement is there a direct, targeted attack on the basic supply-side problem, let alone binding commitments to put in place a complement of measures aimed at this problem. And yet, this is an Agreement that purports to be an economic partnership agreement.

The lessons at once to be drawn from this are that : it was a fatal mistake for CARIFORUM (CF) to have accepted, practically with out revision, and to have entered into a negotiation based on a template, provided by the European Commission, containing its own in-built ideological agenda; that CF failed to foster ACP and Group of 77 solidarity in support of their interests, and similar concerns by the other ACP regions and the developing world as a whole; that CF neglected to use the leverage of the EU Member States themselves, and of the European and their own Non-Governmental Organizations, the private sector, organized labor, and civil society. For surely no serious consideration of the content of an economic partnership agreement focused on the development of the ACP countries could have produced such a text- one that consists almost wholly of market access and other trade -related modalities. From Day 1 therefore, the EPA, looked at from a Caribbean development standpoint, was doomed to failure.

However, there is now a text of an EPA. CF rushed to sign it, admittedly under heavy duress from EC officials. Other regions and countries, more prudent, have been cautious, have initialed “interim agreements”, or have refrained from any commitment, thereby providing time for in-depth evaluation of all the provisions of the proposed EPA, and the possible re-negotiation of its content.

As mentioned earlier, the Agreement is lavish in its references to “development”, but we need to peel beneath the surface of the pre-ambular rhetoric to discover what substance there really is. Although this is not the approach we would have chosen for an economic partnership agreement, we can, in the present context, point to a number of failings and omissions, and even to instances where it is downright anti-development. Only a few summary examples are given here. They are viewed in terms of their substantive merit as development tools, rather than in terms of whether or not they conform to WTO rules, or whether or not they would have been negotiable with the EC. Those benchmarks might be pertinent to an assessment of CF’s negotiating capacity, but they are not necessarily a test of the development content of the Agreement.

TRADE AND TRADE-RELATED MATTERS

Market Access
In general, the trade regime is not constructed in a way that links the degree of liberalization, whether measured by implementation schedules, coverage of items, waivers, exceptions and exclusions, or other transitional mechanisms, to a positive correlation with expected country economic and social outcomes, such as income and poverty levels, developmental needs, economic openness, or even trade shares with the EU. For example, it should not have been impossible to construct a liberalization schedule that proceeds in harmony with revealed export development capacity. Or, with further market liberalization linked to ACP countries attaining, say, the average level of per capita income in the EU, or even the average level of “human development” in the EU.

The CARIFORUM (CF) EPA provides for 4 percent of imports from the EU being liberalized in years 15 to 25 while 30 percent would be liberalized in years 3 to 15. This heavy front-loading of the liberalization schedule should have been reversed, especially given the very large disparities in competitiveness between the CF and the EU. Moreover, given that the CF begins from a situation in which 53 percent of imports from the EU is already free of customs duties, it would be reasonable to claim that more than generous reciprocity already exits, especially again given the disparities in income between the two groups. And that further market access should not be conceded until some income or human development level relative to that of the EU is attained. Too often the impression is given that EU is not the beneficiary of any reciprocity at all for the market access it has extended to the CF.

Moreover, the average CF Applied Rates of Duty (less than 10 percent) could hardly be of such critical competitive significance to the EU. At least, if the negotiations had been based on the WTO standard of Bound Rates it could have provided a further, longer breathing space, some needed “policy space” for taking forward the development agenda ( particularly as it relates to production and customs revenue) , as they are 5 to 13 times higher than the Applied Rates. This would also have been perfectly consistent with WTO rules. When the Americans conceded the use of Bound Rates in the FTAA negotiations CF was happy enough to claim credit for this outcome. In the case of the EC, its reported non-negotiability seems to have been a sufficient answer. This surely should have been an issue to engage ACP and Group of 77solidarity. So too should have been the EC insistence on sticking to the WTO guideline that substantially all trade must be liberalized, and that the term “substantially” should be interpreted to mean 80 to 90 percent of imports- itself neither a formal rule of the WTO, nor a guideline that has been legally tested.

Rules of Origin
The Agreement provides, under extremely complex rules, for cumulation among CF States, ten neighboring Central American and Caribbean countries, and, under highly restrictive “subsequent sufficient working and processing” standards, for materials originating in EC Parties, in the OCT and other ACP States. The standard for “sufficiency” varies from product to product, but in most cases requires that the value of extraneous material should not exceed 15 to 30 percent of the ex-works price of the product. For an Agreement that purports to be not only development oriented but aims at “integrating CF into the world economy” these are restrictive conditions that do more to preserve European interests than to promote the announced development and integration objectives for CF. An approach more in tune with the promotion of CF (and ACP) production and exports, and their integration into the world economy, would have been to encourage world-wide imports for use in the product physical transformation process, especially give the exiguous resource base of most of the CF States.

Special and Differential Treatment (SDT)
A development oriented approach would have sought to use SDT in such a way as to promote a new generation of exports. This would have involved identifying the kinds of new product-specific SDT that are required and need firm obligations, as distinct from discretionary endeavors. The Trade Agreement Package completed by the WTO (July 2004) actually pointed the way for this to be done, for it is there recognized that SDT for developing countries “will be an integral part of all elements of the on-going WTO negotiations.”

Non-Tariff Barriers (NTB)
The EC has been less than forthcoming on information in respect of, and commitments to the removal of, a multiplicity of non-tariff measures, other than quantitative restrictions, that inhibit CF exports to European markets, including the use of technical barriers to trade, rules of origin, sanitary and phyto-sanitary standards, among others. In fact the provision on non-tariff measures appears under the heading “prohibition of quantitative restrictions”. Furthermore, certain provisions under “non-tariff measures’ are distinctly anti-development, such as the prohibition on applying internal taxes or other charges to afford protection to like domestic products; and the prohibition against applying any new subsidy program upon exports of agricultural products destined for the territory of the other Party. These provisions destroy two of the most effective “infant industry” measures, often necessary in less developed countries to develop new productive capacity (and applied also in developed countries themselves). Note here too, the reference is to “new” subsidies, bearing in mind that the EU countries continue to apply agricultural subsidies on a large scale, while this is not generally a feature of CF and ACP export agriculture regimes. In other words, so far as European agriculture is concerned, the status quo remains, or whatever eventually comes out of the Doha Round.

Sanitary and Phyto-Sanitary Measures (SPS)
The Parties confirm their commitment to the rights and obligations provided for in the WTO Agreement on SPS Measures. However, the EC goal posts keep moving, in some instances going far beyond international recommendations. For example, recent internal developments in the EU (Regulation 882/2004) have erected new, stringent and pervasive barriers to the export of food and feed products from ACP countries. A Study by the EC itself stated in a backhanded way that the new EU food safety legislation will not exacerbate any problem for the exports of ACP food and feed products. However, there are no provisions linking WTO undertakings in respect of SDT to the new and moving SPS targets. It needs to be recognized that the EC is not being asked to be irresponsible in respect of sanitary standards, but that these standards should be fair and made less a matter for arbitrary, unilateral, discretionary application that imposes substantial, unnecessary, additional costs on others, if they are to try to stay in the market.

Technical Barriers to Trade (TBT)
The Parties again confirmed their commitment to the rights and obligations provided for in the WTO Agreement on TBT. However, there is no attempt to identify for systematic remedial action, similar to the precise instructions governing the tariff liberalization schedules, those instances in which EU TBT have been unnecessary, inappropriate, unfair, restrictive or discriminatory. Nor, for that matter, is there any attempt to identify those areas for the mutual recognition of ACP standards.

Most Favored Nation Treatment (MFN)
The agreement to apply MFN is another example of a distinctively anti-development provision, as it places developing countries at a disadvantage in expanding trade among themselves, and with strategic partners. It is a backward step, even by WTO standards, and sets a harmful precedent so far as South-South economic and political relations are concerned. This too should have been a matter on which to engage the solidarity of the ACP and the Group of 77.

DEVELOPMENT

We come now to issues that are more critical for the supply side, and thus to the development of ACP countries, namely Agriculture and Fisheries, Primary Commodities, Manufacturing, Services, Transfer of Technology, Infrastructure, Investment, Development Finance, Social Development, and Regional Integration. Although such productive sectors as agriculture, forestry and fisheries, primary commodities and manufacturing are the life-blood of most ACP countries, on which development is critically dependent , the EPA, is silent on any concrete partnership measures that could be undertaken to improve and diversify productive capacity , productivity, and competitiveness. And, this is so notwithstanding the innovative efforts pioneered in the Cotonou Agreement for sugar, bananas, rice and rum.
In respect of Agriculture and Fisheries, despite the recognition of development as a “fundamental objective”, of all the problems that afflict this sector, there appears simply the statement that there is the “need to avoid major disruption of markets” and “to take account of “conservation, and management of resources” and of “development strategies”.
In respect of Traditional Agricultural Products there is simply the provision “to undertake prior consultation on trade policy developments that impact on competitive positions” and to “maintain significant preferential access.... as long as is feasible.”

Food Security
The extraordinary rise in food prices over the last year or two has given a new prominence to the issue of food security. The CARICOM experience has been to date one of ever mounting food import bills, side by side with stagnating, if not declining agricultural production for domestic consumption, and a deepening concern about the effect of imported food consumption on health, in particular the alarming increase in obesity. The CARICOM Common External Tariff (CET) seemed ineffective against these problems. Indeed, with the continued rise in food prices certain governments decided to suspend the CET in order to lower food prices.

The EPA provisions on food security provide little or no support in grappling with this difficult problem. At the root of it is the production problem that afflicts staples like rice, ground provisions, vegetables and fruits, combined with the consumption of imported processed, canned, frozen foods, rich in chemical preservatives, hormones, fats, and a variety of additives, through which the health problem is exacerbated.

It comes as a surprise therefore to note how unhelpful, negative, is the EPA’s approach to the food security issue. The main substantive provision is aimed at allowing import restrictions when importation leads to “major difficulties” in a CARIFORUM State, but is subject to consultation procedures in the Joint Trade and Development Committee, and thus dependent on EC approval of the safeguard measures to be employed. In any event, such an approach falls far short of an effective contribution to solving the real food security problem as described above.

Given the ineffectiveness of the CET as a mechanism for dealing with the production problem, one can only expect that, with a full free trade regime in place, the production, and thus the food security problem will be exacerbated. What may be even worse is the deleterious impact on health of the unrestrained importation of “unsanitary” foods. Food security furthermore could be jeopardized by the prohibition under Chapter 3, Article 1 of restrictions on exports, whether by means of quotas, export licenses, or other measures. This provision could be invoked in respect of, for example, regional rice and vegetable oil exports at a time when ensuring local consumption becomes a national or regional priority, and again would be subject to EC approval in the Joint Trade and Development Committee of the safeguard measures to be employed.

Services
The EPA commits CF countries to major liberalization of commercial services (up to 75 percent, with certain variations among countries). EU countries may establish a local presence in a wide range of services, such as telecommunications, banking and other financial services, accounting, medical and other health services, education, sanitation and waste water services, tourism, retailing, courier services. Prohibitions have also been introduced, with certain exceptions, against treating local and foreign companies differently. These kinds of binding, virtually irreversible liberalization commitments limit CF countries’ policy space in respect of, for example, the use of regulatory measures ( which cannot be “more burdensome than necessary), intended to ensure universal availability, affordability, and appropriate quality of targeted services; the possibility to take affirmative actions in favor of locally owned companies; and the development of efficient publicly owned essential services enterprises, using, in the State’s discretion, minority private sector participation, under effective regulation.

On the other hand, what CF has secured by way of greater access to Europe is more or less insignificant relative the status quo, what is already offered to other WTO members. Where there is some potential marginal gain (for example the entry of skilled professionals) they are ring-fenced by complex, burdensome requirements and qualifications, and European safeguards.

Perhaps the more important fact from a development standpoint is that export services are important only to a handful of ACP countries, mostly those that offer tourism services. The great majority, including many in the CF, have little or no capacity to export services to EU countries, though they are sizeable importers of the full range of services. However, an entire Title of the Agreement (Title II) is devoted to the services sector - nearly 30 percent of text of the EPA. And it almost wholly concerned with market access-related issues. These access-related provisions are, as has been noted above, not only biased against the interests of CF and ACP countries, but, in important ways, are clearly anti-development. Development type provisions themselves are so vague as to be useless from an action standpoint. It is provided merely that the Parties “agree to cooperate, including by providing support for technical assistance, training and capacity building.”

Commodities, Industrial Development, Energy and Infrastructure
These sectors are all fundamental to any program on development, and a basic component of any ACP country’s strategy for development. Most CF countries are heavily dependent on primary commodities which are still produced under very uncompetitive and socially unsatisfactory conditions. Industry is woefully underdeveloped in all CF countries, and the target for support to the informal and Small and Medium Sized enterprises (SMEs). Indeed, some countries view the informal sector and SMEs as the main avenues for the development of entrepreneurship and the creation of employment. Energy is among the most costly components of development, and a major source of insecurity. It occupies a key position in the Regional Strategic Development Plan, in which the problems of both new and renewable sources of energy have to be addressed. Adequate and efficient infrastructure is a critical need as its absence stymies development in all economic sectors, including services. It is the most costly component of development that the public sector must undertake, in collaboration where feasible with the private sector. Again, it is surprising that there should be no provisions at all in the EPA relating to the development of these sectors. It is actually a backward step from the Cotonou Agreement.

The Transfer of Technology
This is an issue that the South has struggled with the North for decades. The agenda is far from complete. This issue-area is actually included in the EPA, but in very dismissive terms. It is disposed of in three short Articles, relating to “the exchange of information on practices and policies”; taking “measures to prevent or control licensing practices”; and, without specifying anything of an actionable nature “to facilitate and promote the use of incentives for the transfer of technology to ACP countries.” This dismissal of the transfer of technology issue is a highly compromising one for the ACP countries as it has set back what has been for them and all developing countries a major international development concern. “Innovation” is similarly disposed of in the meaningless language of “agreeing to cooperate.”

Investment
In respect of investment the EPA is wholly concerned with the liberalization of entry conditions, covering such issues as commercial presence, market access, and the grant of most favored nation treatment. However, the issues that are of most concern and most pressing to ACP countries, as the CARICOM Secretariat itself has identified in its Trade and Investment Reports relate to the adequacy, stability, and nature of investment flows, decision-making governing access to them, their terms and conditions, and their timely transfer and disbursement - particularly as they concern flows from institutions that are within the control of the EU governments, namely, the Investment Facility (IF) and the European Investment Bank (EIB). The EPA is silent on all these issues. And again, their dismissal represents a backward step from the Cotonou Agreement. Moreover, it should be noted, CF agreed to include “investment” in the EPA, notwithstanding the fact that the member countries concerned are parties to the stance taken by the wider developing countries group that it should be excluded from the WTO Doha Round of Negotiations

Development Finance
Development finance must be at the center of any serious partnership for development, must be at the core of the “development dimension” of any EPA. Other factors are of course important, including public policy and the efficient use of these resources. Nor does it make any sense to equate development support with “continuing high levels” of financial resources being transferred from Europe. Finance is however a real issue to virtually all ACP countries, as inescapably certain predictable amounts are necessary for the attainment of targeted rates of growth. Actually, there are no commitments in the EPA itself to development finance. EC financial support to ACP development is carried out in the framework of the Cotonou Agreement, and is provided from the European Development Fund (EDF). Part 1, Article 7(2) of the EPA states that “The European Community financing pertaining to development cooperation between CARIFORUM and the European Community supporting the implementation of this Agreement shall be carried out within the framework of the rules and relevant procedures provided for by the Cotonou Agreement , in particular the programming procedures of the European Development Fund.” In other words, development finance supporting the implementation of the EPA is merely a re-packaging of development support under the Cotonou Agreement.

The commitment to development finance, via the Cotonou Agreement and the EDF, is EUR 165 million for the Regional Indicative Program (RIP), over the five year period 2008 to 2013, for the 15 CF countries. The allocation for the current five-year RIP is EUR 57 million while in previous RIPs the allocation was nearer EUR 100 million. In incremental terms therefore, the amount that can nominally be attributable to implementation of the EPA, is in effect about EUR 65 million. The 2008-2013 allocation then is equivalent on average to less than EUR one million per year per country. At the same time, CF countries will face substantial fiscal cost, the economic cost of the impact on local production, the direct cost of the implementation of the EPA, and the even more substantial cost of re-structuring and infrastructure development.

Consider a couple of figures to put the EC RIP in some perspective. A study by the Commonwealth Secretariat put the cost of implementing the EPA at EUR 900 million. While the total capital requirement, at current rates of economic growth, for CARICOM countries only (Haiti and the Dominican Republic are excluded), over the next five years, is at least USD 45 billion. One is not therefore expecting the EU to take on even a significant development financing effort- so-called “continuing high levels” of support. But economic partnership should mean, and should be expected to have, at least a minimum of real credibility to it. By contrast , we note, that the Republic of Ireland which has a population of 4.3 million people (CARIFORUM has 25 million people) received from the European Union in Structural and Cohesion Funds 1989 to 1999 Euro 30 billion, and 2000-2006 another Euro 4.0 billion. Indeed, on a per capita basis Ireland received approximately 560 times as much in 1989-1999 (EU 750 per capita per year) as the amount programmed for CARIFORUM under the Regional Indicative Programme for 2008-2013 (EU 1.32 per capita per year).

References are made in the usual vague, non-specific, non-binding manner to the availability of other funds, particularly Aid-For-Trade. Apart from the fact that there is no evidence whatsoever of any actual or planned appropriations, at the level of the European Community and/or of the Member States, of the funds referred to, there remains the fact that there can be no assurance that these funds would represent additional resources, would not be merely “repackaging”, or that they would conform to CF priorities (for example, for infrastructure investment or structural adjustment or budgetary support), or that their disbursement would be timely, predictable and in harmony with the execution schedules of national and regional strategic development plans. CF has thus conceded substantial, valuable, binding commitments on trade, services, investment and rights of business establishment in exchange for investment and development finance commitments of little or no consequence.

Social Development
Social development is recognized as an integral aspect of development. The International Community has set the attainment of the Millennium Development Goals (MDG) by 2015 as the primary thrust of international development policy. All CF countries include substantial social components in their strategic development plans, programs and budgets. While many or most CARICOM countries have attained many of these basic MDG goals ( apart from HIV/AIDS), massive efforts and investments are needed, especially in health services, education, housing, rural community social services, slums, crime and violence, and so on.

“Social Aspects” are actually included in the EPA-in Chapter 5. However, it comes as a shock to note that it is confined to reaffirming adherence to International Labour Organization Conventions on collective bargaining and employment practices. The motivation behind the provisions in this Chapter is to “uphold the level of protection” for labor so as to prevent it from being lowered “to encourage trade, or foreign direct investment, or enhance or maintain a competitive advantage.” The EPA does not address, notwithstanding the deep concern expressed about development, the major social development pre-occupations of ACP and CF countries. This is especially remarkable in respect of the African Groups where less progress has been made in respect of the attainment of the MDGs.

Regional Integration
Regional integration is a core strategy for ACP groups, including CF, in the drive for development. There are several strong statements in the EPA on regional integration and its role in achieving the objectives of the Agreement (though it is not itself treated as a separate Chapter in the Agreement). For example, Article 4 (1) states that “The parties recognize that regional integration is an integral element to their partnership and a powerful instrument to achieve the objectives of this Agreement.” And Article 4 (5) continues that “The Parties agree that their partnership builds upon and aims at deepening regional integration and undertake to cooperate to further develop it, taking into account the Parties’ levels of development, needs, geographical realities, and sustainable development strategies, as well as the priorities that the CARIFORUM States have set for themselves and the obligations enshrined in the existing regional integration agreements...”

It is ironical therefore that the very process of concluding the EPAs has proven to be one of the most internally divisive occurrences in the history of ACP integration movements, creating the emergence of different versions of, and defections from, the EPA by individual States within integration groupings. While such open rifts have not come to the surface in CF, as they have in Africa and the Pacific, EC verbal coercion and economic blackmail have left a strong distaste and distrust of the EC among some, if not all, Member States.

But setting aside that process, there are a number of features of the Agreement that are distinctly anti-integration. Examples are:- The provisions relating to Rules of Origin which place narrow limits on the extent to which third party materials and services can be mixed with those of CF in the transformation process; rules that restricts the right to regulate the movement of capital- liquidate and repatriate investments and profits; the rules governing regional preferences that require CARICOM States and the Dominican Republic to extend to each other any more favorable treatment they give to the EC; commitment to full market access that restricts the right to require an investment to be made, or services to be delivered, through a joint venture; and, again, commitment to full market access that restricts the right to limit the level of foreign shareholding in a single enterprise, or aggregated in a sector.

CF, or at least CARICOM, has also compromised the regional integration process in other ways. For example, by making commitments in subject- areas not yet settled under the Caribbean Single market and Economy (CSME) or fully implemented, such as financial services, other services, investment, competition, public procurement, e-commerce, intellectual property, free circulation of goods, and the environment. This pre-emption of Caribbean Community prerogative has been justified by some CF officials as the Community political directorate needing a kick from outside to get a move on. And finally, the new CF-EC Joint Trade Council mechanisms jeopardize the functioning of Community institutions by creating parallel, if not competing and pre-emptive, governance and dispute-resolution structures.

Conclusion
The EPA is not something that was recently started. By the EC own account it has been in the making, with template ready-made, before Cotonou was signed in 2000. There was therefore sufficient time for the design of a conceptually satisfactory, publicly exposed approach; sufficient time to avoid the kind of vagueness, non-specificity, and non-binding, pie-in-the-sky promises that pervade the Agreement. As I see it then, so far as it concerns a truly development focused partnership - that the Agreement actually purports and extols itself to be- the text should be returned in its entirety to the drawing-boards.

Washington DC May 6, 2000
(hrbrewster@aol.com)

Selected References
– Brewster H, Girvan N, Lewis V. Re-Negotiate the CARFORUM EPA, Trade Negotiations Insights, April, 2008
– CRNM, The EPA: Fact vs. Fiction Series, February, 2008
– Economic Partnership Agreement between the CARIFORUM STATES, of the One Part, and the European Community and its Member States, of the Other Part.
– Girvan, Norman. Implications of the CARIFORUM-EC EPA, January, 2008
– Girvan, Norman. A False Dichotomy-the CRNM’s “Fact vs. Fiction”, February, 2008 March 2008
– Kelsey, Jane. Regulatory Implications of the Services and Investment Chapter of the CARIFORUM-EU EPA, University of Auckland, March 2008
– OXFAM International, Partnership or Power Play, April 2001
– Stevens, Christopher. et al. The New EPAs; Comparative Analysis of their Content and the Challenges for 2008, Overseas Development Institute,
– Thomas, Clive Y. CARICOM Perspectives on the CARFORUM -EC Economic Partnership Agreement, University of Guyana, March, 2008