Understanding the EPA - Most Favoured Nation concession a danger for the Caribbean

Jamaica Gleaner | March 14, 2008

Understanding the EPA - Most Favoured Nation concession a danger for the Caribbean

David Jessop, Trade Writer

The most difficult aspect of explaining a trade agreement in simple language comes when elements that are politically and economically important relate to concepts remote from daily life.

It is easy to explain that in the Economic Partnership Agreement (EPA), imported spirits drinks from Europe will not become any cheaper because all Cariforum Governments bar the Dominican Republic agreed to exclude them from tariff liberalisation.

But much less easy to explain simply is the Most Favoured Nation (MFN) treatment that the Caribbean agreed with Europe and why in theory it might affect the region’s future trade relations with say Brazil, India or China.

In the closing hours of the EPA negotiations a few issues remained unresolved. One was the European Commission’s proposal that the Caribbean automatically extend to Europe any offer of better access to its market that it might agree at some future date to extend to larger economies.

Extend tariff reductions

That is to say Europe insisted that if, for example, the Caribbean negotiated a free trade agreement with other countries and offered them faster or deeper cuts in tariffs than those contained in the EPA, then the Caribbean would have to extend the same tariff reductions to Europe.

This aspect of the agreement is not unusual in negotiations between large and powerful economic partners. However, it effectively means that the Caribbean cannot offer a more preferential tariff reduction on a south-south basis to other developing or emerging nations unless it extends the same concession to Europe as well.

Specifically what the EPA says on this subject is that in all future agreements ’with major trading economies’ that account for over one per cent of world merchandise exports or with blocs of states that count for over 1.5 per cent of such trade, the Caribbean will extend to the EU any deeper market access that is agreed.

This means hypothetically that if the Caribbean offered to cut tariffs on imported spirits from China, India or Brazil, it would then have to offer on a line by line basis the same tariff cuts to Europe.

This is contentious because there is a general principle in world trade that preferential trade arrangements between developing economies are desirable and offer a way to redress the historic imbalance in trade that continues to skew trade with developing countries in favour of the metropolitan powers.

As matters stand, the EPA text suggests that the Caribbean will not be able to show preference to other developing countries in its trade relationships.

The issue has potentially much wider implications for other developing nations where for example nations like Brazil have more than 55 per cent of their trade taking place on a south-south basis and want to increase this.

Request for debate

So concerned is Brazil about the Caribbean EPA that it sent, on February 5, a communication to the World Trade Organisation (WTO) requesting a debate.

Its concern is that the arrangement agreed with the European Commission may cause nations like India, China and others to cease to negotiate with nations like the Caribbean.

In the ensuing debate at the WTO Council, Brazil noted that So concerned is Brazil about the Caribbean EPA that it sent on February 5 a communication to the World Trade Organisation requesting a debate.

source: Jamaica Gleaner