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Where’s the partnership between Europe and the Caribbean?

Huntington News | Aug. 15, 2008

COMMENTARY: Where’s the Partnership between Europe and the Caribbean?

By Sir Ronald Sanders

On Sept. 2, 2008, some Caribbean countries will be signing an Economic Partnership Agreement (EPA) with the European Union (EU) which is not fair and which, over time, may well return Caribbean countries to a state of “plantation economies” where the commanding heights are owned by foreign companies run by expatriate managers, and Caribbean people are merely workers.

As a fundamental point, how could trade be fair on a basis of “reciprocity” between the world’s largest economy of 350 million people and a small country like St Kitts-Nevis with a population of 50,000? And, this is an issue that has tended to be ignored by the advocates of the EPA — it is not the Caribbean countries collectively that will sign the agreement with the EU on Sept. 2, it is each Caribbean country individually. Conversely, all 27 countries of the EU will sign collectively. The EU is a $12 trillion economy, 88 times larger than all Cariforum states put together.

In any dispute that arises over the agreement, individual Caribbean countries will be up against the full force and resources of the EU as a whole. The potential for disaster is glaring.

But, the fact that settlement of any future dispute is stacked against Caribbean countries is not the only aspect of unfairness in the EPA. For all the hype about Caribbean access to the EU market for services, the EPA is replete with non-tariff restrictions on entry even if Caribbean companies had the resources to go into Europe to compete with European companies. And, it is evident that Caribbean companies do not have such resources. There are 39,000 EU trans-national companies; in Caricom there are ten firms of any significance that are just barely pan-Caribbean.

Free trade is now the mantra of the EU countries that grew their economies on protectionist policies. It is their mantra because they will benefit the most from prying open markets all over the world for their goods and services.

Peter Mandelson, the EU Commissioner for Trade, says this: “In Europe we have much to gain from a further opening of global trade. We are highly competitive, knowledge-based and innovative. We are the largest economy in the world. We are the biggest exporters. Our economies — and our living standards, which depend on economic success - need open world markets”.

But while the EU wants others to open their markets for European goods and services, they protect their own markets through non-tariff barriers on the exports of other countries, and subsidies to their own producers. Anyone from outside the EU who has ever tried to establish a bank or a banking agency in Europe has quickly discovered how the bureaucracy works against them. Indigenous banks in the Caribbean that have tried to establish agencies in the UK to take advantage of the savings and investments of the Caribbean Diaspora have all failed to get over the huge hurdles.

In the 1970s, when the EU negotiated the Lome Conventions with the African, Caribbean and Pacific (ACP) group, the European objective was to ensure the supply of raw materials particularly from Africa. The concern now, as Mandelson stated, is for increase market access for EU exports. And, in going after market access in the EPA, the EU’s objective was to enforce trade arrangements with ACP countries that the global community has not accepted in the World Trade Organisation (WTO) negotiations.

One would have imagined that Caribbean countries would have been reluctant to sign up to new arrangements with the EU when negotiations on many of these arrangements are not complete in the WTO. Yet, if the present EPA is signed without modification, that is precisely what they will be doing.

Some Caribbean countries whose economies are reliant on tourism and financial services and whose government revenues depend on tariffs on imports really do not need an EPA with the EU. Among these countries would be Antigua and Barbuda, St Kitts-Nevis, Grenada and the Bahamas.

In a recent analysis of the Bahamian situation for instance, Professor Norman Girvan states the following: “72% of the Bahamas foreign currency earnings come from services, and 85% of this is from tourism and offshore banking fees that do not need an EPA. 83% of exports of goods go to the US and Canada and only 13% to the EU, so merchandise exports to the EU provides just 4% of the Bahamas total export earnings. There are probably other people who will buy Bahamas crawfish if the EU wants to charge an 8% tariff. On the other hand Bahamas will be giving up tariff revenues on EU imports: an additional 49% to be zero-rated within 15 years and 5% in years 15-25 on top of the 32% already duty-free.”

Girvan makes the further point that the US, Canada, Japan, and China will not accept that the EU can export duty free to the Bahamas while they can not. In other words, eventually it is not only the revenues on tariffs from EU imports that will be lost, but tariffs on all imports. He notes that a significant portion of government revenues come from tariffs and other duties and asks the pertinent question: “How will the Government recoup these tax revenues? Which other taxes will go up? What will be the cost of the change-over to the Government? To businesses? If the govt doesn’t recoup all the revenue what expenditure will be cut? Education? Health? Security”?

The EPA will bring no new investment to the Caribbean. Caribbean incentives to foreign direct investment are already overly generous; European firms do not need an EPA to invest in the region. What the Caribbean needs is the capacity to foster its indigenous businesses even as it encourages foreign investment. This means that Caribbean countries should reserve the right to help local companies. But under the EPA, any conditions given to local companies will also have to be accorded to EU firms.

Who exactly is being satisfied by the EPA, except the EU?

The writer is a business consultant and former Caribbean diplomat; Responses to: [email protected]

 source: Huntington News