Globalization, Trade, and Economic Development

The CARIFORUM-EU Economic Partnership Agreement

R. Bernal

• Publisher: Palgrave Macmillan
• Year: 2013
• ISBN:
  9781137356314
• Topic: Economics
• Subtopic: International Economics
• Index: Economics

This is the most in-depth study of the economic partnership between the European Union and the CARIFORUM countries, a group of fifteen small developing economies in the Caribbean. The CARIFORUM-EU Economic Partnership Agreement (EPA) is the first trade agreement of its kind, as it is a new type of WTO-compatible trade agreement between a group of developed countries and a group of developing countries. As a principal negotiator for CARIFORUM, Bernal's qualifications allow him to provide a unique perspective on the increasingly important topic of trade and economic development in the midst of globalization. Globalization, Trade, and Economic Development comprehensively explores the components of the EPA from all angles, explains how the agreement provides opportunities to strengthen and accelerate economic development, and outlines the policies which can allow the CARIFORUM countries to seize these opportunities. Bernal's explanation of the institutional arrangements for the conduct of the negotiations by CARIFORUM is invaluable to governments and regional organizations in developing countries for coordinating groups to advance common and joint positions in international negotiations.

CHAPTER 1

Globalization and the Economic Partnership Agreement

Globalization is the context in which the Economic Partnership Agreement (EPA) was mooted and negotiated. The goal of having an EPA and the objectives pursued by both the European Union (EU) and the CARIFORUM were strongly influenced by the state of globalization and the actual and anticipated trends of globalization. Globalization involves the progressive reduction or elimination of national barriers to the international movement of goods, services, capital, and technology. Given that globalization is not a straightforward process but an uneven one, there has not been a complete standardization of the rules governing international transactions and flows. A basic set of principles guiding trade rules has been enshrined in the agreements that constitute the World Trade Organization (WTO), but coverage is not universal in either subject matter or country membership. It has proven difficult to extend the coverage and depth of WTO rules: there has been a pronounced proliferation of bilateral, regional, and plurilateral trade agreements. In a world where developed countries and gigantic multinational corporations (MNCs) can exercise disproportionate power to avoid, circumvent, ignore, and override multilateral rules and overwhelm the sovereignty of small, poor, and developing countries, trade agreements assume considerable importance for the weaker partner.

Rationale for Trade Agreements in Globalization

Given the extent of globalization it is not possible to avoid contact with and participation in the global economy. No consumer or producer in developed or developing countries, large or small, could operate if they were insulated from globalization. Life, as we know it, would be impossible without international trade. For example, without the foreign exchange earned from the export of goods and services, CARIFORUM countries could not import the oil necessary for electricity generation and modern transportation. Isolation is therefore not an option. Nor does free trade exist outside of economics textbooks; hence, neither autarky nor free trade is a realistic option. Globalization is a reality that poses both challenges and opportunities. It can generate growth and development, but it can also contribute to economic marginalization and poverty. The impact of globalization on countries depends on their own efforts and the terms and conditions that govern their participation in the global economy. One means of influencing the conditions of involvement in the global economy is the negotiation of trade agreements at the multilateral and regional levels.

The attempt to formulate rules to regulate the operation of an increasingly “globalized” world economy involves the negotiation of trade agreements at the multilateral level in the WTO and a plethora of regional and plurilateral agreements.¹ The coverage of trade agreements has expanded in recent years in an attempt to encompass as much as possible of international transactions in type and volume. Today the connotation of the word “trade” is no longer simply the international exchange of goods. Trade encompasses goods, services, and investment, as well as the policy measures that constitute the national environment in which trade is conducted, that is, competition policy, labor standards, and intellectual property rights.

Importance of Trade Agreements to Small Developing Economies

Trade agreements are important to small developing economies because of the following:

1. Small developing economies are highly open, which means that international trade is extremely important to their operation. Exports constitute a very large share of total production, and the import content of every good and service is substantial.

2. The objective of trade agreements is to increase economic growth by the expansion of trade and capital flows. The objective of negotiating trade agreements for developing countries such as those in the Caribbean is to promote economic development. The impact of international trade on growth depends in large part on the terms and conditions that govern the conduct of trade. The negotiation of trade agreements at the regional and multilateral levels can be an effective means of influencing the terms and conditions of participation in international trade.

3. Nearly all countries, developed and developing, are competing with each other to get the best access to the markets of as many countries as possible. If the CARIFORUM region does not conclude trade agreements, it will be at a disadvantage, and this disadvantage will increase as other countries sign trade agreements. Imports will cost more than they do now; exports will find it increasingly difficult to compete in global markets.

4. It has become increasingly difficult to persuade developed countries to grant preferential trade arrangements such as the former Lomé Conventions with Europe and the current Caribbean Basin Initiative (CBI) and CARIBCAN, with the United States and Canada, respectively. The developed countries that dominate international affairs are pushing for free trade agreements that are based on reciprocity. This was, and continues to be, evident in positions advocated in the WTO and in other trade negotiations. CARIFORUM countries wanted the best possible access to the EU market for goods and services, and therefore sought to enshrine this requirement in a trade agreement.

Why an EPA with the EU

The decision to negotiate an EPA and to negotiate as six separate regions was entered into voluntarily by the governments of CARIFORUM when they signed the Cotonou Agreement with the EU in 2000. The reasons for agreeing to negotiations by regions rather than by theAfrican, Caribbean, and Pacific (ACP) Group as a whole are beyond the scope of this study but require a public explanation by those who advised CARIFORUM and by those who led those negotiations. Despite the change in the format of negotiations the CARIFORUM countries were interested in having an EPA with the EU because:

1. The preferential trade provisions of successive Lomé Conventions were replaced by the Cotonou Agreement, which provided a transitional arrangement in which the trade provisions would end on December 31, 2007. These trade provisions had to be replaced by a WTO-compatible trade agreement and this was to be the EPA.

2. A trade agreement with the EU was vital because it is a major economic bloc that has traditionally been a significant trade partner of CARIFORUM countries. The EU had been and was expected to continue to be a critically important export market for some of the most important exports such as sugar and bananas and source of essential imports. The EU also had the potential to be a major source of foreign investment and a continuing source of development assistance. Indeed, one of the attractive aspects of the EPA was the EU’s pledge to furnish development aid to assist with the costs of adjustment and implementation.

3. CARIFORUM countries needed to avoid having less favorable market access than other developing countries from Africa and the Pacific that produce and export similar products such as sugar and bananas. The least developed countries of Africa already had duty-free, quota-free access and therefore would be in a more advantageous position if there were no EPA agreement between the CARIFORUM region and the EU.

4. The EPA was a priority because alternative agreements with other major trade partners were not an option at that time. (a) The United States did not have Trade Promotion Authority to negotiate trade agreements, and in any case, they have indicated unequivocally that any trade agreement would have to be a free trade agreement; the Dominican Republic-Central America-United States Free Trade Agreement (CAFTA) was the almost immutable template. (b) Negotiations with Canada were anticipated to have started in earnest early in 2008. (c) The negotiations in the WTO, designated the Doha Development Agenda, that were intended to address the issues of concern to the developing countries had been stalled for some time. The WTO negotiations had degenerated into a political quagmire because of the failure of the developed countries to compromise on key issues, in particular, subsidies and domestic support for agriculture.

5. The political circumstances that allowed the preferential arrangements, which were the core of the Lomé Conventions and the Cotonou Agreement, had changed significantly, as was graphically illustrated by the erosion of the EU sugar and banana regimes at the behest of developing country members of the WTO. Therefore, concluding the EPA was fundamental to CARIFORUM interests for repositioning these economies in a new global context. In light of these considerations, CARIFORUM Member States, since the inception of the EPA negotiation process some five years ago, have been systematically engaged in a calculated exercise to capitalize on this opportunity to evolve a new trading relationship with Europe to promote the sustainable development of CARIFORUM, including the strengthening of regional integration.

How the EPA Differs from Past Agreements

The EPA differs from previous trade arrangement with the EU in the following aspects:

1. The EPA has to be WTO compatible, which means it must be in conformity with the rules of the WTO-governing free trade agreements. The EPA therefore had to meet two criteria: first, it must encompass “substantially all trade,” and second, it must liberalize trade over “a reasonable length of time.” There is no formally agreed definition of “substantially all trade” in the WTO, but by precedent and general acceptance a figure of 90 percent of both the volume of trade and the number of tariff lines has emerged. The EU, we are told by Curran, Nilsson, and Brew, “aims for at least a 90 percent threshold when negotiating its FTAs.”² This was accomplished by the EU providing duty-free, quota-free access to their market, thereby allowing CARIFORUM to liberalize less than 90 percent and attaining an overall 90 percent level for the EPA. A reasonable length of time referred to in paragraph (c) of Article XXIV “should exceed 10 years only in exceptional cases.”³ Specifically this means moving toward reciprocity over a period of 10 years. The negotiators for CARIFORUM succeeded in preserving preferences as long as possible and carefully calibrating the tariff liberalization to the capacity to adjust. The adjustment will be as long as 25 years in some instances and will involve a set of moratoriums.

2. The EPA introduces a new model of development promoting trade based on special and differential treatment for CARIFORUM, the developing country partner, but no one-way preferential treatment, that is, no measure of reciprocity for the EU, the developed country partner. The model inherent in the former trade arrangements was one-way preferential market access for CARICOM in the form of guaranteed quotas and prices above those prevailing in the world market. There is differential treatment for the less-developed partner, namely, CARIFORUM. Differential treatment is expressed in (a) asymmetrical timeframes for liberalization, for example, the EU will provide duty-free, quota-free market access immediately as the EPA comes into effect. CARIFORUM will phase its import liberalization over periods extending as long as 25 years. (b) The obligations assumed by the EU and CARIFORUM differ in several subject areas in a manner designed to favor the developing country partner. Asymmetries are not intended to be utilized for the deferment of adjustment but to allow adequate adjustment time and policy space to facilitate the enhancement of international competitiveness and the diversification of exports.

3. The EPA is WTO plus in some respects as both sides agreed on some areas where it was desirable to be ahead of the WTO agreements and left many issues to be examined if and when there was some advance in the WTO. An EPA that only liberalized trade in goods and that did not go beyond the WTO in areas such as services would have been of limited value to the CARIFORUM countries, which in most cases depend very heavily on services. The CARIFORUM countries were not unaware or taken by surprise nor were they underprepared when they engaged on issues in the EPA negotiations, which were not yet resolved in the WTO. The CARIFORUM governments and their negotiators were technically well prepared and knew exactly how far they would go and what they were not prepared to negotiate. In many instances, the CARIFORUM position stopped well short of those the Dominican Republic had agreed to in the Dominican Republic-Central American-United States Free Trade Agreement. Nearly all the CARIFORUM negotiators and many officials of governments and Caribbean Regional Negotiating Machinery (CRNM) technicians had worked on these subject areas in the Free Trade Area of the Americas (FTAA) and WTO.

4. The EPA, unlike the Lomé Conventions, does not guarantee quotas and prices. It like any agreement that liberalizes trade, creates opportunities, and these can only be brought to fruition by investment. The sources of investment induced by the trade agreement will be both foreign and domestic private investment. These investment flows ...

Table of contents

• Cover
• Title
• Chapter 1 Globalization and the Economic Partnership Agreement
• Chapter 2 Structure and Process of Negotiations
• Chapter 3 Negotiation by CARIFORUM Regional Cooperation
• Chapter 4 Characteristics of CARIFORUM Economies
• Chapter 5 CARIFORUM’s Development Objectives
• Chapter 6 How the EPA Promotes Economic Development
• Chapter 7 Governance, Recalibration, and Implementation
• Chapter 8 Strategic Global Repositioning
• Chapter 9 Summary
• Notes
• Bibliography
• Index