Business

'No European Trojan Horse'

Caribbean not being bamboozled in free trade agreement, says EU

JULIAN RICHARDSON Assistant Business Co-ordinator richardsonj@jamaicaobserver.com

Friday, December 14, 2012    

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THE European Union (EU) has defended its Economic Partnership Agreement (EPA) with Caribbean countries, rejecting criticism that the free trade agreement will lead to a fallout in regional economies.

In fact, not signing the EPA would have significantly affected EU export earnings for the Caribbean community, valued at more than $30 billion annually in Jamaica alone, said Paola Amadei, head of delegation of the EU to Jamaica, Belize, The Bahamas, Turks and Caicos, and Cayman Islands.

Speaking at the launch of the EPA Capacity Building Project at the Bureau of Standards Jamaica's office in Kingston, Amadei called for the Caribbean to embrace the EPA as a new dynamic approach to globalisation that can set regional economies on the right track to seize opportunities in the international marketplace.

"The EPA, and globalisation itself, imposes to Jamaica and to the Caribbean region structural reforms linked to good governance, regional integration and business environment reforms that are needed with or without an EPA," said Amadei.

On January 1, 2008, the EPA succeeded the preferential Lomé Convention trade regime that governed Euro-Caribbean trade for over three decades.

For years, the EU allowed former colonies in the African, Caribbean and Pacific (ACP) preferential access to its markets and paid them higher than world market prices for their sugar and bananas. But, after complaints from non-ACP farmers, the World Trade Organisation (WTO) ruled that this was unfair and ordered a regularisation of the trading arrangement.

The Cariforum group of countries (Caricom and the Dominican Republic) concluded negotiations with the EU in December 2007 for the historic EPA, a reciprocal agreement under which the EU granted duty-free and quota-free access to their markets while Cariforum agreed to liberalise 80 per cent of imports over 15 years and the remaining 20 per cent over 20 and 25 years.

However, the EPA has been a source of contention between critics, who claim it was not in the region's best interest, and supporters who insist that, while it may not be perfect, it offered opportunities.

Amadei fervently dismissed what she said were the three main criticisms: that the EPA would allow the EU to swamp the Cariforum market, it will lead to significant loss of fiscal revenues in an already harsh economic climate and it would be the instrument of an inequitable struggle between the EU and the region.

The EPA was actually the most compatible alternative to the Lomé regime rather than any disguise by the EU to access the Caribbean market, said Amadei. She argued that if the WTO deadline for the signing of the EPA had passed without an agreement, competitors to non-ACP countries would have demanded that the region pay the same duties applied to them under the EU's Generalised Scheme of Preferences (GSP) regime.

"The choice for Jamaican and Caribbean deciders between joining the GSP regime, or negotiating an EPA, proposing a duty-free and quota-free access to the EU, was therefore easy to make," Amadei insisted.

"The EPA is not an EU Trojan Horse but was proposed to ACP countries as the best WTO compatible alternative, using all flexibility available to accomodate the ACP countries and assure a smooth implementation," she noted.

With regards to the tariff cuts, she argued that the fiscal impact can only be minimal because over half of imports from the EU already entered Cariforum duty-free before the EPA. Furthermore, the terms of the agreement allows up to 20 years to cut the tariffs progressively to the zero rate, up to 20 per cent of tariff lines are excluded and there are safeguard measures to be applied where imports of an EU product cause or even threaten harm to an industry, the EU head of delegation said.

"The fiscal impact hence exists, but is negligible when compared to the gains in productivity, and in return to these cuts, access to a market of more than 500 million inhabitants," said Amadei, supporting her assessment with a Caribbean Policy Research Institute study that found that the losses in tax revenues would amount to half a percentage point of GDP under the EPA.

Finally, addressing competition between the EU and Cariforum, Amadei said that the regions produce vastly different goods and therefore do not compete against each other.

"And if there is competition, the agreement allows protection for the challenged industry under the 20 per cent zone of exclusion," she said.

Meanwhile, Jamaica's finance minister, Dr Peter Phillips, said the country is fully committed to complying with the terms under the EPA to cut the tariff on goods imported from Europe.

"We fully intend to live up to our obligations in this regard in every respect," Phillips said.

Jamaica was among eight Cariforum countries criticised by the EU earlier this year for having failed to carry out the cuts that were due at the end of the three-year grace period in January of 2011. The EU said that Jamaica, being part of the international trade community, risks sending the wrong signal in not living up to its obligations, adding that it could treat the issue as a dispute and refer the matter to arbitration.

Follow the Dominican Republic

Caribbean countries have not made major inroads into the European export market since gaining duty-free and quota-free access there nearly five years ago, say trade experts. Since the EPA became effective on January 1, 2008, Caricom exports to the EU have actually declined, with Jamaica making the biggest retreat from the European market. The Dominican Republic has significantly outperformed its Caricom partners in the deal. Boosted by agricultural produce, the Spanish-speaking country has seen its exports grow significantly under the EPA to US$611.3 million in 2010.

Dominican Republic has been successful through creating an environment conducive to the development of trade and investment, noted Amadei. Among the measures over the last 15 years, the country has streamlined customs procedures, reduced tariffs, eliminate import surcharges and export taxes, and adopted new legislation on government procurement, competition policy and intellectual property rights.

She added that the country has also worked hard to increase its competitiveness since 2007, with policies that have included profound business climate reforms.

"They ushered in a process of making it significantly easier to open a new business. Thanks to that initiative, the average time period required to open a company in the DR went from 78 days to 78 hours and the process of property registration system was reduced from 107 to 60 days," Amadei noted.

Jamaica and other Caribbean countries need to use Dominican Republic as a "close successful example", she said.

"There is no fate for Jamaica to remain in the second half of the doing business and global competitiveness rankings. Conducting reforms to improve the business environment, the management of public finances and to deepen regional integration are objectives within reach," she said.

The EPA, Amadei said, aims to help to create a turning point where trade spurs growth and development.

Under the euro, 2.25 million EPA Capacity Building Project, seven public sector laboratories will benefit from procurement of laboratory equipment and consumables, training and certification. The overall objective of the project is to facilitate increased and more diversified exports of agricultural and agri-processed products.

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