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The foreign ministry should by now be heading for Brussels...

Richard Bernal

Wednesday, July 18, 2012    

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Eight CARIFORUM (Caricom plus the Dominican Republic) countries including Jamaica have failed to implement the tariff reductions mandated by the Economic Partnership Agreement (EPA) that they concluded with the EU in 2007. A three-year grace period was provided to CARIFORUM countries but this came to an end in January, 2011. Jamaica and other CARIFORUM States which have not yet implemented the agreed tariff reductions are currently in breach of Article 16 (1).

According to recent media reports, an official of the European Commission has suggested the following: (1) Jamaica is in breach of its obligations under the EPA; (2) Jamaica, by not honouring its obligations, risks sending the wrong signal to the international trade community; (3) Jamaica needs to communicate its intentions on this matter to its partner the European Union (EU), and (4) in the absence of such communication the EU could treat the issue as a dispute and refer the matter to arbitration.

This statement should not be taken lightly nor dismissed as hubris. It should be presumed that the EU official must have had clearance from his superiors in Brussels to make such a public statement and therefore that the EU intended to send a clear signal to the CARIFORUM States that breaches of their treaty obligations will not be accepted.

Part III of the EPA, entitled "Dispute Avoidance and Settlement" establishes a mechanism in accordance with which contentious issues that arise in the bilateral trade can be resolved. It should be noted that Part III of the Agreement is entitled Dispute Avoidance and Settlement to emphasise that the provisions foresee the first step as prevention of disputes and only if this fails then resort to dispute settlement.

Recourse by an EPA Party to the dispute avoidance and dispute settlement mechanism of the EPA must commence with a request for consultations with the other Party that is alleged to be in non-compliance with the provisions of the Agreement. Such consultations:

(a) must be carried out in good faith

(b) must be held within 40 days of the date of submission of a request for the consultations (unless the "dispute" concerns perishable items, in which case shorter time frames apply); and

(c) shall be deemed to be concluded within 20 days of the date of submission of a request for consultations unless the Parties agree to extend this time frame.

If consultations are (a) not held within the time frames specified or (b) have been held but the Parties have not arrived at a mutually agreed solution, the complaining party is entitled to request the establishment of an arbitration panel. Alternately, the Parties may agree to have recourse to a mediator.

The unsuccessful Party must be given a "reasonable" period of time within which to comply with the ruling of the Arbitration Panel. What constitutes a "reasonable" period of time will be fixed by the arbitration panel or agreed upon by the Parties.

A ruling by the arbitration panel that a Party is not in conformity with the agreement does not by itself trigger the right of the successful Party to implement "appropriate" punitive or other retaliatory measures to enforce compliance. The successful Party will, however, be able to implement such measures to enforce the treaty obligations, for example, the suspension of tariff concessions where the unsuccessful Party has not brought its measures into compliance within the time fixed by the panel or otherwise agreed upon.

Article 213 (3) of the EPA obliges the EU to exercise "due restraint" in seeking compensation or in implementing punitive measures to enforce the obligations which the arbitration panel has found one or more of the CARIFORUM States to have been in breach of.

During the EPA negotiations, the CARIFORUM States were insistent that the agreement should strongly reflect the differences in the levels of economic development of the two sides. This position prevailed and as a result, the Agreement gives meaningful expression in numerous articles to the principle of special and differential treatment.

Among the expressions of special and differential treatment is asymmetry in obligations relating to the nature of the tariff liberalisation obligations of the Parties. The EU made an offer of full duty-free quota-free access for CARIFORUM with respect to the majority of products, to be implemented immediately upon the application of the agreement. As such, the CARIFORUM States have been benefiting from this commitment since 2008. On the other hand, the CARIFORUM States were allowed to commit to a phased implementation schedule of tariff reductions extending to as far as 25 years for some items.

It is not inevitable that a trade dispute will emerge between the EU and the CARIFORUM States. There is still time for diplomacy between the two sides aimed at preventing the escalation of the issue. Hopefully, such efforts are already underway.

In the discussions that the two sides will engage in on this issue, Jamaica undoubtedly will seek a modification of schedule for the implementation of the tariff reductions. The argument to be made for justifying an adjustment to the time periods allowed by the existing tariff schedules is the dire economic circumstances in which the country now finds itself, which in large part is due to the deleterious effects of the worst global economic crisis since the Great Depression. Given the burden of indebtedness and fiscal difficulties being experienced by Jamaica, it cannot at this time implement measures which involve loss of revenue.

To the extent that the non-compliance by other CARIFORUM States with their EPA obligation is attributable to the same reasons, it would be prudent for these States to seek an extension of the schedule for the implementation of the tariff-based obligations.

The EU and the CARIFORUM States have a long tradition of amicable relations and enjoy the goodwill of each other, so they are expected to initially raise potential disputes through diplomatic channels. The likelihood is that the EU will be empathetic to the economic plight of the CARIFORUM countries because of its own economic turbulence evident in mounting debts and fiscal crises facing several of its Member States.

In this way, the current issue can be discussed and resolved in a spirit of cooperation and not escalate to the level of a dispute.

Ambassador Dr Richard Bernal is a former principal negotiator for CARIFORUM and director general of the Caribbean Regional Negotiating Machinery in the Caribbean Community (Caricom). He is currently alternate executive director in the Office of the Executive Director for The Bahamas, Barbados, Guyana, Jamaica and Trinidad and Tobago at the Inter-American Development Bank, Washington D C.

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