Caribbean Single Market and Economy
The Economic Partnership Agreement (EPA) signed in 2008 signalled a new era of trade relations between the European Union (EU) and the Caribbean Forum of African, Caribbean and Pacific States (CARIFORUM). Caribbean exporters previously had greater duty-free access to the EU market than European exporters enjoyed in the Caribbean, along with quotas that enabled them to avoid price competition with rivals from outside the Lomé ACP (Africa, Caribbean and Pacific) bloc.
With the advent of the World Trade Organization (WTO) in 1995, the EU and the Caribbean were forced to negotiate new terms of engagement. The EPA represented a shift towards a more liberal trading regime in which greater reciprocity is the norm.
Critics of the EPA believe the new trade regime will inhibit the development of new (particularly manufacturing) industries in the region and worsen the fiscal accounts of Caribbean countries. This paper, however, concludes that the aggregate negative impact of the EPA on Caribbean states will be modest, although it will likely produce challenges for smaller Caribbean governments. In particular, this paper emphasizes that the EPA will not be effective without the successful implementation and operation of the Caribbean Single Market Economy (CSME), which requires Caribbean governments to plan and coordinate economic activities together. The EPA provides the opportunity for the region to build the framework that will allow it to compete in a liberalized global economy, where a competitive environment is necessary for survival.
PORT OF SPAIN, Trinidad, Sep 13, 2010 (IPS) - Almost two years after the controversial and sweeping trade pact known as an Economic Partnership Agreement (EPA) was signed between the European Union and the Caribbean Forum (CARIFORUM) countries, a new study says the impact of the EPA has proved to be, as its proponents claimed, relatively mild.
"None of the critics set out to test the propositions made by the EPA's negotiators that the fiscal impacts might not be so grave and that revenues lost to new imports would be offset by access to new markets," the study says.
Conducted by the Jamaica-based Caribbean Policy Research Institute (CaPRI) and the Centre for International Governance Innovation (CIGI), the study found that, contrary to claims that the agreement would prove disastrous for Caribbean economies, the economic effects on the four countries studied - Jamaica, Guyana, Trinidad and Tobago, and St. Lucia - would likely be minimal.
The researchers found that Jamaica, for instance, stands to improve its trade balance with Europe, if only marginally.
"Overall exports are estimated to increase by one percent or roughly 22.8 million dollars. Overall imports, meanwhile, are expected to increase by 0.6 per cent, or roughly 16 million dollars, leaving a positive balance of around 6.8 million dollars. In the context of a trade deficit that is over 200 times that figure, however, this is obviously a negligible change," they wrote.
In the case of St. Lucia, the study found that the island's manufacturing sector is expected to suffer from a possible doubling in manufactured imports from the EU.
However, the EU imports represent a small share of St. Lucia's market for manufactured goods and because the manufacturing sector represents less than a tenth of the country's economy, the overall impact on the economy will be modest.
"On the positive side, tourism is expected to grow by as much as four per cent," the study noted, adding overall, the St. Lucian economy appears set to benefit more from the EPA than Jamaica's, the principal reason being the larger share of services in its economy.
"We are not surprised by the findings of the CaPRI study as the EU had always maintained that the Caribbean had more to gain than to lose in an EPA which was designed to provide better market access and better rules of origin than any other EU trade regime, allow time and space for domestic firms and industries to adjust gradually, and strongly support the existing Caribbean ambition for regional economic integration," Chargé d'Affaires of the EU Delegation Bob Baldwin told IPS.
"It is now important not to lose too much time in making progress on the implementation of the agreement, which has been slow," he said, adding that 165 million euro in grant funds is available under the European Development Fund to support such efforts.
In the case of Guyana, whose head of state Bharrat Jagdeo has stoutly defended his decision to sign the EPA at the last minute, the CaPRI researchers found that the country's agricultural economy was always likely to be the least vulnerable to competitive imports from the EU.
Agricultural activity constitutes almost a third of GDP, nearly five times the share for any other country in the region, and is where more than 20 percent of the employed labour force finds work.
The average tariff reduction on imports from the EU entering Guyana under the EPA is 7.1 percent, the highest of the four Caribbean countries studied.
"The share of total Guyanese imports that originates in Europe is currently only 10 percent, so the increase would represent only 3.7 percent of total imports. Of that, the overwhelming majority, more than nine-tenths, would be imports diverted from elsewhere, leaving a mere 0.3 percent net increase in total imports."
The study suggests that the EPA signals the end not only of a trading era, but of a school of thought that undergirded decades of Caribbean public policy making.
When the CARIFORUM countries signed in October 2008, it brought about a new era of trade relations between the EU and the Caribbean, after decades of agreements guaranteeing markets and preferential prices for Caribbean exports.
Moreover, the new accord is reciprocal, and as a result CARICOM countries must now open their markets to EU exports, while being compliant with the rules of the World Trade Organisation (WTO).
"The EPA's guidelines on rules of origin create new opportunities for CARIFORUM countries to extract more value added through further processing within the region before the final product is exported to the EU," the study indicated.
It noted also that the agreement has sufficient breadth to encompass non-trade issues as well, including efforts at deepening the Caribbean regional integration given that problems have long bedevilled CARICOM's attempts at integration from its inception in 1965, and have not abated despite the establishment of the Caribbean Single Market and Economy (CSME) in 2005.
"The full implementation of the CSME is essential to the successful implementation and operationalisation of the EPA," says the study led by John Rapley, who heads the Economics Department at the Mona Campus of the University of the West Indies (UWI) and CaPRI Senior Research Fellow, Damien King.
"The track record of Caribbean governments in this respect, however, does not inspire confidence. Should progress towards a CSME be inhibited, the failure of the region to take advantage of the EPA will be properly laid not at the feet of a trade arrangement, but on the doorsteps of Caribbean governments."
THE first research published on the Economic Partnership Agreement (EPA) on an empirical analysis of the controversial trade agreement that was signed in 2008 has been released.
The paper, by The Caribbean Policy Research Institute (CaPRI) together with the Centre for International Governance Innovation (CIGI) is titled, “The Economic Partnership Agreement (EPA): Towards a New Era for Caribbean Trade.”
It is authored by UWI Mona lecturer Diana Thorburn, CaPRI Founder and President John Rapley, Head of the UWI Mona Department of Economics and CaPRI Senior Research Fellow Damien King and CaPRI Research Officer Collette Campbell.
It sought to determine the impact the EPA would have on CARIFORUM (CARICOM plus the Dominican Republic) countries, with specific regard to the effect on production patterns and trade balances with Europe, and the fiscal effects that the agreement would have considering that a key part of the agreement is the lowering of taxes and duties on European imports.
The paper also explored the political economy dimensions of the virulent debate that surrounded the signing of the agreement in the latter half of 2008.
The signing of the EPA signalled a new era of trade relations between the European Union (EU) and the Caribbean, after decades of agreements guaranteeing markets and preferential prices for Caribbean exports.
The new agreement is reciprocal, meaning that Caribbean countries must also now open their markets to EU exports, and is compliant with the rules and precepts of the World Trade Organization (WTO), the governing body of international trade.
After years of negotiations, however, just as the agreement was about to be signed, a current of criticism emanating from some of the Caribbean region’s most esteemed economists and public policy makers arose and quickly gathered strength as church leaders, UWI academics, and some civil society non-governmental organizations joined the chorus for the Caribbean to not sign.
This paper found that, contrary to the vociferous dissent that argued that the agreement would prove disastrous for Caribbean economies, the economic effects on the four countries studied – Jamaica, Guyana, Trinidad and Tobago and St. Lucia – would likely be minimal. Jamaica, for instance, stands to improve its trade balance with Europe, but only marginally. Customs revenues will decline as a result of the lowering of import taxes on European goods, but again only marginally.
The political economy dimensions of the agreement, however, and especially the debate over the agreement, are more profound.
The paper suggests that the agreement, which was entered into by every CARIFORUM member state, despite the debate and despite the open criticism even by some CARIFORUM heads of state, signals the end not only of a trading era, but of a school of thought that undergirded decades of Caribbean public policy making.
CaPRI, a highly regarded independent, regional think tank, has partnered with CIGI on several research projects, including CaPRI’s Beyond Tourism and Social Partnership papers.
CIGI strives to identify and generate ideas for global change by studying, advising and networking with scholars, practitioners and governments and aims to raise capacity to effect change in public policy in Canada, where CIGI is based, and around the world.
The document will form a part of CIGI’s Caribbean Economic Governance Project. (JB)