Caribbean Single Market and Economy

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."