Assessing the EUCaribbean EPA process

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Assessing the EU-Caribbean EPA process

• Michael Gasiorek
• Michanne Haynes-Prempeh
• Tomasz Iwanov
• Gonzalo Varela
• Jedrzej Chwiejczak
• We gratefully acknowledge funding for this
  research which was provided by the UK Department
  for International Development (DFID).

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Overview of presentation

• Outline main features of the EPA process
• Application of the Sussex Framework
• Implications for an EPA

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Checklist covered by the Sussex Framework
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Background to the EPAs

• Under the Cotonou Agreement the EU and ACP
  countries are committed to negotiating Economic
  Partnership Agreements to come into force by
  2008.
• The objective of these EPAs is to facilitate the
  integration of the ACP countries into the world
  economy. Specifically, by
  
• fostering and supporting greater regional
  integration,
  
• allowing a flexible liberalisation of trade in
  goods and services,
  
• building up institutional capacities and
• the establishment of simple and transparent rules
  for business,
  
• development assistance provisions.
• 6 thematic areas
• market access
• agriculture and fisheries
• trade in services
• other trade related issues
• development cooperation
• other / legal issues

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Caribbean trading relations

• three principal axis
• With the EU
• Note the EPA is being negotiated with CARICOM
  DR
  
• With the US Caribbean Basin Initiative
• Within the region
• CARIFTA ? Caricom (1973) ? Caribbean Single
  Market and Economy (CSME) Customs Union ?
  common market.
  
• Organisation of Eastern Caribbean States
• however note various derogations and exceptions
  largely based on the distinction between MDCs and
  LDCs
  
• other bilateral accords/FTAs Canada, Costa
  Rica...
  
• Caricom Antigua and Barbuda, Dominica, Grenada,
  Montserrat, St Kitts and Nevis, Saint Lucia, St
  Vincent and the Grenadines, Bahamas, Barbados,
  Belize, Guyana, Haiti, Jamaica, Suriname, and
  Trinidad and Tobago.
• Anguilla, British Virgin Islands, Bermuda,
  Cayman Islands, Turks Caicos associate
  members
  
• Countries in italics Organisation of Eastern
  Caribbean States (OECS)
  
• Countries in bold MDCs

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Using descriptive statistics...

• Looking at existing levels of protection - eg.
  tariffs
  
• Looking at the existing pattern of trade
• Shares of trade by partner, and by product -
  though use of aggregates may mask sectoral level
  effects and differences
  
• Use of detailed product level analysis
• Finger-Kreinin indices of import similarity
• indices of revealed comparative advantage
• decile analysis
• Other issues
• identifying key industries
• degree of export / import concentration ?
  implications for structural change and the
  political economy of the process
  
• Looking at changes over time to what extent are
  key change already taking place, and to what
  extent are the changes implied by the proposed
  RTA consistent with these changes

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Some comparative statistics (2001)
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Trade barriers

• simple average CARICOM tariff has fallen from
  17.6 in 1991 to 12.25 in 2002
  
• In 2002 the agricultural and beverages and
  tobacco sectors remained most protected with
  average tariffs of 19.55 and 37.7 respectively.
  Crude materials and mineral fuels had an average
  tariff of just above 5, while the tariffs on
  manufactured goods and machinery were around 9.
  
• However, derogations from the CET are allowed in
  certain cases and for certain countres -
  importance of the distinction between MDCs and
  LDCs
• large number of tariff peaks - over 1000 in 2001
• There is also the issue of barriers to
  intra-CARICOM trade - both tariff and
  non-tariff barriers.
  
• note also importance of tariff revenue for many
  Caribbean countries

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Share of imports by source (2001)
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Share of exports by source (2001)
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Degree of export concentration

• concentrated nature of exports / production also
  reflected in small number of industries with
  indices of revealed comparative advantage 1
  
• Relative stability of structures of production
  / trade also reflected in stability of the RCAs
  over time, and in an examination of changing
  trade flows over time using decile analysis.

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Similarity in export bundles by destination

• Finger-Kreinin indices for 2002, except St Kitts
  and the Dominican Republic for 2001

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Similarity in export bundles by country

• Finger-Kreinin indices for 2002

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Summary

• overall export performance mixed
• some evidence that Caribbean regional integration
  has helped to promote intra-regional trade flows
  for both OECS and non-OECS economies (based on
  gravity modelling)
• highly concentrated export structures, and
  generally remaining fairly constant over time
  with some exceptions (eg. Trinidad Tobago,
  St.Kitts...)
• little overlap in exports either by destination
  or by country
  
• on the one hand this suggests that there may be
  lack of competition in Caribbean trade and
  production structures which could facilitate
  integration
• on the other hand may cause difficulties when it
  comes to agreement on issues such as
  substantially all trade.
  
• Pattern of trade with the EU and other countries
  suggests that there may be considerable scope for
  trade diversion arising from an EPA.
  

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Further issues 1 - Substantially all trade

• how is this to be defined by value of trade, by
  no. of tariff lines...?
  
• given the above, what percentage figure will be
  agreed upon -
  
• a figure of 90 seems to be commonly accepted
• given the above, will the reductions necessarily
  be symmetrical
  
• unlikely cf. EU - South Africa
• will there be a common set of tariff lines agreed
  upon
  
• how easy will it be to agree on such a common set
  of tariff lines?
  
• given the difference in export and import
  structures may be difficult
  
• an examination of the degree of overlap on the
  basis of various criteria (tariff levels, tariff
  revenue generated, import shares...) indicates
  that no industry is common to all countries!
• given the above in part arising from the
  in-build distinction in the region between the
  MDC and the LDC there is strong pressure on the
  Caribbean side for special and differential
  treatment. EU not keen!!

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Further issues 2 - Special differential
treatment

• Typically justified by reference to a lack of
  resources / structure to engage in the
  integrated economy
  
• lack of human or physical infrastructure
• weakness of institutions legal, regulatory,
  fiscal, banking...
  
• size and location
• Modes of implementation
• better access to markets of trading partners
• more restrictions on access to domestic markets
• flexibility in implementation of agreements eg.
  with respect to timing, or coverage of goods
  
• temporary v permanent (derogations)
• via development assistance as opposed to via
  differentiation in the process of trade
  liberalisation
  

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• Successful SDT needs to be able to distinguish
  between countries in recognition of their
  different needs - other wise it is likely to be a
  blunt instrument that arbitrarily includes /
  excludes countries.
• In the Caribbean context SDT is complicated by
  two factors
  
• the presence of a long-drawn distinction between
  LDCs and MDCs which may or may not do that
  distinguishing very well.
  
• The relationship between the EPA process and the
  CSME
  
• the objective of the CSME is to greatly
  strengthen and deepen the regional integration
  process
  
• Introducing (further) SDT within the group in
  terms of the EPAs only serves to complicate this
  process and make it more difficult - introduces
  bureaucratic complexity introduces distortions
• Therefore it is important to be clear about
• the grounds for SDT - infrastructure,
  institutions, size/location?
  
• the importance of SDT being temporary / time
  delimited
  
• minimising distortions ?having different lists
  is not obvious. This introduces distortions in
  relative prices across markets. Better to have a
  common list, but possibly with different
  time-scales
• Note also importance of development assistance as
  a form of SDT - however this sort of linkage
  being resisted by the EU

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Implications for a possible EPA

• asymmetric shallow integration with the EU likely
  to lead to net trade diversion an associated
  substantial loss of tariff revenue
  
• multilateral liberalisation likely to lead to
  substantially higher welfare gains - though also
  larger adjustment costs
  
• combination of liberalisation ongoing changes
  to banana sugar regimes, ongoing preference
  erosion likely to result in significant
  structural changes.
• important in terms of addressing the
  development needs of the region in considering
  the degree of political support for the EPA.
  
• However, integration and negotiations on further
  integration complicated by the distinction
  between MDCs and LDCs, and by the inclusion of
  the DR in the EPA negotiations
• hence eg. agreement on substantially all trade
  and on SDT likely to be harder to achieve.
  
• An EPA could be an important stepping-stone to
  the greater integration of the Caribbean into the
  world economy where any shallow integration is
  part of a broader package involving eg elements
  of deep integration, the appropriate
  liberalisation of services, appropriate levels of
  adjustment and assistance aid, and progress on
  mulilateral trade liberalisation...
• ... but that will depend on that broader package.