EPA General Overview

The African, Caribbean, Pacific (ACP) and the European Union (EU) Partnership Agreement also known as the Cotonou Agreement was signed in Cotonou in June 2000. It establishes a comprehensive framework for ACP-EU relations. At the centre of the partnership are economic development, the reduction and eventual eradication of poverty, and the smooth and gradual integration of ACP States into the world economy. In order to accomplish these objectives, the Cotonou Agreement provides for the conclusion between the ACP and the EU of new World Trade Organisation (WTO) compatible trading arrangements. This is to be achieved through the conclusion of Economic Partnership Agreements to be negotiated during the period September 2002 until at the latest 31 December 2007. The process began with an engagement at the All ACP-EC level. Each of the six ACP regions have launched negotiations with the EU. CARIFORUM-EC negotiations was launched on April 16, 2004. The timetable for negotiations includes four phases.

Initial Phase: Establishing the Priorities of EPA negotiations (April 2004- September 2004).

Second Phase: Convergence on strategic approach to CARIFORUM regional integration (September 2004-September 2005).

Third Phase: Structuring and consolidating of EPA negotiations (September 2005-december 2006).

Final Phase: Finalisation (January 2007- December 2007).

Negotiations of an EPA between CARIFORUM and the EU are currently in Phase III. This Phase will delineate the bi-regional market access commitments of both parts. More precisely the objectives are threefold: 1) to establish an agreement on the structure of EPA; 2) to consolidate the outcome of the discussion on the priority issues for CARIFORUM regional integration; 3) to define the approach to trade liberalization to be adopted in the negotiations.

Issues with respect to the negotiations will take place in four groups, namely: market access; services and investment; trade related issues (intellectual property rights, government procurement, competition policy, anti-dumping, trade and the environment, trade and labour, consumer protection, taxation and data protection); and legal and institutional issues.

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The EPA are instruments whose objective is to facilitate the sustainable development and structural transformation of Caribbean economies and to strengthen the regional integration process with CARIFORUM. The negotiations are based on four principles. First, the EPA’s “support and are built upon the regional integration process.” Second, EPAs should promote and be consistent with development objective and priorities. Third, the EPA’s should include special and differential treatment provisions to address the constraints to growth and development imposed on CARIFORUM countries by their small size. Finally, the EPAs should improve market access possibilities for CARIFORUM exports.

EPAs are not considered trade agreements since it contains a developmental aspect. Their main objective is to help the ACP countries to deal with the challenges of globalization by developing stronger regional economies. It recognizes that unless ACP countries can overcome the limits imposed by capacity constraints and underdevelopment economic and social infrastructure they will not be able to reap the benefits from greater market access. That is, trade provisions included in trade agreements must be complemented with supply-oriented policies to build the required domestic capacity.

It is also recognized that there are negative effects which may impact on trade flows and the balance of payments through losses in export revenues and increases in imports. The losses in export revenue will result from the erosion of trade preferences. The decrease in tariffs may also lead to increase in imports. The agreements may also affect the budget constraint through reduced revenues as a consequence of the narrowing of the tax base. Furthermore, the changes in the trade regime will most likely affect employment and economic growth.

At the same time EPAs are expected to induce greater flows of foreign savings. If properly channeled a greater level of foreign savings may result in expanding productive capacity, leading to a higher level of economic growth. Greater level of foreign savings would soften the external constraint and growth would allow the expansion of government revenue.

The analysis shows that CARICOM exports to the EU represent roughly a quarter of its total exports. At the aggregate level CARICOM economies have lost market share in the EU.  The loss in market share affects mainly primary and agricultural commodities, however, Trinidad and Tobago and CARICOM would have the opportunity to gain market share in products that have a higher degree of value added and technological content.

The EPAs will also provide an incentive for CARICOM to accelerate and perfection its regional integration process. Regional integration is seen as a pre-condition for extra-regional integration. The region can be a training ground for firms to become competitive at the extra-regional level. The empirical evidence shows there is no absolute divide between the firms that export intra-regionally from those that export extra-regionally. That is, according to the results there is scope for expanding trade through Learning-by-Doing processes where the Learning-by-Doing would occur at the intra-regional level allowing firms to acquire the skills and competitiveness to export to extra-regional trade partners.

The challenge is to ensure that the process of regional integration adapts to the reality it is trying to change and addresses the needs of the signatory member states. One key issue that needs to be addressed in this regard is how to transforms the impending polarization at the country and firm level into a growth pole for the region.

Second, the EPAs will accentuate the economic tendencies that are entrenched in CARICOM. These include the stagnation of agriculture, the virtual disappearance of the manufacturing sector in some of the smaller states and the continued dynamism of the services sector. EPAs should ensure that its provisions do not lead to a process of economic duality, marginalization of the traditional sectors of the economy, and annihilation of the manufacturing investment. As it currently stands foreign direct investment has not been able to translate into greater domestic investment. In other words foreign savings have not resulted in greater levels of investment.

The EPAs will also provide an opportunity for CARICOM countries to re-structure or to continue to restructure their economies to adapt to a changing environment. Firms in the Caribbean have begun a process of restructuring of production aimed at reducing costs. Firms expect to achieve a reduction in costs via; (i) the expansion of their installed capacity; (ii) a change in the methods of production; (iii) diversification in their product lines.

Both the expansion of capacity and the diversification in the lines of production is under consideration by firms that are capital intensive. The change in method of production corresponds to a strategy adopted by smaller firms that by definition are more flexible and for whom it is not as costly, as for firms that are capital intensive, to implement such a change.

Restructuring involves what is termed a crucial decision. Economic agents engage in crucial decisions when these cannot exclude from their mind the possibility that the very act of performing the experiment may destroy forever the circumstances in which the decision was made.  In other words, crucial decisions are an act of creative destruction. They destroy the environment in which the decision was made so that the same process cannot be repeated. This is the underlying reason that justifies the pressing need to ensure that restructuring accomplishes its objective.

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