Caribbean challenges

The Caribbean Forum (Cariforum) is made up of the 15 members of the Caribbean Community and the Dominican Republic. Cariforum, so far, is the only regional organisation to have signed an Economic Partnership Agreement (EPA) with the European Union (EU). The EPA will come into force once all member countries have ratified it. Until then, Cariforum and the EU have pledged to provisionally apply the EPA. It was agreed in October 2008.

So far, this EPA is the only comprehensive agreement of its kind the EU has managed to conclude with the beneficiaries of the previous Lomé and Cotonou Conventions. These Conventions served to define the relations of the EU with some of its members’ former colonies in Africa, the Caribbean and Pacific (ACP countries) in the last decades of the 20th century. They were basically about the EU granting unilateral preferential status to ACP countries and incompatible with WTO rules, which is why new agreements are necessary.

The EPA between the EU and Cariforum was controversial when it was signed in 2008. It was the result of four years of intense negotiations. Some critics considered the EPA imperfect. On the other hand, many people recognised that it was necessary, hoping it would stimulate and enhance economic competitiveness in the Caribbean region.

Civil society groups as well as some academics in the region opposed the EPA. Their argument was that the rights and obligations the treaty defines are asymmetrical to the detriment of Cariforum members. It is true that Cariforum members mainly export primary commodities to the EU, including fuel, chemicals and agricultural products (mangoes, bananas, rice, rum, sugar), whereas the EU mostly exports machinery and other finished products to the Caribbean.

Cariforum member governments are responsible for drafting strategies to implement the agreement. The EU, in turn, is supposed to provide support for regional integration in the region, including for implementing the EPA and boosting private sector competitiveness. An Aid for Trade programme was designed to boost trade-related development assistance to over € 2 billion a year by 2010. That schedule has not been met.

Indeed, The EPA has hardly made progress so far. There are several reasons, including diverging opinions and even clashes among Cariforum members on the one hand and lack of action on behalf of the EU on the other. According to Junior Lodge, the technical coordinator for the CARICOM Office of Trade Negotiations, there are several major implementation bottlenecks, including
– the lack of human resources, funding and political will,
– the lack of coherence between EPA implementation and other economic policymaking in general (including multilateral trade negotiations) and
– the lack of dynamism in the regional integration process.
Cariforum is challenged by deep and unresolved differences between Caricom and the Dominican Republic. The process of EPA implementation, moreover, has proven to be inefficient and fastidious, requiring regular meetings of the Joint Council of EU and Cariforum. To attend these meetings at government level, Cariforum countries depend on support from the European Development Fund (EDF).
To date, only five Cariforum countries – Barbados, Belize, Grenada, Guyana and St. Kitts and Nevis – have started reducing their tariffs. The others are still preparing for such steps. Only Barbados, the Dominican Republic and Jamaica have set up EPA implementation units.

Ongoing discussions

No doubt, the global downturn after 2008 has contributed to stalling the EPA process. It is extremely difficult for the EU to mobilise the promised funds. While German and British agencies, for instance, are actively involved, more needs to be done. The 2008-13 EDF has earmarked € 143 million to further regional integration, support EPA implementation in the Caribbean and boost private sector competitiveness. However, the mode of delivery is still being discussed. Core issues include how to ensure aid effectiveness and timely delivery. Due to the lack of money, relevant agencies of the Caribbean nations remain understaffed and cannot work effectively.

In view of the global financial crisis and serious implementation challenges, it is unrealistic to expect the EPA to deliver structural change or a massive increase of foreign direct investment in a short period of time. Today, some of those who were in favour of the EPA argue that the most important aspect was to promote policy changes in the Caribbean. However, there has not been much change. Cariforum members, for instance, have hardly tackled the challenge of finding new forms of government revenue to replace the trade-related revenue they traditionally rely on.

Investment patterns have not changed much either. Only the Dominican Republic, Barbados and Trinidad and Tobago have managed to expand their service sectors and gain a foothold in new, high-value manufacturing. The other Cariforum countries have been unable to attract more foreign investment and trigger growth beyond tourism. Apart from the three countries just mentioned, only Jamaica, as a commodity exporter, has substantially benefited from the EPA. The agreement did not do much to help small countries diversify their economies and become more competitive at the global level.

The service sector is of particular relevance. It contributes over 50 % to GDP in most Caribbean countries, mainly due to the importance of tourism. Most Cariforum states have liberalised business services, tourism, entertainment, transport and telecommunication in line with the EPA rules. However, these steps so far have neither led to more staff of service companies from the Caribbean working in the EU nor to more foreign direct investment flowing into the Caribbean region. Officials at the Caricom Office for Trade Negotiations, however, say that market access to the EU is relevant to people from the Caribbean entertainment business, which is considered quite competitive.

Perhaps one should consider EPA implantation a long term exercise that will yet trigger a series of policy reforms. While many hopes have not come true yet, Cariforum countries certainly benefit from predictable and reliable market access to the EU. Duty-free-quota-free (DFQF) market access is a key feature of the EPA. Nonetheless, the EPA is overshadowed by various issues linked to poor institutional capacity and imperfect implement. Should these issues be overcome, the EPA could become a tool to expand business by exploring new market opportunities and deepen regional integration.