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Vol. 6, No.1, October 2003
The Journal of the
Agro-Economic
Society
EDITOR-IN-CHIEF:
RANJIT H. SINGH, Senior Lecturer,
Department of Agricultural Economics and Extension
The University of the West Indies, St. Augustine
The Republic of Trinidad and Tobago
EDITORIAL AD VISOR Y BOARD:
Compton Bourne, UWI, St. Augustine, The Republic of Trinidad and Tobago
Carlton G. Davis, University of Florida, Gainesville, Florida, USA
L. Harlan Davis, University of Georgia, Athens, Georgia, USA
Vernon Eidman, University of Minnesota, St Paul, USA
Calixte George, Ministry of Communications & Works, St Lucia
Bishnodath Persaud, UWICED, UWI, Mona, Jamaica
William Phillips, University of Alberta, Edmonton, Canada
Reginald Pierre, IICA, Washington, DC, USA
Dunstan Spencer, Dunstan Spencer & Associates Ltd., Sierra Leone
Karl Wellington, ALCAN, Mandeville, Jamaica
George Wilson, Kingston, Jamaica
Lawrence Wilson, UWI, St Augustine, The Republic of Trinidad and Tobago
EDITORIAL STAFF:
Editor-in-Chief.
Ranjit H. Singh
Associate Editors:
Vidya Forrester
Sarojini Ragbir
Technical Editor:
Hyacinth Mohammed
Technical Assistant:
Albert Mahabir
Cover Design:
Karen Yorke
Regional Economic Partnership Agreements and Its Implications
165
fr*
It*
Roger Hosein
(Lecturer, Economics Department, The University of the West Indies, St. Augustine, Trinidad, Wl)
and
Bhoendradatt Tiwarie
(Principal, The University of the West Indies, St. Augustine Campus)
The world economy has undergone a
remarkable element of transformation to
date. In this era of rapid globalization,
Caricom economies have witnessed the
systematic decay of many of its margins of
preference. In 1994, the North American
Free Trade Area (NAFTA) was formalized
and Mexico gained ascension into the North
American market on terms equivalent to and
in some cases exceeding the Caribbean
Canadian (Caribcan) and Caribbean Basin
Initiative (CBI) arrangement. The pending
Free Trade Area of the Americas (FTAA) will
pose some degree of threat to the Common
External Tariff (GET) of the established
Caricom Community (Caricom). In recent
times, there have also been challenges to
the European Union - African Caribbean
Pacific (EU-ACP) relations. The Lome
arrangements between the EU-ACP, which
were initiated in 1975, have now been
replaced with the Cotonou provision, which
in turn may be superceded by a Regional
Economic Partnership Agreement (REPA).
This paper focuses on the margin of
preference1 traditionally enjoyed with Europe
and seeks to assess what the pending
REPA together with the recently established
Everything But Arms (EBA) Agreement imply
for Caricom sugar exporting countries.
Cooperation
between
European
countries and African, Caribbean and Pacific
countries started in 1957 with the signing of
the European Treaty of Rome which led to
the formal establishment of the European
Economic Community (EEC), otherwise
known as the Common Market. A customs
union was formed where it was agreed that
all tariffs would be dismantled in a 12-year
period. However, due to economic success,
this process was hastened, ending in 1968
instead. Additionally, imports from third
countries were forced to endure a common
Note: The authors would like to acknowledge the
research assistance of Gerard Boodram and
Rhoda Patiram.
1
A margin of preference may be defined as any
intervention on the free market that provides a
firm with operating conditions superior to that
which the free market would normally provide.
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Regional Economic Partnership Agreements and Its Implications
tariff, enforced by all the members. The
Treaty of Rome allowed for the free
movement of goods, the banning of
monopolies and the institution of common
transport policies. Member states were also
allowed to grant its colonies commercial
privileges (historiasiglo20.org). At this
signing, the EEC countries were Belgium,
France, West Germany, Italy, Luxembourg
and the Netherlands. In 1973, three (3) other
European countries joined the group; these
were the United Kingdom, Denmark and
Ireland. In Yaounde, Cameroon, in 1963, the
first formal arrangement between the EEC
and ACP countries was signed.2 This
Convention secured preferential access to
the EEC for 18 francophone countries.
Another Convention (Yaounde II) was signed
in 1969 and expired in January 1975, but by
February of the same year, the first Lome
Convention was signed in Lome, the capital
of Togo.3
Preferential trading arrangements were
offered to countries in the African, Caribbean
and Pacific group of countries through the
Lome Conventions. These conventions (the
fourth convention was signed in 1990 and
the fifth in 2000 (Cotonou)) offered Caricom
countries a wide range of benefits, but in
particular, it provided specific protocols for
sugar, bananas, beef and veal (the table
2
These countries were Benin, Burkina Faso,
Burundi, Cameroon, Central African Republic,
Chad, Congo (Brazzaville), Congo (Kinshasa),
Cote d'lvoire, Gabon, Mali, Mauritania, Niger,
Rwanda, Senegal, Somalia and Togo.
3
When the UK became part of the EU it brought
on-stream for preferential treatment its former
dependencies from the Pacific and Caribbean
region.
166
below provides basic information on the
various conventions).
The Lome arrangement was therefore a
long term one between the ACP and EU
countries. As with most long term trading
arrangements,
however,
signs
of
fragmentation emerged as the process of
globalization intensified. Some of the specific
areas of discontent were:
(i) A dissipation of areas of common
interest between the EU and ACP.
(ii) The politicization of the relationship
between the EU and other extra-ACP
countries,
(iii) The greater element of trade
liberalization that the WTO requested of
the EU-ACP relations,
(iv) The overall poor performance of ACP
exporters,
(v) The general complexity of the
preferential trading
arrangements
between the two blocs of countries (de
la Rocha, 2003).
(vi) Divergent approaches to the challenges
of
liberalization
and
global
competitiveness.
In 1995, the WTO was formed and this
intensified calls for the EU to liberalize its
trading mechanism. A partial consequence
was a long process of negotiations that
culminated in the signing of the Cotonou
Agreement. The Cotonou Agreement
represents a developmental agreement as
well as a number of other formal
arrangements, which provide some element
of detail concerning the areas of political
cooperation
and preferential
trade
agreement, between the EU and the ACP
membership. The Cotonou Agreement is
earmarked to extend for a 20-year period
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Regional Economic Partnership Agreements and Its Implications
167
Table 1: Summary Information on Previous EU-ACP Relations.
Convention
Yaounde I: Agreement between the EEC and 18 former francophone African colonies,
providing the colonies with commercial advantages and financial aid.
Yaounde II: Renewal of Yaounde I, including Kenya, Tanzania and Uganda,
1969
introducing preferential trade arrangements for developing countries and access to raw
materials for the EEC.
Lome I: Convention included preferential trade agreements on most ACP products,
1975
each individual state having the right to decide on its policies, a cooperation system
ensuring the security of relations, impartiality, respect for sovereignty, common
interests and interdependence existing and the STABEX system for stabilization on
agricultural export earnings as well as direct development aid.
Lome II: SYSMIN system providing stabilization aid to mining industries in ACP
1979
countries
1984
Lome HI: Attention shifts from industrial development towards food security and selfreliance.
1990
Lome IV: Focus on structural adjustment and crosscutting themes such as the
encouragement of democracy, good governance, human rights; fortifying women's
role; environment safety; intensified regional cooperation and a greater role of the
private sector, as a response to debt crises and famines.
1995
Lome IV: Revised: Underlining the importance of human rights, democracy and good
governance, as well as regional cooperation. Eighth Economic Development Finance
(EOF) is not increased in real terms. Decentralized cooperation via participatory
partnerships was also fostered, with the inclusion of an assortment of civil society
actors.
2000
Cotonou: Removal of most tariffs on imports from ACP group with sugar and beef and
veal to be covered by proposed REPAs, and a new tariff only banana regime to be
phased in. Shift towards participatory development paradigm.
2001
EBA: Immediate removal of all tariffs on all imports from LDCs except arms, with 3stage removal of tariff and quotas on sugar, rice and bananas.
Source: Bjomskov et. al. (2001).
Year
1963
with a review of the process on a five-year
basis and with the addendum that each
review would be associated with a financial
protocol. Some aspects of the Cotonou
Agreement have been earmarked for review
on an annual basis, particularly the
procedures attached to procuring financial
support and policies for particular sectors.
The specific objective of the Cotonou
Agreement was listed in Article 1 as: "to
reduce and eventually eradicate poverty,
consistent with the objectives of sustainable
development and the gradual integration of
the ACP countries into the world economy."
Article 9 of the Cotonou Agreement
documents that the Agreement is premised
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Regional Economic Partnership Agreements and Its Implications
on the principles of human rights, democracy
and the rule of law. Article 9 also
emphasizes good governance in the
participating member states. Article (74-78)
of the Agreement emphasizes the need for
the building up of an economic climate,
which minimizes the risk to investment and
thus, can prompt economic growth.
The Cotonou Agreement highlights that
the objectives of economic growth, poverty
reduction and sustainable development in
the ACP bloc of countries can be attained
through a variety of methods. Specifically,
this Agreement emphasizes that regional
cooperation, integration and important
matters such as human rights, democracy,
women's rights, environmental protection
and economic diversification all have pivotal
roles to play in the development of the ACP
membership (Bjornskov and Krivonos,
2001).
REGIONAL ECONOMIC PARTNERSHIP
AGREEMENTS
The ACP's non-reciprocal tariff preferences
currently on offer to its members will mature
on 31st December 2007. These may be
succeeded by Regional
Economic
Partnership Agreements (REPAs) with each
of the ACP bloc of countries. These REPAs
are proposed to be WTO-compatible and are
planned to be implemented within 4 years,
(see Table 2)4. REPAs, as proposed are
really Free Trade Agreements (FTAs)
characterized by trade reciprocity and tariff
dismantlement. Specifically, the EPAs will be
4
See articles 36.184 and 37.687 of the Cotonou
Agreement.
168
aimed at "fostering the smooth and gradual
integration of the ACP states into the world
economy,
thereby
promoting
their
sustainable development and contributing to
poverty eradication in the ACP countries"
(Article 34.1 of the Cotonou Agreement)5.
With the REPAs the ACP membership will
have to open up their markets to the flow of
goods and services from the EU and this no
doubt will involve significant economic
restructuring and therefore, will carry an
associated set of costs.6 Attached to the
proposed REPAs are incentive sums of
financial assistance. In particular, ACP
member states attached to REPAs would
have access to a pool of investment
resources amounting to euro 2.2 billion.
The proposed REPAs will be founded on
three
basic
principles:
reciprocity,
regionalism and special treatment for the
poor. Reciprocity will require ACP countries
to open their economies to a flow of imports
from the European bloc of countries. The
regionalism principle is intended to reflect
the EUs intent to negotiate with blocs of
countries as compared to individual member
5
The EU Commission standpoint highlights that
regional integration can act as a catalyst,
enabling these economies to become engaged in
more meaningful trade liberalization exercises
and as a consequence, prepare them for
participation in global trade liberalization. The
EPAs represent a stepping stone approach to
allow ACP economies to benefit from economies
of scale and dynamic learning by doing.
6
There is another option for ACP non-LLDCs that
don't enter into a national or regional EPA which
is that they can be transferred after 2008 to either
a non-reciprocal GSP or another arrangement
still to be defined.
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Regional Economic Partnership Agreements and Its Implications
169
Table 2: Calendar of ACP-EU Trade Negotiations within the Cotonou Framework
March 2000September 2002
September 2002
2004
Preparations for negotiations of new trading agreements
Commencement of negotiations on new trading arrangements
Exploration of alternative arrangement for non-LDCs unable to
conclude EPAs
Non-reciprocal duty free access for essentially all products of LDCs
2005 (At the latest)
Formal and comprehensive review of progress
2006
December 3 1st 2007 End of preparatory period
Entry into force of economic partnership agreement
January 2008
Transitional period for implementation of economic partnership
2008-2018/20
Agreements
Establishment of WTO compatible free trade
2018/20
Source: Integrated Social Development Centre (1SODEC)
states. The third principle requires that the
49 Least Less Developed Countries (LLDCs)
of the world will benefit from an Everything
But Arms Agreement (EBA).
As mentioned previously, the ED was
dissatisfied with its influence on the
economic development process in the ACP
membership and expressed its intention to
that any new trading arrangement should
have a greater element of selectivity in the
manner in which ACP countries were
engaged. Even more, aid offered by the EU
would in the future be tied to ensure the
governance and other performance
indicators of the member state. Additionally,
and in defending its switch away from the
Lome preference scheme towards the
Cotonou arrangement, the EU offered the
suggestion that the Lome Conventions
provided generous access to the EU market
but these were not beneficial to a large
number of ACP countries, so that some ACP
member states remain marginalized in the
world economy. The reason for this has
been identified by the EU as being that most
of the ACP membership lacked the required
levels of production, technical and marketing
skills which were necessary for them to
benefit from preferential access to the EU
market.
The liberalization of ACP trade is
proposed to start on January 1st 2008 and to
extend for a transitional period of 12 years.7
THE EU SUGAR PROTOCOL
The ten largest producers of sugar in the
world are India (15%), South Africa (2%),
Cuba (3%), Australia (3%), Mexico (4%),
Thailand (5%), China (6%), United States
(6%), Brazil (12%) and the European Union
(13%). Total acreage cultivated in sugar has
been estimated to be 31 million hectares in
7
The period until 2008 is to be used for capital
building in both the public and private sectors,
strengthening of regional ties and further
negotiations on the EPAs.
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Regional Economic Partnership Agreements and Its Implications
170
Table 3: Thirty Years of Change to the EU Sugar Policy
Introduction of the EU Sugar Policy covering the six founding Member States of the
Union.
The accession of the United Kingdom, Ireland and Denmark to the EU prompts a
1974
second revision of the EU Sugar Policy; the validity of the A&B8 quotas is extended.
1979/80 Transitional arrangements are agreed for Commonwealth Sugar Agreement pending
negotiation of the Sugar Protocol.
Agreement of the ACP/EU Sugar Protocol.
1975
One year "rollover" agreed to extend the validity of A&B quotas. Greece accedes to
1980
theEU.
Third revision of the Sugar Policy. Isoglucose (High Fructose Corn Syrup (HFCS)) is
1981
incorporated into the policy and assigned quotas.
1986
Accession of Spain and Portugal to the EU. Transitional arrangements for the supply
of raw sugar to the Portuguese refiners are agreed (Article 303). The EU sugar policy
is "rolled over" until 1990/91. A new production levy on A&B sugar is introduced
(the "elimination levy").
1988
The "Special elimination levy" introduced to reinforce the self-financing system.
1990
German reunification; A&B quotas are agreed for the territory of the former German
Democratic Republic.
1991
The EU Sugar Policy is "rolled over" until 1992/93 pending the outcome of the
Uruguay Round GATT talks; the Portuguese Article 303 arrangements are similarly
rolled over. The "additional levy" replaces the elimination levies and ensures the
complete self-financing of the policy on an annual basis.
1993
The EU Sugar Policy is "rolled over" again, this time for only one year until 1993/94,
again pending the outcome of the Uruguay Round. Inulin (a high fructose syrup) is
incorporated into the policy and quotas assigned.
1994
The EU Sugar Policy is "rolled over" yet again, for one more year until 1994/95, yet
again pending the outcome of the Uruguay Round (UR). The UR of negotiations is
completed in December 1994.
1995
The 1995 review of the EU sugar policy noted the need to:
(a) ensure compliance with the EU's WTO Uruguay Round (UR) commitments
whilst retaining the principal instruments of the policy, namely the production quota
and self-financing systems; and
(b) implement a new raw sugar policy further to the conclusions of the Commission's
report on the situation of the EU refining industry.
1968
Source: acpsugar.org.
8
A-sugar is known as white sugar whereas B-sugar is known as high grade raw sugar. C sugar is low grade
raw sugar and this sugar is non quota sugar which is not sold in the EU but instead, is exported at world
prices devoid of export funds (www.monitorsugar.com and www.britishsugar.co.uk).
Farm & Business: The Journal of the Caribbean Agro-Economic Society, Vol.6, No.l, October 2003.
Regional Economic Partnership Agreements and Its Implications
111 countries with 38 countries producing
beet sugar, 65 countries producing cane
sugar and 8 countries producing beet and
cane. There are 80 exporting countries while
there are 150 importing countries. Of the
2,440 sugar factories, 790 are beetprocessing plants and 1,650 are cane mills.
75% of world sugar exports are controlled by
10 exporters, of which the top four exporters
account for in excess of 50% of the export
market (Scollay 2002.).
In the past, some sugar economies
experienced economic buoyancy due to high
prices and increased demand for sugar. But
the high levels of profitability experienced
were not sustainable due to rapid expansion
in acreage in major producing countries as
well as threats from substitutes such as corn
sweeteners.
The EU-ACP Sugar Protocol (SP) is a
relationship established between the refiners
from Europe and the producers of sugar
from the ACP block of countries. The main
interest of the Europeans was procuring a
stable inflow of sugar whilst the ACP
countries main interest lay with securing a
guaranteed price for sugar and the
commitment of a secure market given the
intra-sectoral linkages of sugar. Particularly,
the SP commits the EU to purchase
specified amounts of cane sugar from ACP
states (the specific tonnage offered to
Caricom economies are discussed below).
The commitments of the EU to the ACP
states are delineated in Chapter 2 Annex V
of the Cotonou Agreement, with the SP itself
attached as Protocol 3 to Annex V. Chapter
2 of Annex V of the Annex of the Cotonou
Agreement also indicates the EU's
171
willingness to purchase the quantities of
sugar specified in the SP at guaranteed
prices for an indefinite period of time
(Scnollay, 2002).
In accordance with the SP, the sugar
producing member states of the Caricom
benefit from the following agreed upon
quantities ranging from 40,348.8 tonnes for
Belize to 159,410 tonnes for Guyana.
Overall, the Caricom's share of the overall
ACP sugar quota is 33.8%.9
Table 4: ACP/EU Sugar Protocol Agreed
Quantities(tonnes) (2001)
Barbados
50,312.40
Trinidad & Tobago
43,751.00
Belize
40,348.80
Guyana
159,410.10
St Kitts Nevis
15,590.90
Jamaica
118,696.00
Caricom Total
438,109.20
Total
1,294,700.00
Share
33.8%
Source: acpsugar.org.
9
The Special Preferential Sugar (SPS)
arrangement allows the EU to import additional
tonnage of sugar at prices below the guaranteed
SP prices but above the world market price level.
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Regional Economic Partnership Agreements and Its Implications
REPAs AND THEIR IMPLICATIONS FOR
CARICOM SUGAR EXPORTING ECONOMIES
Current Account Balance of Caricom
Sugar Exporting Economies
The importance of the EU sugar market to
Caricom sugar exporting economies can be
partly gleaned from the Table 5 above. In
particular, Guyana, Jamaica, Belize, T&T
and Barbados rank amongst the top 10
sugar exporting countries from the ACP
sphere. Concerning shares of the EU sugar
import market, these Caricom countries
account for 31.2% of total EU sugar imports.
According to Bjornskov (2001), these (5)
countries export US$305.7m worth in sugar
to the EU market or in volume terms 558,857
tonnes. Sugar from Guyana, Jamaica,
Belize, T&T and Barbados account for
62.4%, 15.6%, 20.4%, 10.3% and 55%
Country
respectively of their total exports to the EU.
The Caricom sugar industry, therefore, earns
a vital amount of foreign exchange for the
region and the industry is also a major
employer. Further, in many Caricom
countries, sugar is by far the largest
contributor to agricultural Gross Domestic
Product. For instance, in Guyana sugar
accounts for as much as 20% of its total
GDP and in excess of 50% of agricultural
value added.
The REPAs will involve a dismantling of
import duties on commodities of EU origin.
This reduction in tariffs, although
encouraging a greater degree of consumer
welfare, could result in an expansion in
imports and hence, worsen the current
account position of Caricom economies (see
Table 6).
Table 5: Top Ten Sugar Exporting ACP countries, 1999
Share of Total EU Sugar Exports Sugar Exports Share of Sugar in Total
Sugar Imports
toEU
toEU
Exports to the EU
(%)
(US$m)
(Tonnes)
30.4
24.5
300.6
524,959
13.2
238,636
129.2
83.9
62.4
12.6
123.6
226,929
178,760
70.2
9.8
92.8
15.6
9.3
90.6
166,235
4.3
3.8
34.1
73,332
3.2
20.4
31.5
58,173
3.2
10.3
31.4
57,092
Mauritius
Fiji
Guyana
Swaziland
Jamaica
Zimbabwe
Belize
Trinidad &
Tobago
Barbados
2.9
Malawi
1.8
Total
88.9
Source: Bjornskov (2001)
28.6
22.4
884.7
50,428
35,415
1,694,846
55
9.9
2.7
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Regional Economic Partnership Agreements and Its Implications
173
Table 6: Current Account Balances as a percentage of GDP in Caricom Countries, 1990-2000
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
3.92 7.55 2.28 3.52 -2.28 -2.67 -5.98 -5.60
Barbados
-0.96 -1.49 9.04
Belize
3.85 -6.00 -5.96 -9.33 -7.29 -2.92 -1.05 -4.91 -8.93 -10.62 17.01
Guyana
n.a.
n.a. -37.43 -31.16 -23.13 -21.74 -7.58 -14.01 -13.68 -11.03 -15.92
Jamaica
-8.22 -11.70 0.87 -6.22 1.03 -1.75 -2.25 -4.56 -4.50 -2.95 -3.71
St. Kitts/Nevis -29.36 -20.53 -8.76 -15.04 -12.02 -19.77 -26.38 -19.28 -14.31 -27.65 -20.11
3.80
11.69 -20.75 4.18 13.75 20.93 17.94 -9.62 -8.57 -14.61 -3.31
Suriname
Trinidad
1.82 -10.52 -10.51 0.46
&Tobago
9.05 -0.09 2.61 2.47 4.40 5.51
7.45
Source: World Bank data.
Country
FISCAL BALANCES IN CARICOM SUGAR
EXPORTING ECONOMIES
The elimination of tariffs would also lead to a
loss in tariff revenues.10 Many of these
Caricom sugar exporting economies are very
dependent on import taxes for their overall
fiscal revenues. Specifically, as the Table 7
below illustrates, St. Kitts obtained on
average per annum as much as 44.8% of its
fiscal revenues from import taxes in the
decade of the 1990s, the corresponding ratio
for Belize was 43.7%. With the exception of
Barbados (9.2%) and T&T (7.4%), all the
other Caricom sugar exporting economies
also obtained in excess of ten percent (10%)
of their fiscal revenues from import taxes.
10
A decrease in the amount of economic activity
of a country usually has a negative impact on the
amount of revenues that the government can
collect and any reduction in fiscal revenues
usually has a ripple effect on the rest of the
economy, impacting adversely on socioeconomic
conditions which in turn can negatively feedback
into the overall level of macroeconomic
productivity.
Specifically, Guyana's annual average
import taxes as a percentage of fiscal
revenues per annum for the 1990s was
11.5% and Jamaica's 11.8%. Problems of
fiscal revenue accumulation in the region is
heightened by weaknesses in the overall tax
administration process and narrow tax
bases, in most of these economies. Bourne
et. Al. (1999), using T&T as a reference
example, noted some of the problems that
the T&T economy experienced in trying to
introduce a Value Added Tax (VAT). In
general, for any economy, if the business
sector is underdeveloped and many of the
businesses are not formally registered, then
these, among other things, can lead to a
divergence between the amount of revenues
that the government expects to collect and
what it actually collects.
Several researchers have tried to
estimate the impact of REPAs on the fiscal
revenues of Caricom economies. In 1998,
the EU commissioned a series of studies to
examine the impact of REPAs on ACP
states. One of these studies focused on the
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Regional Economic Partnership Agreements and Its Implications
Table 7: Import Taxes as a Percenta ge of Fiscal Revenues, 1990-99
Country
Barbados
Belize
Guyana
Jamaica
St. Kitts/ Nevis
Trinidad &
Tobago
Source: UNELAC
1992
8.08
47.82
53.5
1991
9.44
51.86
10.2
13.4
50.3
8.2
8.1
1990
13.21
51.54
11.4
na
Av.
1990s
1994
8.63
49.7
12.8
10.9
49.1
1995
8.61
52.97
11.6
11.9
45.6
1996
8.08
34.41
11.7
10.8
45.3
1997
9.26
31.6
11.8
11.3
44.2
1998
9.35
33.5
12.1
10.6
42
1999
9.57
34.8
13.7
48.3
1993
8.08
49.2
12.6
13.6
26.2
10.4
43.5
43.7
11.5
11.8
44.8
9.4
9.4
7.7
5.8
5.2
6.3
7.2
7.2
7.4
9.5
9.2
na
(2002).
Table 8a: Impacts of REPAs on Fiscal and Tariff Revenues, as Assessed in the 1998 Studies
prepared for the European Commission
% customs revenue loss
17
16
12
11
10
17
16
Barbados
Belize
Guyana
Jamaica
St. Kitts and Nevis
Suriname
Trinidad and Tobago
Sources: CREDIT (1998)
Table 8b: Impacts of REPAs on Fiscal Revenues of Caricom Members
Estimated revenues
under REPA (US$
'000)
1997
1998
1999
2000
Average
95,093.01
92,569.09
89,027.93
87,612.42
1997
1998
1999
2000
Average
92,526.80
89,268.50
103,339.90
100,698.40
As a % of tax revenue
Jamaica
23.1
20.8
20.8
N.A.
21.6
Trinidad & Tobago
As % of current
revenue
As % of
GDP
20.7
18.9
18.7
N.A.
19.4
5.8
5.6
5.4
N.A.
5.6
7.6
7.1
7.8
6.3
5.8
6.8
1.6
1.5
1.5
N.A.
N.A.
N.A.
7.5
6.3
1.5
Table 8b: Organization of Eastern Caribbean States (OECS)
1997
173,950.60
34.8
29.8
1998
28.6
182,127.70
33.2
1999
27.2
180,286.60
32.0
2000
N.A.
N.A.
179,526.40
Average
28.5
33.3
Source: Nichols et. al. (2001).
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7.5
7.3
6.8
N.A.
7.2
Regional Economic Partnership Agreements and Its Implications
175
Table 9a: Fiscal Balance as a Percent of GDP in Caricom Member states, 1990-2001.
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
-8.4 -1.8 -1.9 -2.5 -1.2 -0.9 -3.8 -1.4 -1.0 -2.3 -1.5 -3.5
Barbados
Belize
-9 -11.0
-7.5 -9.1 -7.6 -4.3 -0.4 -2.2 -2.3 -2.1
0.3
-5
-10 -3.3 -5.7 -0.3 -4.8 -5.7 -1.9 -2.3 -1.2 -9.9 -5.5 n.a.
Dominica
-25
-27 -20 -8.1 -1.8 0.1 -1.6 -7.0 -7.4 -5.7 -6.6 -8.3
Guyana
4.8 -5.6 -6.6 -2.7 -11 -5.4 -24.6 -8.3 -8.1 -6.1 -0.3 -6.9
Jamaica
-6.6 -3.8 -3.1 -6.2 -11 -14.2 n.a.
-3
-0.3 -2.3 -1.2 -1.4
St. Kitts
n.a.
n.a.
4.3 0.8 n.a.
n.a. n.a.
-9.4
5.1
-8.7
n.a.
n.a.
Suriname
Trinidad
0.2 0.5 0.1
-3.2
-2
-0.4
0
1.6
-1.2 -0.2 -2.7 -0.2
&Tobago
Source: UNELAC (2002).
Table 9b: External Debt of Caricom Member States, $USbn, 1990-2001.
1990 1991 1992 19931 1994 1995 1996 1997 1998 1999 2000 2001
Country
0.68 0.61 0.57 0.62 0.60 0.58 0.57 0.61 0.68 0.49 0.64 0.62
Barbados
0.15 0.17 0.19 0.20 0.20 0.26 0.28 0.45 0.33 0.35 0.50 0.51
Belize
1.97 1.98 1.92 1.98 2.06 2.13 1.65 1.64 1.52 1.51 1.46 1.50
Guyana
4.67 4.41 4.26 4.11 4.32 4.27 3.99 3.92 4.02 3.92 4.29 5.20
Jamaica
St. Kitts
0.05 0.05 0.05 0.05 0.06 0.06 0.07 0.11 0.13 0.14 0.14 0.15
& Nevis
0.11 0.18 0.16 0.12 0.07 0.10 0.12 0.15 0.21 0.26 0.30 0.31
Suriname
Trinidad &
2.51 2.50 2.47 2.25 2.51 2.75 2.25 2.17 2.17 2.46 2.47 2.90
Tobago
Source: IMF International Financial Statistics Yearbook (various years).
Caricom (including the Dominican Republic).
This study demonstrated that Caricom sugar
exporting member states each stood to lose
in excess of 10% of their customs revenues
if a REPA was formed. In another study,
Nicholls et. al. (1999) using an Almost Ideal
Demand System (AIDS) to examine the
impact of a REPA on the tariff revenues of
Caricom economies found that a reduction in
tariff rates will result in a decline in fiscal
revenues. Specifically, this study found that
for Jamaica and T&T, current revenues from
trade taxes are projected to decrease by
around 19.4% and 6.3% respectively. For
the OECS, Nicholls et. al. found that in the
event of a REPA this sub-regional block of
countries could lose 28.5% of its current
revenues.
This loss of revenues would only
heighten the pressure of fiscally managing
these Caricom sugar exporting economies
for as Table 9a below illustrates, with the
exception of hydrocarbon rich T&T, every
other Caricom sugar exporting member state
have run fiscal deficits for the period 19902001. Moreover, and as Table 9b below
reflects, most Caricom countries have had to
commit themselves to a greater degree of
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Regional Economic Partnership Agreements and Its Implications
external debt during the interval 1990-2001
in order to finance the running of their
economies.
MEETING THE ADJUSTMENT COSTS OFREPA
The REPAs will also lead to adjustment
costs in Caricom economies. Specifically,
the government of Caricom economies will
need to expend resources so as to minimize
the cost of adjustment involved in the
reallocation of resources from those Caricom
producers displaced by lower cost EU
producers. Resources will also have to be
expended on securing alternative new
sources of public revenues.
It is well known that the level and growth
of economic activity has a major impact on
the magnitude of government revenues that
an economy can collect as it implicates the
size of individual and corporate sector
incomes. The real growth performance of
Caricom states must therefore be at a critical
minimum rate to facilitate the growth of
public revenues.
During the 1960s, the average growth
rate amongst these sugar exporting Caricom
economies was 5%, motivated by a buoyant
international economy, an expansion in
foreign aid and the progression of the
process
of
import
substituting
industrialization (see Table 10). With the
increase in oil prices in the 1970s and the
global recession of the 1980s, real growth
rates in these sugar exporting economies
faltered. In the 1980s, the level of real output
in the more developed Caricom economies
which export sugar also fell. For the 1980s,
depressed international prices of key exports
from these economies as well as fiscal and
176
debt servicing problems alongside waning
capital and consumer expenditure resulted in
a loss of some of the gains made in previous
decades. For example, in Jamaica, the level
of real GDP in 1986 was only 80% of the
1973 level whilst in T&T real output
decreased by 32% between 1983 and 1989.
Overall in the 1980s, Caricom's lesser
developed sugar exporting economies
performed better than the other sugar
exporting economies within the regional
bloc. In the 1990s, however, real output in
the more developed Caricom sugar
exporting economies improved with the level
of real output increasing by 40% in T&T
between 1990 and 2000. The Jamaican
economy, however, stagnated during the
1990s with the average level of real output
growing by an average annual rate of 1%
per annum. Overall, as compared to the
1960s and 70s, real growth rates per annum
decreased in Barbados, Belize, Jamaica, St
Kitts and Nevis and Trinidad and Tobago.
It is also very important to recognize that
some aspect of this growth performance is
also partly as a consequence of artificially
high prices for sugar (and other commodities
offered by the EU Commodity Protocols). In
particular, the Table 11 below shows world
sugar prices in various markets. Clearly, in
more recent times the price of sugar in the
EEC market has been higher than that
offered elsewhere. It is evident that the
privileges of ACP countries in the EU market
have a distortionary influence on the
conditions prevailing in the global
marketplace. Inflated prices encourage
higher levels of production, which finds its
way into the EU market as expanded levels
of exports. The expansion on the volume of
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Regional Economic Partnership Agreements and Its Implications
177
Table 10: Average Growth Rates of Real GDP of Caricom Sugar Exporting Economies, 1960s, 1970s,
1980s 1990s
1970-79"
1960-69
Countries
3.35
6.36
Barbados
6.34
5.20
Belize
1.67
3.66
Guyana
1.14
4.11
Jamaica
n.a.
8.28
St. Kitts and Nevis
2.47
n.a.
Suriname
5.84
6.03
Trinidad & Tobago
Source: http: //publications, worldbank. org/WDl/.
a: represents average for 1978 and 1979 for St Kitts and Nevis.
1990-99
0.74
4.52
4.79
0.91
3.94
3.15
2.87
1980-89
2.23
5.52
-2.80
1.37
6.06
-0.80
0.57
Table 11: Sugar Prices in Various Markets, (US cents/pound), 1960, 1970, 1980, 1990, 2000-2002
YEAR
Brazil
US Import
^Caribbean
(New York)
($)
3.41
3.13
1960
5.71
1970
5.1
3.76
7.5
22.09
1980
21.79
28.67
30.03
15.94
26.45
1990
23.25
12.51
25.16
2000
7.95
19.4
8.08
23.88
2001
8.96
21.34
8.23
20.94
6.24
24.91
2002
n.a.
Source: Commodity prices, World Financial Digest Various years.
EEC Import
($)
5.54
5.09
sugar traded means that there is a
downward push on global sugar prices for
those countries which do not have access to
the preferential markets in the EU.
It is these high prices which allow the
high cost sugar producers in the Caricom to
return a profit when compared to efficient
producers in the Pacific region or Brazil. In
T&T, for example, the per unit cost of sugar
production is almost eight (8) times the cost
in Brazil (see Figure 1).
In trying to assess the ability of Caricom
sugar exporting economies to carry
Australia
Philippines
4.01
4.97
21.07
12.65
17.58
17.7
n.a.
6.23
6.62
16.22
19.46
n.a.
n.a.
n.a.
adjustment costs, it is also necessary to
assess the structure of production. A
nation's production structure is critical as it
conditions its employment carrying capability
as well as the extent to which foreign
technology etc. can diffuse into the domestic
economy. In particular, the understanding is
that the larger the manufacturing sector in an
economy, the greater the degree of
backward and forward linkages with the rest
of the economy, the greater the learning by
doing and the higher the price and income
elasticities of demand in the economy as
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Regional Economic Partnership Agreements and Its Implications
178
:
F ig 1: Cost of Production (US cents/lb Sugar)
fin
50.28
Eft
40 -
32.89
31.35
30 17.94
20
15.77
11 °fi
1° 15
10 -
1
7 36
1
'
0
Trinidad Barbados
Jamaica
Guyana
Belize
African
countries
Pacific
countries
Brazil (*)
Table 12: Structural Composition of GDP in Caricom Countries, various years
Jamaica
Sectors
Agriculture
Mining & Quarrying
Manufacturing
Services
1982
6.57
10.7
17.4
65.4
Sectors
Agriculture
Mining & Quarrying
Manufacturing
Services
1981
8.71
0.5
11.6
79.2
St. Kitts & Nevis
2001
7.3
9.1
15.5
68.1
1981
16.7
0.24
14.5
68.6
2001
6
0.8
8.5
84.7
1980
1.91
23.5
9.7
64.83
2001
6.6
24.6
7.8
61.1
1981
24.9
16.1
18.1
40.7
Barbados
Trinidad & Tobago
2000
2.5
12.5
19.4
65.6
Guyana
Suriname
1981
Sectors
Agriculture
9.55
Mining & Quarrying
7.05
Manufacturing
17.61
65.79
Services
Source: UNECLAC (various years)
2001
5
0.4
11.1
83.5
2001
33.6
11.9
5.6
48.8
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Regional Economic Partnership Agreements and Its Implications
179
Table 13: Unemployment Rates (%) in Caricom Sugar Exporting Member States, 1990-2000
1990
15
Barbados
14.8
Belize
Guyana
Jamaica
15.7
St. Kitts/Nevis
15.8
Suriname
20
Trinidad &Tobago
Source: Caricom Secretariat
1992
23
11.9
11.7
15.4
1993
24.5
9.8
1994
21.9
11.1
1995
19.7
12.5
1996
15.6
13.8
16.3
15.4
16.2
16
17.2
18.5 19.6
(2000).
14.7
19.8
12.7
18.4
8.4
17.2
11
16.2
1991
17.1
13.8
15.7
L
1997
14.5
12.7
11
16.5
12
10.5
15
1998
12.3
14.3
1999
10.4
12.8
2000
9.3
11.5
15.5
15.7
15.5
10.6
14.2
11.1
13.1
12.8
Table 14: Comparing the Highest 15 Ranked Countries using Three Vulnerability Indices
Rank
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
UNCTAD/Briguglio Index
Antigua and Barbuda
Tonga
Seychelles
Vanuatu
St Kitts and Nevis Swaziland
St Lucia
Chad
Singapore
St Vincent and the grenadines
Grenada
Bahamas
Jamaica
Kiribati
Mauritius
Belize
compared to if the economy was
predominantly agriculturally oriented. As
Table 12 below Illustrates, the agricultural
sectors in some of these Caricom
economies account for a significant aspect
of their overall economic output and except
in T&T, the size of the manufacturing sector
has contracted over the years indicated, for
each member state.
Crowards Index
Anguilla
BVIs
Cayman Islands
St Kitts and Nevis
Vanuatu
Sierra Leone
St Lucia
Antigua and Barbuda
Guyana
Rwanda
Seychelles
Bahamas
Maldives
Haiti
Jamaica
The overall weak performance and
structure of GDP in some Caricom sugar
exporting member states and other
economic problems has meant that
unemployment rates within Caricom
countries have remained in double-digit
figures (see Table 13).
A number of researchers have shown
that Caricom economies are economically
vulnerable. Economic vulnerability is simply
Farm & Business: The Journal of the Caribbean Agro-Economic Society, Vol.6, No.l, October 2003.
Regional Economic Partnership Agreements and Its Implications
defined here as the risk associated with
harmful shocks. Briguglio (1995) derived a
composite index for a number of small island
states to determine whether small
economies were more economically
vulnerable than other Caricom states. His
argument was couched on three variables:
economic exposure, a transport index and a
disaster prone index. According to
Briguglio's computations, the fifteen most
economically vulnerable countries in the
world are as shown in the table below.
Another researcher, Croward (1999) also
estimated the economic vulnerability status
of small island states. Based on Croward's
computations, the fifteen most vulnerable
island states in the world have been
extracted and are also listed as part of Table
14. Two Caricom sugar dependent
economies, Jamaica and St Kitts and Nevis,
appear in computations of both authors of
the fifteen most vulnerable economies in
theworld while Belize appears in Brigulglio's
and Guyana in Croward's.
SUPPLY CAPACITY CONSTRAINTS OF SUGAR
EXPORTING ECONOMIES
REPAs will need to pay adequate attention
to the constraints in supply capacity of
Caricom sugar exporting economies. These
constraints are wide and range from limited
availability of public utilities especially in
water supply and electricity and general
access and spread of proper infrastructure
facilities. Some of these economies are also
characterized by low levels of labor
productivity and severe health problems. In
some Caricom states, for example, there is a
ISO
high incidence of HIV and poverty levels
(see Fig 2 below).
In this regard, future EU-ACP
arrangements should comprehensively
address these supply side deficiencies which
restrict Caricom sugar exporting economies
from producing
other
goods, at
internationally competitive prices.
TRADE DIVERSION AND CREATION FOR
CARICOM IN THE CONTEXT OF REPAs
REPAs, as with all free trade agreements
can lead to both trade diversion and trade
creation gains. In the EU-ACP context, trade
diversion refers to gains that arise when
more efficient non-EU producers are
displaced by EU producers. Any trade
creation gains which occur will hinge on the
extent to which inefficient regional
production can be substituted for imported
goods.
If we treat a ten percent (10%) share of
export or import as representing a significant
trading partner, then the EU was and
remains an important trading partner for
Caricom as a whole. Some authors, e.g.
Bilal (2002) have observed that with REPAs,
because the EU is such a significant trade
partner, there is a high likelihood that trade
diversion will result. The general lack of
supply capability in ACP economies
combined with net trade diversion in favor of
the EU can sprout a greater degree of
geographically concentrated trade. It is well
known that a geographically concentrated
(and commodity concentrated) basket of
goods can be a major source of export and
economic instability.
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181
Regional Economic Partnership Agreements and Its Implications
Fig 2: Headcount Poverty Indices for Sugar
Exporting Caricom Economies
Barbados
Belize
Guyana
Jamaica
St Kitts and
Nevis
Suriname
T&T
Source of Imports
1980
1985
1990
1995
1996
1997
USA
41.2
44.4
27.8
38.3
42.6
47.7
European Union
15.2
14.1
14
15.8
16.5
15.5
Caricom
9.7
9.2
9.8
9.7
9.1
LAIA
9.1
11.2
12.2
9.8
5.6
Selected Asian Countries
7.7
8.4
8.2
8,4
6.6
10.2
11
Rest of the World
35.4
15.2
11.4
16.2
15
Source: A Quick Reference to Some Summary Data 1980-1996 and Caricom Secretariat
1998
46.2
13.7
9.5
10.4
9.6
10.6
Table 15b: Distribution of Caricom Exports by Principal Destinations:1980-1998 (percentage)
1996
1997
1998
Destination of Exports
1980
1985
1990
1995
USA
47.2
40.7
34.1
38.5
35.3
35.2
48.7
European Union
20.6
20.9
18.0
18.1
16.9
16.5
17.8
Caricom
8.9
12.2
16.5
18.3
19
22.5
12.8
5.4
5.2
3.7
LAIA
1.9
2.1
2.8
4.6
Selected Asian Countries
0.4
1.3
1.2
1.5
0.9
0.6
22
Rest of the World
21.6
19.1
21.1
23.6
18.8
22.5
Source: A Quick Reference to Some Summary Data 1980-1996 and Caricom Secretariat.
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182
Regional Economic Partnership Agreements and Its Implications
Figure 3: ACP Countries which Benefit from the EBA
ACP countries
Antigua and Barbuda, Bahamas, Barbados, Belize, Botswana,
Cameroon, Congo, Cook Islands, Cote d^Ivoire, Dominica,
Dominican Republic, Fiji, Gabon, Ghana, Grenada, Guyana,
Jamaica, Kenya, Marshall Island, Mauritius, Micronesia,
Namibia, Nauru, Nigeria, Niua, Palau, Papua-New Guinea,
Seychelles, South Africa, St Kitts & Nevis, St Lucia, St
Vincent, and the Grenadines, Suriname, Swaziland, Tonga,
Trinidad and Tobago, Zimbabwe
ngola, Benin, Burkina Faso, Burundi, Cape Verde,
Central African Republic, Chad, Comoros, Congo,
DR Djibouti, Eritrea Ethiopia, Gambia, Guinea
Equatorial, Guinea-Bissau, Haiti, Kiribati, Lesotho,
Liberia, Madagascar, Malawi, Mali, Mauritania,
Mozambique, Niger, Rwanda, Samoa, Sao Tome e
Principe, Sierra Leona, Solomon Island, Somalia,
Senegal, Sudan, Tanzania, Togo, Tuvalu, 1
Vanuatu, Zambia.
LLDC countries
Afghanistan,
Bangladesh, Bhutan,
Cambodia, Laos,
Maldives,
Myanmar, Nepal,
Yemen
Table 16: The Overall Impact of the EBA in 2001
Exports of Products liberalized Exports of Products under the EBA with Delayed
under the EBA in 2001
Liberalization (Bananas, Rice, Sugar)
Exports to the EU of ACP countries ('000' Euros)
2000
10505
62904
2001
3344
60596
Exports to the EU of Non ACP Countries ('000' Euros)
2000
152
59
2001
313
74
Source: Brenton (2003).
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Regional Economic Partnership Agreements and Its Implications
REPAs IN THE CONTEXT OF THE EBA
The EBA was introduced by the ED in 2001
and offers to the 49 Least Less Developed
Countries (LLDCs) preferential access to the
EU market, some of which already belong to
the ACP membership, (see Figure 3). The
EU has argued that this EBA will
substantially enhance the growth prospects
of these 49 LLDCs. With the EBA, the
liberalization on the imports of all
commodities, excluding rice, sugar and
bananas is proposed. Specifically, the duties
on sugar will be reduced by 20% on the 1st
July 2006, 50% on 1st July 2007, 80% on 1*
July 2008 and fully eliminated by 1st
September 2009.
According to Brenton (2003), the impact
of the EBA is evidenced by a fall off in ACP
exports of those products liberalized under
the EBA in 2001, from 10.5m Euro to 3.3m
Euros, a decrease of 68.2%. The exports of
ACP countries of banana, rice and sugar to
the EU decreased from 62.9m in 2000 to
60.5m in 2001 a decrease of 3.6%. In this
same time period, however, the exports to
the EU of non-ACP countries of these
products under the EBA which have delayed
liberalization increased from Euro 59,000 to
74,000, an increase of 25% (see Table 16).
It is possible that the excess of the EU
price over the world price is so great that
even net sugar importing LLDCs will have an
incentive to export to the EU, making up the
increased shortfall in their domestic market
through increased imports at the much lower
world market price. In addition, the
availability of the higher priced EU market
will encourage increased production in some
LDCs to take advantage of the opportunity
183
offered. The EBA, therefore, stands as a
very real threat to the future economic
development of ACP economies, to which
group all of the sugar exporting Caricom
economies belong.
REPAs and WTO Compatibility
EPAs, notes de la Rocha (2003) represents
an important opportunity for ACP countries
to negotiate important changes in their
trading agreement with the EU. In particular,
ACP economies can use the EPA as an
opportunity to engage in a greater degree of
regional integration whilst simultaneously
becoming more interactive with the
international community.
Further, the REPAs represent an
opportunity for Caricom economies to
reduce their dependence on margins of
preference. By engaging in more reciprocal
trade with more competitive extra regional
players, Caricom economies will need to
become increasingly extra regionally
competitive to maintain their viability. Indeed
as one author notes:
"... the rest of the world no longer sees
the Caribbean as a special or unique
case deserving of special treatment and
assistance. Our search for empathy or
goodwill, as we seek stays of execution
in carrying out actions arising from our
international commitments, which can
have painful consequences for the
survival of Caribbean societies, is now
perceived as yet another set of
rearguard actions..." (pg. 624, Arthur,
2001).
As it stands, if REPAs are to be WTO
compatible i.e. if liberalization were to be
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Regional Economic Partnership Agreements and Its Implications
practiced in a wide way, then the Caricom
products will have to compete on a more
even playing field with an unequal trade
partner.
THE SUGAR PROTOCOL IN THE
CONTEXT OF EPAs
There are two possibilities concerning how a
REPA can be configured in terms of the SP,
i.e. SP can be either included or excluded. If
EPAs are excluded, as has already been
done with other EU relationship with Mexico
and South Africa. Even if sugar in excluded
from an EPA it would still have to meet the
requirements of the WTO Article XXIV
requirement of substantially all trade (SAT).
If it is that the EPAs are excluded, then it
may be possible to consider a scenario
wherein the SP continues alongside some
permutation of a REPA. In this context, one
researcher notes:
"The question would then be whether
prospective members of such EPAs,
including sugar producers, see sufficient
benefit to themselves, from those
particular feasible
configurations,
relative to other configurations that
might otherwise be open to them, to
make one or more of those feasible
EPAs a viable proposition." (Scollay
2002, pg 44).
It is, however, also permutation that the
SP can be maintained within and effectively
transformed into being part of a REPA. In
this context, the quota benefits that ACP
members enjoy can be featured into the
RAPA as part of its arrangement. This
arrangement would mature when the
transitional period ends, at which point ACP
184
producers can still engage the EU market
but at terms similar to the LLDC. Scollay
(2002) notes that the vulnerability of the SP
preferences will be much lower as rulings by
the appellate body reflect that exemption
from Article XIII requirements can be made
from Article XXIV especially in those case
where it can be shown that quotas are
integral for the formation of regional
integration arrangement.
Significant though,
"Securing acceptance by the EU of an
obligation to provide equivalent entitlements to sugar protocol entitlements
with EPAs would be an essential
prerequisite to any decision by sugar
protocol members to abandon the sugar
protocol in favor of the inclusion of
sugar in EPAs. The legal basis for
seeking acknowledgement of this
obligation is provided by Article 36:4 of
the
Cotonou
Agreement
which
specifically refers to the safeguarding of
benefits
derived from
commodity
protocols as one of the objectives of the
forthcoming EPA negotiations. The
provision also leaves it open for ACP
producers to mount a case for
compensation for any loss of benefits
that they are required to accept in the
course of the negotiations." (pg 45-46).
POLICY REFLECTIONS
The Caricom sugar market is currently
plagued by a number of problems, these
include the high cost of labor, limited
availability of agrarian land, depressed world
prices of sugar as subsidized prices are
increasingly challenged and escalating costs
Farm & Business: The Journal of the Caribbean Agro-Economic Society, Vol.6, No.l, October 2003.
Regional Economic Partnership Agreements and Its Implications
of factors of production. In more recent
times, the price of sugar has declined partly
as a result of decreasing costs of production
in several important sugar exporting
countries, which in turn was triggered by
significant efficiency gains and improved
technology in the sugar industry of the
relevant economies. The EU needs to pay
sufficient attention to the potentially negative
results that a REPA can have for all ACP
states in general and for Caricom sugar
exporting economies in particular. Any
increase in the inflows of European goods
may also displace regional production in
favor of competing EU imports. This in turn
will adversely affect unemployment rates in
the Caricom sphere.
Caricom (sugar) exporting economies
also need to be cognizant of the fact that, in
focusing on EU negotiations, it may divert
the attention of their negotiators away from
other equally or more significant negotiation
agendas. Specifically, by placing too much
emphasis on the EU agenda, other
significant WTO negotiations may be
sidelined.
In the context of the proposed changes in
the EU-ACP relations, Caricom sugar
exporting economies will need to consider
how to address lost export revenues, a
reduction in trading preferences and the
attendant fiscal consequences, amongst
other problems. If the REPA erodes the
margin of preference the EU-ACP provides,
then for some Caricom sugar exporting
economies, this will increase the burden of
effective fiscal management of their
economies. In the short run, the EU might
consider providing some additional financial
resources to help these sugar exporting
185
economies improve their supply capacity in
products other than sugar, where they may
be more competitive.
In preparation for the REPAs, Caricom
economies would need to adjust their
economies in a number of areas.
Adjustment to freer trade in the context of a
REPA will lead to a decline in employment
opportunities in many Caricom member
states and even further, would also trigger a
loss of valuable human capital in those
industries that are forced to close down.
Recent advances in endogenous growth
theory infer that human capital can
encourage the growth of nations and as a
consequence, a loss of human capital
represents a compromise to the growth
performance of any economy.11 In
negotiating REPAs therefore, Caricom
negotiators may want to consider negotiating
for compensatory assistance to retrain
displaced workers.
Changes in the margins of preference on
offer to Caricom countries continue to be
adverse and the clear indication is that
globalization is insensitive to size and
intolerant of economic backwardness. Into
the future, Caricom countries may want to
reconsider their position in the sugar industry
and this may even involve closing down or
reducing and rationalizing production
operations in some producing economies.
Caricom high cost sugar producing
economies must realistically assess whether
their energies will be most rationally
deployed if they were to select production
options on the upswing of the international
product cycle, which do not require margins
" See Romer (1993).
Farm & Business: The Journal of the Caribbean Agro-Economic Society, Vol.6, No.l, October 2003.
Regional Economic Partnership Agreements and Its Implications
of preference for their sustenance. At the
end of the day, a positive economic future
for CARICOM countries lies in restructuring
for competitiveness in the global economy.
That means making hard choices about its
options for sustainable development in an
inter-connected and increasingly integrating
global economy and working backwards for
those hard choices to build capacity at
national and regional levels.
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