RNM UPDATE 0804

May 16, 2008

Prepared by the Information Unit of the Caribbean Regional Negotiating Machinery (CRNM), this electronic
newsletter focuses on the RNM, trade negotiation issues within its mandate and related activities.

• WHITHER CBTPA?
• ADDRESSING MFN IN THE EPA
• WTO UPDATE
• EPA TO BE SIGNED
• NEWS BRIEF
• UPCOMING EVENTS

WHITHER CBTPA?

The Caribbean Basin Initiative (CBI) was initially launched in 1983 through the Caribbean Basin
Economic Recovery Act (CBERA), and was expanded in 2000 through the US-Caribbean Basin
Trade Partnership Act (CBTPA). These two acts which together are known as CBI were designed
to provide unilateral preferences to a specific group of qualifying countries. For this reason, the
legal implementation of CBI has required WTO waiver. The CBERA waiver expired on December
31, 2005. US efforts to renew the CBERA waiver have been unsuccessful as Paraguay has
continued to block progress in this regard. Paraguay has blocked the U.S. requests for a waiver on
grounds that it should be compensated for alleged trade damage caused by exclusion from U.S.
programs.

In the absence of a waiver, the US has unilaterally continued to provide CBERA preferences. This
has been possible because the legislation facilitating CBERA has no termination date for CBERA
preferences and as such is considered permanent. CBTPA preferences, on the other hand, were
designed to give NAFTA parity to products previously excluded under CBERA and were set to be
terminated either on September 30, 2008 or upon entry into force of the Free Trade Areas of the
Americas (FTAA), whichever came first. The absence of a CBERA waiver and the imminent
expiration of the CBTPA have created uncertainty in the proximate future of CARICOM trade
relations with the United States.

It is within this context that during the 28th Meeting of the Conference of Heads of Government of
the Caribbean Community an understanding was reached between CARICOM and the US about
the scope of future relations. During that Meeting which featured a dialogue with the Chairman of
the US House Committee of Ways and Means, Congressman Charles Rangel, it was jointly agreed
to strengthen existing trade arrangements, which includes an upgrade and extension of CBI
scheduled to expire in September 2008.

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This commitment was apparently honoured in February 2008 when Congressman Charles Rangel
introduced H.R. 5264, the Trade Preference Extension Act of 2008. This bill was crafted to extend
until 2010 three trade preference programs scheduled to expire in 2008 including the Andean
Trade Preference Act (ATPA), the Generalised System of Preferences and the CBTPA program.
However, the political climate within Congress was not conducive to the approval of the extension
of the all the Preferential agreements introduced under H.R. 5264. The Bush Administration has
prioritized consolidation of Congressional support for and consideration of the free trade agreement
with Colombia, a beneficiary of the ATPA. The extension of ATPA is considered politically linked to
the leveraging of Congressional consideration of the Colombia FTA. These political tensions
contributed to the approval of ATPA extension until December 2008 under the Bill. However, the
extension of the other preferential agreements, including CBI preferences, was dropped from the
Bill.

Notwithstanding this setback, Congressman Rangel has been able to leverage the resurgence of
the CBI extension back to the political agenda through the Congressional negotiation of the new
five year H.R. 2419, the Food and Energy Security Act, otherwise known as the Farm Bill. Earlier in
July 2007, the House passed their version of what should constitute the Farm Bill. The Senate on
the other hand, passed their unique version of the Farm Bill in December last year. The formulation
of the final version of the Farm Bill required that the House and the Senate reconcile the
differences between the two versions of the Bill through negotiations in what is called a
Conference. After months of negotiations, the Conference reached a resolution of the Farm Bill in
what is called a Conference Report. The Final outline of the Farm Bill includes the inclusion of a
two year extension of CBI preferences and the expansion of the original Haitian Hemispheric
Opportunity through Partnership Encouragement (HOPE) Act. Congressman Rangel was able to
wrangle the Conference to agree to the inclusion of these provisions in exchange for other
concessions in the final round of negotiations.

CARICOM would be appreciative of this small but significant Congressional victory. However, there
are further challenges ahead which must be conquered before the extension of CBI and the HOPE
Act may be secured under the Farm Bill.

The House and the Senate have passed the Conference Report but the final Bill must still be
signed by the President. It should be noted with some apprehension that the President Bush is not
supportive of some aspects of the Farm Bill and is expected to veto it. If vetoed, the Bill will be sent
back to Congress for a vote by 2/3 majority in both the House and the Senate to override the
President’s veto. Failing 2/3 majority, the Bill will not become law and the entire ‘deal’ will be
permanently dismissed.

At this juncture, CARICOM must exercise trade diplomacy to encourage a favourable outcome in
this regard. Already, CARICOM has had some success in the exercise of trade diplomacy in this
regard, as the Prime Ministers of the Bahamas and Barbados have been able to attain
reassurances from President Bush about the extension of CBI preferences during their meeting
with him in March this year.

Though the Bush administration support for CBI extension has been signalled in the Joint
Statement emanating from the 28th Meeting of Conference of Heads and during diplomatic

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engagement with CARICOM Prime Ministers, uncertainty prevails about the feasibility of an
appropriate political mechanism to secure CBI extension before the expiration of the CBTPA on
September 30, 2008. CARICOM must, therefore, utilize all avenues of political leverage, including
amongst the Congressional Black Caucus, to improve the probability of achieving 2/3 majority in
both the US House and Senate.

ADDRESSING MFN IN THE EPA

During discussions about the ACP-EU Economic Partnership Agreements (EPA) at WTO General
Council Meeting held in February 2008, Brazil raised concerns about the inclusion of a Most
Favoured Nation clause (MFN) in the ACP EPAs.

Brazil’s arguments, which were proposed in its Statement delivered at the General Council
Meeting, may be summarised as follows:

1. The EPA MFN clause obliges “ACP countries to extend to the EC on a line by line basis,
any treatment they might negotiate with third parties.”
2. The EPA MFN clause severely undermines the Enabling Clause and South -South trade
because the MFN clause provides disincentive for ACPs to negotiate agreements with
other developing countries that may contain more favourable market access conditions
than those enjoyed by the EC under the EPAs with ACP countries.
3. The MFN clause will “prevent” third countries from negotiating FTAs with EPA parties and
constrain South-South trade.

However, closer analysis would indicate that Brazil’s principal arguments misrepresent the
application of the EPA MFN clause. The following will address Brazil’s concerns within the context
of the CARIFORUM-EC EPA.

The Scope of EPA MFN Clause

The EPA MFN clause obliges “ACP countries to extend to the EC on a line by line basis any
treatment they might negotiate with third parties.’

In contrast to what is otherwise suggested by Brazil’s statement, the EPA MFN clause as applied in
relation to the treatment of both goods and services in the EPA is limited in scope with respect to
the CARIFORUM obligations. The articulation of the clause with respect to goods in Article 19 of
the Agreement reflects that the principal of asymmetry is sustained in the Agreement well beyond
the treatment of market liberalization.

Article 19 obliges the EU to give to CARIFORUM any more favourable treatment that it provides to
third states as a result of Europe’s engagement in a FTA with that third state. Given that Europe
has already provided duty-free quota-free access for all CARIFORUM goods, with respect to
goods, there is little significance to this application of the MFN principle with respect to Europe’s
engagement with a third state.

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However, that provision stands in contrast to Article 19 reference to the asymmetrical obligation
which only requires CARIFORUM to accord Europe any more favourable treatment that it may
provide to a major trading economy in a FTA. The caveat is clear in the delineation of the MFN
trigger to affect CARIFORUM trading relations with third countries which, as defined for the
purposes of the EPA only, individually have a world market share above 1% or any group of
countries acting individually or collectively or through a FTA which collectively accounts for global
market share above 1.5% before the entry into force of the free trade agreement.

It should also be noted that the EPA MFN application with respect to the treatment of commercial
presence and cross border supply of services under EPA Article 70 and Article 79 respectively has
a similar asymmetric character. Europe is obligated to accord treatment no less favourable to
CARIFORUM cross border supply, commercial presences and investors than which may be
extended to those of third countries within the context of an economic integration agreement. The
CARIFORUM MFN obligation, in contrast, is restricted to the comparative treatment of a third
country that is a major trading economy. In the treatment of services as in the treatment of goods
therefore, the conditions for the triggering of the MFN obligation are in effect the same.

This means that future CARIFORUM trade relations with most developing countries or South-South
relations in the context of an FTA would be unaffected by the application of the MFN clause. At the
moment, the main developing countries which would qualify as major trading economies would
include India, China and Brazil. Of course, if the future path of ascent for other developing third
countries allows such countries to develop an export market share in excess of 1%, then
CARIFORUM trade relations with such third states under an FTA would also be affected by the
MFN clause.

The triggering of the MFN clause is further disciplined by the condition that the status of the third
state as a major trading economy must be in effect before the entry into force of the FTA. It follows
therefore that though the third state may be a major trading economy during the negotiations of the
FTA, it must retain that status at the time when the FTA comes into force. In a hypothetical
scenario where CARIFORUM and India were engaged in FTA negotiations, that FTA may not be
prejudiced by the EPA MFN clause unless India, whose global export market share tends to
fluctuate, continued to have global market share of exports above 1% at the time of entry into force
of the agreement.

There is another assumption about the scope of the MFN clause implicit in the arguments made by
Brazil that should also be addressed. The comment from Brazil indicates an assumption that with
respect to the treatment of goods, MFN will be applied on a tariff line by tariff line basis. However,
Article 19 bears no textual specificity about the procedural application of MFN. In the GATT, the
procedural application of MFN is outlined on a line by line basis evidenced by the requirement that
the favourable treatment given on any product must be given to ‘like’ products of a third party. In
the GATT the purpose of the MFN to inhibit discrimination in the competitive relationship between
states vis-à-vis market access is clear.

Article 19 of the EPA bears no such conditionality in the application of MFN. Article 19 is sufficiently
ambiguous that it does not preclude other approaches to the assessment of more favourable

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treatment. This is particularly important when one considers that CARIFORUM liberalization in the
EPA is expressed as an application of asymmetric reciprocity.

Therefore, an evaluation of more favourable treatment is complicated by phased approaches to

CARIFORUM liberalization and the degree to which the liberalization burden is shared to meet
‘substantially all trade’ requirements under Article XXIV. Would it not be relevant to compare the
extent of the third state’s liberalization concessions against the EC’s absolute duty-free/quota-free
liberalization commitment for all goods? In a FTA with a third party, would the liberalization of a
good which has otherwise been exempted from liberalization under the EPA but which is of little
competitive interest to Europe be considered as according more favourable treatment to the third
party at Europe’s expense? Shouldn’t the pace of liberalization also be considered? Such
questions beg a weighing and balancing of the overall picture vis-à-vis the competitive positions of
the EC party relative to the third state. Clarity on these matters is not provided under Article 19.

The EPA MFN vs. the Enabling Clause

The EPA MFN clause severely undermines the Enabling Clause and South -South trade because
the MFN clause provides disincentive for ACPs to negotiate agreements with other developing
countries that may contain more favourable market access conditions than those enjoyed by the
EC under the EPAs with ACP countries.

It is important to consider that the MFN clause would only be triggered by CARIFORUM trade
relations with major developing economies in the context of FTAs only. This means that, with
respect to goods, such trading relations between CARIFORUM and qualifying third states would be
governed by GATT Article XXIV and not the Enabling Clause which does not cover FTAs. The
rights of developing countries to facilitate South–South trade by extending preferential
arrangements amongst each other as is allowed under the Enabling Clause are therefore not
compromised by the EPA MFN.

Brazil appears to be concerned that the EPA MFN clause constrains the policy space of ACP
developing countries to offer preferential concessions to a developing country partner. However,
WTO rules imply that tariff liberalization within those types of preferential arrangements facilitated
by the Enabling Clause would not be at the depth of that expected under an FTA, which would
otherwise be disciplined by the provisions of GATT Article XXIV.

It is challenging therefore to reconcile how CARIFORUM or another ACP EPA party, within a
preferential arrangement facilitated by the Enabling Clause, would be able to offer market access
conditions and concessions that are more favourable than those extended to the EC under the
EPA. This notwithstanding, from a political standpoint, it would be difficult to imagine why a
developing country interested in facilitating South–South partnerships with an ACP EPA partner, in
the interest of development of both parties, would be motivated to exact more demanding
liberalization concessions from the ACP developing country than which is afforded to a developed
country under the EPA.

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The EPA MFN Clause and the prevention of substantial South-South trade liberalization

The MFN clause will “prevent” third countries from negotiating FTAs with EPA parties and constrain
South-South trade.

While, the EPA MFN clause clearly does not prejudice the legal effect of the Enabling Clause, what
is left to be examined is Brazil’s assertion that the MFN clause would prevent ACP countries from
negotiating FTAs with developing countries.

As evidenced by the preceding illustrations, the MFN Clause does seek to protect the future
competitive position of the EC against competing third states. It also protects CARIFORUM,
especially in the case of services, from losing preference in the EC market to a third state. Any
constraint in the ability of developing countries that are major trading economies to secure wider
margins of preference in an FTA with an ACP EPA party would of course act as a disincentive to
negotiating an FTA with that ACP party. However, the MFN clause falls short of preventing such
major trading economies from engaging in an FTA.

It is essential to consider that Article 19 (and Article 70 and Article 79) is quite clear to outline that
while the MFN Clause would be triggered by the accord of more favourable treatment to a third
party, the reciprocal accord of that treatment to the EC by CARIFORUM is by no means inevitable.
Instead, CARIFORUM and the EU are obligated to consult on the matter to determine whether
CARIFORUM may deny the EC party the more favourable treatment. Therefore, the EPA MFN
clause may be designed to discipline the competitive position of the EC against third States but it
also affords CARIFORUM some flexibility in the treatment of other major trading partners, including
those that are developing countries.

WTO UPDATE

Though, WTO Director-General has been optimistic about the conclusion of the Doha Round this
year, recently such optimism has been compromised by delays. The lack of progress in the
Agriculture negotiations has pushed back the delivery of new Agriculture and NAMA texts. The
texts are considered critical to the successful convening of a WTO Ministerial which should
facilitate the finalization of the modalities of a Doha Deal though the implementation of the
horizontal negotiations. The Ministerial may now be postponed until June or July this year.

However, the Chair of the WTO Agriculture negotiations has told Members that he would circulate
a revised blueprint deal soon. However, this will not be the final text and will reflect primarily
formulae configurations for subsidy and tariff cuts. Outstanding and controversial issues related to,
for example, sensitive products such as the methodology for calculating domestic consumption are
still to be addressed. Other issues also include the treatment of special products and tropical
products.

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EPA TO BE SIGNED

Christ Church, Barbados – The Economic Partnership Agreement between CARIFORUM (CF) and
the European Community (EC) will be signed in July this year. This timeframe differs from that
which was previously projected.

CRNM Director-General, Ambassador Dr. Richard L. Bernal emphasized that the rescheduling of
the timeframe is not cause for alarm.

“The rescheduling of the dates from June to July has been occasioned by the requirement for a
legal review of the document by both contracting parties. It has also been necessary for the
European Commission to translate the Agreement into the official languages of the Community.
Those operational considerations aside, the challenge logistically has been to identify the date
convenient for all member states of CF as well as the European Union to sign the Agreement.”

NEWS BRIEFS

Regional News

Guyana examines bilateral engagement with India

Head of the Guyana Presidential Secretariat (HPS) and Cabinet Secretary, Dr Roger Luncheon
told the media that Cabinet, at its last meeting on Tuesday, May 13, considered in great detail the
important elements of the Guyana strategy in its bilateral engagement with India under the terms
and conditions of the Guyana/India Joint Commission.

Minister of Foreign Trade and International Cooperation Henry Jeffrey and India’s Minister of State
in the Ministry of External Affairs Anand Sharma recently signed the agreed minutes at the
conclusion of the one-day meeting of the Guyana/India Joint Commission

Speaking at the end of the meeting Jeffrey said that the two sides were able to conclude the
agenda. He said that Guyana was able to reorient its bilateral arrangements with India towards
agricultural production.

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International News

WTO Says EU’s banana regime not in compliance with trade rules

The WTO has concluded that the European Union's regime for importing bananas, which gives
preferential treatment to bananas from former European colonies is not in conformity with
international trade rules. A WTO compliance panel issued on 19 May 2008 its report on the case
“European Communities — Regime for the Importation, Sale and Distribution of Bananas —
Recourse to Article 21.5 of the DSU by the United States” (DS27). Click here to view the
conclusions

The EU/LAC Summit

The EU/LAC Summit held in Lima Peru on May 16-17 2008, provided another important
opportunity for political dialogue at the highest level in order to address major challenges in a frank
and open way and to assess recent developments in both regions. Click here to view the Final
Declaration

UPCOMING EVENTS

May 2008

17 · Sub-regional Summits with EU Troika, including EU-CARIFORUM,

Peru
21 Meeting of Officials Preparatory to the COTED – Agriculture, Guyana

23 27th Special Meeting of the Council for Trade and Economic

Development (Agriculture), Guyana
22-23 Twenty-Sixth Meeting of the Council for Trade and Economic
Development (COTED), Guyana
22-23 Forty-Seventh Meeting of the OECS Authority, St. Lucia

22-23 International Conference on The Creative Industries and Intellectual

Property, London
28-29 ICTSD and International Chair WTO/Regional Integration (University of
Barcelona), Global Dialogue to set up a Global Network on WYTO and
Regional Integration Issues, Barcelona, Spain
28-29 CDB Annual Meeting of the Board of Governors, Halifax, Nova Scotia

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For More Information Contact:

Marsha Drakes
Programme Officer-Trade Information
Caribbean Regional Negotiating Machinery (RNM)
3rd Floor The Mutual Building
Hastings Main Road
Hastings, Christ Church, Barbados
Tel: (246) 430-1678
Fax: (246) 228-9528
marsha.drakes@crnm.org