Insight into CARICOM-CANADA Negotiations

September 30, 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.

In keeping with the mandate from the 19th Inter-Sessional Meeting of the Conference of Heads of
Government, further exploratory discussions between CARICOM and Canadian Officials took place
on 9th June 2008 in Barbados by way of a Video Conference.

The aim of the session was to undertake in depth exploratory discussions on the subject coverage
of the negotiations and to discuss the scope of commitments of the Agreement.

Given that the CARIFORUM-EC Economic Partnership Agreement (EPA) will be signed on
October 15th 2008, it is anticipated that the CARICOM-Canada negotiations will commence and
intensify over the next few months. As the region prepares to shift its focus to this new challenge, it
is useful to outline in greater detail the background of CARICOM relations with Canada and the
projected scope of the new agreement.

Background

Trade and economic relations between CARICOM and Canada have a long history, dating back to
the early 18th century when the British northern Atlantic colonies exchanged fish, lumber and other
staples for West Indian rum, molasses and spices. Currently, trade and economic co-operation
relations are covered under a number of instruments, namely, the 1979 CARICOM-Canada Trade
and Economic Co-operation Agreement and its Protocols, including the 1998 Protocol on Rum;
CARIBCAN (1986) which grants unilateral duty free access to eligible goods from beneficiary
countries in the English-speaking Caribbean, and Bilateral Investment Treaties with individual
Member States, namely Barbados and Trinidad and Tobago. Canada also has MOUs with
Jamaica, Trinidad and Tobago, Barbados and the OECS countries under which farm workers are
allowed to work in Canada on a seasonal basis each year. This special facility is protected by an
MFN exemption under GATS. In recent years, hospitality workers from Barbados and a few other
CARICOM states have been recruited on a temporary basis to work in the hotel sector in Canada,
as well as household assistants.

A Canada-Caribbean Business Council (CCBC) was established in 2006 by mainly West Indians in
Toronto with the aim of linking the Caribbean and Canadian business communities, and
representing and promoting the interest of businesses in Canada within the Caribbean community.

There are also strong cultural ties between CARICOM and Canada. In 2006, there were 390,000
residents in Canada who originated in the 15 CARICOM countries according to Statistics Canada.
Caribbean authors and artists have also influenced the Canadian cultural landscape. Canada’s

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Governor General is of Haitian Heritage, and Michael Lee Chin, a successful businessman and
immigrant from Jamaica donated $30 million to the Royal Ontario Museum a few years ago.

CARICOM’s objectives in a trade and development arrangement with Canada are: 1) to build on
and broaden the scope of the current instruments and programmes of trade and economic co-
operation, 2) to deepen disciplines to improve market access for CARICOM exports of goods and
services, 3) to stimulate increased flows of Canadian investment into the Region, and 4) to provide
a comprehensive framework for development co-operation initiatives.

CARICOM governments have also underscored the importance which they attach to the bilateral
labour programmes for seasonal workers with the objective of extending their coverage to all
CARICOM countries. Guyana has sought inclusion in the farm worker programme, and a number
of Caribbean governments have pressed for expansion of the programme to other sectors such as
hotels, construction and garments, and even professionals like lawyers (for dealing with landed
immigrant cases).

Exploratory discussions between CARICOM and Canadian Trade Officials on the negotiation of a
trade agreement date back to March 2001, following the agreement between CARICOM and
Canadian Heads of Government during the Sixth Canada-CARICOM Summit in January 2001 to
begin exploratory work on a Free Trade Agreement. The Heads agreed ‘to establish a Joint
Working Group to prepare a Framework Agreement on the scope and nature of a more mature
trade and economic agreement in enhancement of existing arrangements and culminating in a
possible Free Trade Agreement’. It was further agreed that on the CARICOM side, the exploratory
work would be co-ordinated by the CRNM working in close collaboration with the CARICOM
Secretariat, Member States and the business community.

Between 2001 and 2007, CARICOM and Canadian Trade Officials held four exploratory meetings
to identify the scope and content of a trade agreement between them and to initiate a process of
information exchange prior to commencing detailed technical negotiations.

In July 2004, CARICOM Heads of Government issued a mandate to commence negotiations with
Canada. However, progress in commencing the negotiations had been affected by several factors
including the non-receipt of a negotiating mandate by Canadian officials, the election of a new
Conservative Government in Canada in January 2006, and the review of Canada’s trade strategy
with a view to developing a new trade negotiations agenda.

In July 2007 Canadian Prime Minister Stephen Harper and CARICOM Heads of Government
announced their intention to launch trade negotiations. Against the background of this
announcement, and to guide the approach to be taken by the Region, the 24th Meeting of the
COTED held in November 2007 agreed inter alia:

“that negotiations with Canada should not commence until after the conclusion of the EPA
negotiations and Member States would have had the time to review their experience in
those negotiations with the aim of enhancing the Region’s approach to negotiations with
Canada;

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 that the OECS and Belize should be given sufficient time to consult, with a view to taking
a coordinated position on the issues that would be involved in negotiating a Free Trade
Agreement with Canada;

that the scope of negotiations, number and subject area of the negotiating groups and the
process will be considered at the Reflections Meeting scheduled to take place in early
January 2008;”

On the recommendation of the Meeting of the Reflections Group on the Review of CARICOM’s
Experience and its Approach to Future External Trade Negotiations, held in Jamaica on February
28-29, 2008, CARICOM Heads of Government at their 19th Inter-Sessional Meeting of the
Conference in March 2008 agreed to place priority on the negotiations with Canada and requested
the Secretary General of CARICOM to inform the Government of Canada of the Region’s
readiness to commence negotiations for a trade and development agreement.

CARICOM Heads further agreed that the CRNM and the CARICOM Secretariats will hold further
exploratory discussions with representatives of the Canadian Government, and that such
discussions will inform the preparation of the negotiating brief to be prepared jointly by the CRNM,
CARICOM and OECS Secretariats for approval by the Twenty-Fifth Meeting of the Council for
Trade and Economic Development prior to the commencement of negotiations.

Defining the type of Agreement

Early exploratory discussions between CARICOM and Canada revealed a divergence of views
about (a) the type of agreement to be negotiated and (b) the level of ambition of both Sides. The
Canadians had consistently reiterated their expectation of negotiating an “ambitious and
comprehensive FTA”, subject to reciprocity and consistent with GATT Article XXIV and GATS
Article V. Canadian Trade Officials also stressed the political importance of labelling the eventual
agreement a Free Trade Agreement (FTA) in order to receive a negotiating mandate.

CARICOM had initially resisted Canada’s insistence on labelling the eventual agreement a Free
Trade Agreement (FTA), preferring instead to describe the proposed agreement as an ‘Enhanced
Trade Agreement’ which would lock in and expand the non-reciprocal preferential access under
CARIBCAN, and incorporate and broaden the other instruments of co-operation in order to build on
the long and special relationship between CARICOM and Canada.

The 18th Meeting of the Prime Ministerial Sub-Committee on External Negotiations accepted the
recommendation of the 15th Special Meeting of the COTED on External Trade Relations and the
Meeting of CARICOM Ministerial Spokespersons and Primary Fields on Bilateral Negotiations held
in January 2006 that the optimal approach for CARICOM was a Free Trade Agreement with
Canada. It was further agreed that this should be communicated to the Prime Minister of Canada.
Former Prime Minister of Jamaica Portia Simpson-Miller, in her capacity as Chairperson of the
Prime Ministerial Sub-Committee on External Trade Negotiations, wrote to Canadian Prime
Minister Stephen Harper on June 27th 2006, confirming the Region's continuing interest in a
trade agreement with Canada and indicated the specific interest in an FTA.

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The question of the nature of the agreement to be negotiated was raised again at the time of the
meeting between CARICOM Heads of Government and the Canadian Prime Minister on 15th July
2007. Then Prime Minister of Barbados and Chair of the Conference of Heads of Government
Owen Arthur proposed that the negotiations should result in an ‘economic partnership agreement’
rather than a strict FTA.

In the October 2007 exchanges between the CARICOM and Canadian Chief Negotiators,
CARICOM proposed that an EPA should not focus narrowly on trade liberalization but would also
include a development co-operation component to address capacity problems arising from the
implementation of commitments and adjustment to liberalization. Building a development
dimension into the proposed agreement would be aimed at giving tangible expression to the
objective of the economic and sustainable development of CARICOM countries and the principle of
special and differential treatment through:

1. Asymmetrical obligations in favour of CARICOM countries;

2. Progressive liberalization of goods and services trade; and
3. Co-operation including technical and financial assistance to facilitate adjustment to
liberalization.

The Canadian Side was receptive to CARICOM’s proposal to incorporate a development

dimension into the agreement and indicated a readiness to embrace co-operation in the scope of
the agreement and to include Canadian International Development Agency (CIDA) officials in the
negotiations. They cautioned, however, that their mandate was to negotiate a Free Trade
Agreement, and were uncomfortable with the term ‘economic partnership agreement’, and were
partial to the term ‘trade and development agreement’, which they indicated was a more suitable
nomenclature. In this regard the Canadians advised that CIDA would be an integral part of their
negotiating team when the negotiations commenced.

CIDA Officials have been engaging the CRNM and CARICOM Secretariat on the nature of
development provisions as well as the specific areas of development support which the Region
wishes to include in an agreement with Canada. The Director for the Americas Branch of CIDA
who met with delegations from the CARICOM Secretariat and the CRNM noted that in the recently
concluded negotiations with Peru, CIDA was an integral part of the Canadian team with a mandate
to explore how CIDA could intervene to help Peru in various sectors, for example SPS. He
confirmed that the same approach would be taken in the negotiations with CARICOM. The
Director was clear however that Canada could not contemplate a formal reflection of development
in a trade agreement. He proposed that CARICOM should develop a priority list for support which
CIDA would examine.

It should be noted that the CRNM formally received C$2.5 million in new funding from CIDA on
Thursday 7 August 2008. This harmonized institutional support, which extends from 2008 to 2012,
will provide CRNM with the necessary resources to continue and strengthen its work in
researching, consulting, preparing and negotiating the region’s external trade agreements. Under
this initiative, up to C$1 million in un-earmarked resources will flow to CRNM this year. It will
provide for an enhanced program of consultation, coordination and public engagement that will

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help the region further define and articulate its trading interests, as defined by the CARICOM
Heads of Government. This includes for upcoming CARICOM-Canada negotiations.

Trade Policy Considerations

Regardless of the nomenclature of the final agreement negotiated with Canada, the agreement
would have to be negotiated and notified to the WTO in the context of GATT Article XXIV and
GATS Article V which provide the legal framework for the negotiation of trade agreements between
developed and developing countries, and would therefore need to meet the tests of those
provisions in scope and coverage.

While Canada has not taken a definitive stance on the definition of ‘substantially all trade’ and the
length of the transition period in the ongoing discussions on systemic issues relating to Regional
Trade Arrangements in the WTO Negotiating Group on Rules, its existing FTAs with developing
country partners such as Costa Rica and Chile provide some useful insights into the approach to
these two contentious elements of GATT Article XXIV.

Canada typically favours a robust tariff liberalisation programme and has proposed to CARICOM
that tariffs be eliminated for all non-agricultural tariff lines and most agricultural tariff lines. In its
FTAs with Costa Rica and Chile, only 1.9% and 1.7% of tariff lines respectively, were excluded
from liberalisation. Both FTAs provide for liberalisation on more than 80% of tariff lines within 10
years. In the case of the Canada-Costa Rica FTA (CCRFTA), Canada liberalised 78.1%
immediately while Costa Rica liberalised 61.3 %. Both FTAs provide for transition periods beyond
ten years for a limited number of products. Whereas Canada reduces tariffs on approximately 98%
of tariff lines within 10 years, Chile has up to 18 years and Costa Rica has a transition period of 15
years.[1]

In earlier exploratory discussions on market access modalities, Canadian Officials acknowledged

the sensitivities of smaller economies and indicated a willingness to consider asymmetrical phasing
of tariffs with differential transition periods, but emphasised the Canadian government’s
expectation of “an ambitious and comprehensive FTA consistent with Article XXIV of the GATT and
Article V of the GATS [with] tangible and immediate results for its business community”.

CARICOM’s approach to the liberalization of both goods and services vis-à-vis Canada must take
cognisance of the policy implications for the Region’s commitments under the EPA. The MFN
clause contained in the CARIFORUM-EC Economic Partnership Agreement (EPA) commit
CARIFORUM countries to grant to the EC any more favourable treatment applicable as a result of
the CARIFORUM States or any Signatory CARIFORUM State becoming party to a free trade
agreement with any ‘major trading economy’ after the signature of the EPA.

Canada falls within the EPA definition of ‘major trading economy’, as in 2005, that country’s
merchandise exports accounted for 3.4% of total world exports.[2] In negotiations with Canada,
CARICOM therefore has to be mindful that the grant of more favourable treatment to Canada over
the EC would trigger the EPA MFN clause thereby requiring CARICOM to extend to the EC any
more preferential treatment accorded to Canada.

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In respect of trade in goods, the test of more preferential treatment would involve both the rules
aspect of the Agreement, particularly the rules of origin and trade facilitation obligations, as well as
the tariff liberalisation commitments, which includes other duties and charges (ODCs). For
illustrative purposes, the current analysis is limited to the policy implications arising from tariff
liberalisation commitments in the context of negotiations with Canada. In this regard, two broad
aspects of CARICOM tariff liberalisation are affected by the EPA MFN clause, namely, the pace of
liberalisation – represented by the length of the transition period as well as the pace of
liberalisation on a line by line basis, and the substance of liberalisation – represented by the
specific products subject to liberalisation, the treatment of ODCs and export duties, the volume of
trade liberalised at the end of the transition period, as well as within specific time frames.

The immediate policy implication is that the EPA tariff liberalisation schedule represents the ceiling
for CARICOM’s liberalisation vis-à-vis Canada. Having said this, it should be recognised up front
that the burden of tariff liberalisation which will fall to CARICOM countries to satisfy the
substantially-all trade calculus in their negotiations with Canada will be greater than that in the EPA
for two main reasons.

1. Whereas the EC extended Duty Free Quota Free (DFQF) access to CARIFORUM, Canada
typically excludes out-of-quota supply managed agricultural products such as poultry and dairy in
its FTAs, and is unlikely to depart from that approach in its negotiations with CARICOM.

2. In the EPA negotiations, the contribution to the tariff liberalisation package by CARICOM
Parties was cushioned by the greater contribution of the Dominican Republic to the overall
package. (The DR excluded only 5% of European imports from tariff liberalization). In a context
where Canada will not undertake 100% liberalisation and where the number of countries
contributing to CARICOM liberalisation is less, it stands to reason that CARICOM countries will be
exposed to a greater burden of liberalisation in order to meet the overall level of liberalisation in the
EPA.

In the public debate, it is assumed that CARICOM because of their commitments under the
CARIFORUM-EC Economic Partnership Agreement (EPA) will be obliged to provide other trading
partners such as Canada with the same market access negotiated by the EU. However, this is not
the truth. The EU access to CARIFORUM markets was negotiated in exchange for full
CARIFORUM duty-free/quota free access to the EU market. It is yet to be seen whether Canada or
any other ‘major trading economy’ partner will be in a position to meet the EU’s market access
commitment under the EPA.

Scope of Negotiations

During exploratory discussions between CARICOM and Canada officials which took place on the
9th of June, the two sides outlined in general terms the scope and content of the agreement.
CARICOM’s ultimate objective is to achieve an agreement that reflects the peculiar needs and
sensitivities of the Region.

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The Canadians have indicated their intention to use their FTA with Costa Rica as the template for
negotiations with CARICOM with some possible variations. Canada expects the agreement to
feature a subject scope that includes trade-related areas, notably Electronic Commerce,
Competition Policy and Transparency in Government Procurement. CARICOM, on the other hand,
has proposed the inclusion of a Development Chapter as well as a Chapter dealing with
Innovation.

The broad outline of the agreement is projected to include the following subjects:

• Market access
• Rules of Origin
• Trade Facilitation
• Sanitary and Phytosanitary Measures (SPS)
• Technical Barriers to Trade (TBT)
• Investment and Trade in services
• Trade related issues
• Labour and the Environment
• Institutional Provisions
• Dispute Settlement

[1] See Scollay and Grinberg, “Substantially All Trade”: Which Definitions are fulfilled in practice? An empirical
investigation. A similar analysis is not readily available in respect of services to ascertain what approximates to
substantial sectoral coverage in the Canadian FTAs.

[2] Canada Trade Policy Review, 2007

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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