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Sunday, July 30, 2006 

The View from Europe
Bad news for the Caribbean

The suspension of the World Trade Organisation's (WTO) multilateral round in Geneva on July 24 is bad news for the Caribbean.

The inability of the world's leading economic powers and the advanced developing economies to reach a compromise on reductions in subsidies and tariffs occurs just as Caribbean leaders are seeking a measured transition into a well-regulated global economy for the Caribbean Single Market and Economy. What happens next is unclear, but there are signs that the G8, which includes the US, EU and Japan, may focus on rebalancing their own economic inter-relationships in the hope that this and an accommodation with nations such as China, Russia, India and Brazil may enhance economic prospects and by extension move forward the world economy.

What this suggests is that the Caribbean has entered a period of intense uncertainty and will need to review carefully its options as the original sequencing of the international trade negotiations in which it is involved no longer has relevance.

Talking about the region's prospects at a private lunch held after the suspension of the WTO round, the Prime Minister of one of the region's more successful economies remained upbeat but did not underestimate the challenge facing the region. He described to global financial institutions the situation in which the Caribbean now finds itself.

To paraphrase his remarks: 'What might happen in any hemispheric movement to free trade remained uncertain. The United States' intentions towards the Caribbean in respect of any bilateral trade arrangement with the region were unclear. Now was the time for consolidating the Caribbean Single Market and Economy and making the negotiations for an Economic Partnership Agreement (EPA) with Europe - the most significant of the trade negotiations that the region is left with - truly developmental and responsive to the region's future rather than its past. This was a moment to ensure that Europe came to see the EPA in the context of the new Caribbean economy in which services played a pre-eminent role and in which agriculture was re-organised to ensure regional food security.'

What is certain is that an EPA with Europe is the only substantive development-oriented trade negotiation that the Caribbean has left on the table. For this reason a successful outcome for both the Caribbean and for Europe has quite suddenly become a matter of over-riding and strategic importance. Over the last few months new themes have emerged that point to what may happen next and the challenge facing the Caribbean. Paramount among these is the sense that any multilateral move to trade liberalisation is now a function of the electoral cycle in key economies such as the US and Japan and that development is off the agenda. In the days following the collapse of the round EC Trade Commis-sioner Peter Mandelson suggested the extraction of the development components of the Doha package so as to create an early harvest for the most needy developing countries. But swift US rejection of this and the early implementation of the already agreed global duty free and quota free access for the poorest nations graphically illustrated that the US has no intention of agreeing to any development initiatives that might threaten the Republican Party's electoral prospects.

The second is that some major trading nations and regions, in the absence of an ambitious and comprehensive global trade liberalisation agreement, will intensify their drive for bilateral and bi-regional trade arrangements.

In the case of Europe, EC Trade Commissioner Peter Mandelson seems to be suggesting that bilateralism and bi-regionalism is an alternative route. Speaking after the suspension of the Doha round he stated that Europe will focus intensively on its EPAs with the African, Caribbean and Pacific (ACP) countries. "We will use these as a trade instrument at the service of development, seeking to compensate where we can for the lost benefits those poorer developing countries would have gained through early completion of the Round," he said. It has also been apparent for some months within Brussels that there will be a rapid acceleration of negotiations for free trade agreements with Mercosur, the Andean nations and with Central America as well as with other parts of the world.

Thirdly it is likely that trade relations will become more aggressive and litigious. Only those countries able to offer higher value exported products or services that are competitive and not subject to preferential arrangements will escape WTO complaints. There is now the increased likelihood of more advanced developing countries pursuing WTO cases against any form of preferential advantage that they believe is inequitably given by the US, Europe or other major markets to regions like the Caribbean.

Put more directly, any continuing preferential arrangement on agriculture granted by Europe to the ACP may become subject to continual challenge from Latin or other nations that feel disadvantaged by the continuation of such arrangements.

And fourthly, the growing crusade led by medium-size developing nations to end rapidly post-colonial preferential relationships will accelerate.

This has worrying implications for any attempt to maintain a degree of preference within an EPA and could make achieving a consensus on a WTO waiver for an EPA difficult. Some Latin nations are far from happy about the extension of the WTO waiver for the United States Caribbean Basin Economic Recovery Act (the CBI initiative) as they no longer see any reason why the Caribbean or others with post-colonial relationships should be treated differently. Not only might this be their approach if an EPA was seen to continue to offer preferences diminishing over time but it is also likely that bi-regional negotiations between Europe and Latin America will result in regions like Central America expecting the same treatment for commodities and goods as is granted to the Caribbean.

Taken together these four trends suggest that the global development agenda is fading fast and mercantilism may now hold sway.

There are no easy answers in any of this for the Caribbean. The world has become a yet more complex place for small economies to relate to. Europe has once again taken on an importance for the Caribbean. The summer break provides a time for reflection.

Previous columns can be found at www.caribbean-council.org

(Editor's note: From next week David Jessop will be on leave. The View from Europe will return on September 10, 2006.)

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