THE CARIFORUMEC ECONOMIC PARTNERSHIP AGREEMENT: IMPLICATIONS FOR INTERNATIONAL BUSINESS

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THE CARIFORUM-EC ECONOMIC PARTNERSHIP AGREEMENT
IMPLICATIONS FOR INTERNATIONAL BUSINESS

• BY
• BARBADOS PRIVATE SECTOR TRADE TEAM

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INTRODUCTION

• Background
• About the EPA
• Implications for Trade Policy
• Implications for Private Sector
• Implications for International Business
• Question and Answers

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BACKGROUND

• LOME CONVENTION (1975-2000)
• EUROPEAN COMMUNITY-AFRICAN, CARIBBEAN, PACIFIC
  COUNTRIES
• TRADE IN GOODS (ONLY)
• ONE WAY PREFERENTIAL AGREEMENT
• SUGAR, MANUFACTURERS, RUM, CIRCUITS
• EXPORTS 12 - Bds85. Million in 2006

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BARBADOS Export Performance
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BARBADOS IMPORTS
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Exports and Imports Compared
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Manufacture Products Exported From Barbados to
the EU

• Sugar
• Rum Tafia
• Lenses/Artificial parts of the Body
• Live Monkeys
• Biscuits
• Pepper sauce

• Insecticides
• Labels
• Beer and Aerated Beverages
• Toilet Waters
• Tonic Waters
• Electronic circuits

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The Cotonou Agreement Objectives

• Economic and trade cooperation
• Facilitate the gradual and smooth integration of
  the ACP States into the Global Economy
• Enhance ACP participation in international trade
  (including negotiations)
• Enhanced production, supply and trading
  capacities of ACP Countries
• Enhance Capacity to attract Investment

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The Cotonou AgreementNew Trading Regime

• Conclude new Economic Partnership Agreement (EPA)
  by December 31, 2007
• Progressive removal of barriers to trade in goods
  (ACP) and on the EC side improve current market
  access through, inter alia, a review of the rules
  of origin
• Negotiations should be flexible as possible in
  establishing the duration of a sufficient
  transitional period, the final product coverage,
  taking into account sensitive sectors, and the
  degree of asymmetry in terms of timetable for
  tariff dismantlement while in conformity with WTO
  rules then prevailing. (ART 37 (7))

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The Cotonou Agreement Principles

• Regional Integration as a key instrument for
  integration into the world economy
• Enhancing the competitiveness of ACP States
• Special and Differential Treatment for all ACP
  States
• WTO Compatibility

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Cotonou to EPABroader Scope

• Development
• Trade in Goods
• Trade in Services, Investment and Ecommerce
• Trade Related Areas
• Innovation and intellectual property
• Competition policy
• Trade and the Environment
• Government Procurement (transparency)
• Legal and Institutional Matters
• General and Final Provisions

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Cotonou to EPAMajor Principles

• Reciprocity (WTO Compatibility)
• Asymmetry
• Most Favoured Nation Treatment National
  Treatment
• Market Access
• Transparency and Non-discrimination
• Substantially all trade (Goods)
• Substantial Sectoral Coverage (Services)
• Regional Integration Regional Preference
• Special and Differential Treatment
• Development Cooperation

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Trade in Goods

• Only aspect of Cotonou that required completion
  to meet WTO deadline to end preferential
  treatment.
• No Agreement Generalised System of Preferences
  (GSP)
• Some of Barbados exports would have been
  affected (Biscuits, sails, food preparations such
  as condiments, Aerated beverages, and margarine)
  Rum not as much as other.
• Other products are already either trading at 0
  (GSP) and/or (MFN)

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Rules of Origin

• Rules related to production. Sets out the
  criteria for determining the origin of the
  product
• Must meet the rules of origin to export under
  preference
• Some of the specific rules made flexible that
  will now allow flour and four based products to
  benefit from the Agreement
• Notwithstanding Article 37 of Cotonou, Rules have
  been made more onerous for a number of sugar
  based products where by cumulation is not allowed
  until 2015. Very little, if any, products are
  produced in Barbados.

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Rules of OriginContd

• Cumulation from neighbouring developing countries
  has been expanded by one to include Mexico.
  Allows companies to source raw materials from
  those countries and benefit from preference.
  Companies are still allowed to source from
  African, Pacific and European sources
• Cumulation from South Africa is limited

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Elimination of Customs Duties

• Elimination of Export Duties (Art 6)
• Eliminate export duties within 3 years (Sur, Guy)

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Elimination of duties on CF Exports (Art 7)

• Annex 1 Customs duties eliminated on all
  products from HS CHP 1-97
• Some Rice products to be liberalised in 2010
• Sugar Protocol to remain applicable until
  September 30, 2009
• Customs duties on sugar to be eliminated
• Until duties are phased out, additional tariff
  rate quota of 60,000 tons of white sugar with
  30,000 going to the DR
• EC could impose WTO Applied rates between
  2009-2015 for 1701 products if there is a surge
  in imports of that product into the EC market
  (safeguard)
• EC can impose a special surveillance mechanism on
  sugar confectionary, cocoa products, syrups
• Bananas and sugar cannot be sold under preference
  to Martinique, Guadeloupe nor French Guiana until
  2028 unless the parties agree otherwise

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Elimination of duties on EC Exports (Art 8)

• 92 if total trade to be liberalised in 25 years
  with the majority of items to be liberalised in
  15 years
• Harmonisation of base rates by 2009
• Tariff reductions start in 2011 and finish in
  2033

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SUBSTANTIALLY ALL TRADE

• EC proposed 92 of total trade to be eliminated
• The main target for CARIFORUM was 85 of total
  trade
• GATT 24 Regional Free Trade Agreement must
  substantially liberalise trade
• A number of local items remain excluded from
  liberalisation. Some are subject to
  liberalisation
• No international agreement on what constitutes
  substantially all trade
• EPA is a Free Trade Agreement between small
  developing countries and developed and emerging
  economies and this Agreement sets the benchmark
  for future negotiations.
• Could impact Doha Round and future Negotiations
  in terms of the level of market access
  liberalisation expected under the multilateral
  arrangement

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Other Commitments

• Elimination of Other Duties and Charges in ten
  years (Art 8 (4)) EC to provide technical
  assistance on fiscal reform
• Free Circulation No! Best Endeavour. EC to
  provide technical assistance to achieve this goal
• Administrative Cooperation and treatment of
  errors

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Most Favoured Nation Treatment

• The principle speaks to the extension of similar
  or like treatment to other trading partners
• EC to extend MFN treatment to CARIFORUM if it
  enters into any other Free trade Agreement that
  offers improved market access concessions
• CF to extend MFN treatment to EC if it enters
  into another FTA with developed countries and/or
  major trading economies (Brazil, India)
• The list of major trading economies is not fixed.
  It can evolve as more countries contribute to
  world merchandise trade

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TRADE DEFENSE MEASURESSAFEGUARDS

• EC will not impose any safeguards on CARIFORUM
  Imports (Asymmetry)
• CARIFORUM can impose safeguards on EC products
  (volume triggers)
• EC can impose safeguard on CARIFORUM exports to
  the Outermost Regions

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Customs and Trade Facilitation

• Agree to administrative cooperation e.g
  exchange of information
• Agree that customs legislation shall be based on
  transparency, non-discrimination, efficiency and
  the use of technology
• Development of Regional Customs Legislation
• Cooperation
• Institutions - Special Committee on Customs
  Cooperation

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Agriculture

• Many products excluded from negotiations
• Food Security
• Traditional Agricultural Products
• Cooperation

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TBT SPS

• Exchange information
• Consultation and notifications
• Collaboration between national and regional
  authorities
• Cooperation in international agencies

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INVESTMENT, SERVICES ECOMMERCE

• Does not apply to subsidies
• Does not apply to measures relating to
  citizenship, residency or employment
• Does not apply to immigration

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Definitions

• Juridical Person
• Set up in accordance with the Laws of a Member
  State
• Must have its registered office, central
  administration or principal place of business in
  the Parties
• If it only has a registered office, it must have
  substantive business operations (exception
  shipping companies)
• Economic Integration Agreements Substantial
  Sectoral Liberalisation

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Definitions

• Commercial Presence
• Any type of business or professional
  establishment through the constitution,
  acquisition or maintenance of a juridical
  person.or..the creation or maintenance of a
  branch or representative office
• Constitution and acquisition includes capital
  participation with the view of establishing
  lasting economic links (refers to the block of
  shares held to enable the shareholder to
  participate effectively in the management of the
  company) (Art 4)

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Definitions

• Investor limited to the establishment of
  commercial presence
• Economic Activity
• Subsidiary
• Branch
• Does not cover issues related to protection or
  promotion (expropriation, compensation etc)
• Definitions are different from the traditional
  BITs

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Coverage

• All economic activities
• Manufacturing
• Mining
• Fishing
• Agriculture, hunting fisheries
• Services (Mode three)

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Non-Services

• Scheduling of commitments are different this will
  make the agreement difficult to read and will be
  confusing to some.
• CARIFORUM has taken a negative list approach to
  the liberalisation of investment in non-service
  activities
• EC has taken a positive list approach

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Market Access Commitments

• Agree not to impose the following limitations
  unless stated in the Partys Schedule of
  Commitments
• limitations on the number of commercial presences
  whether in the form of numerical quotas,
  monopolies, exclusive rights or other commercial
  presence requirements such as economic needs
  tests
• limitations on the total value of transactions or
  assets in the form of numerical quotas or the
  requirement of an economic needs test
• limitations on the total number of operations or
  on the total quantity of output expressed in
  terms of designated numerical units in the form
  of quotas or the requirement of an economic needs
  test.
• limitations on the participation of foreign
  capital in terms of maximum percentage limit on
  foreign shareholding or the total value of
  individual or aggregate foreign investment and
• measures which restrict or require specific types
  of establishment (subsidiary, branch,
  representative office) or joint ventures through
  which an investor of the other Party may perform
  an economic activity.

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National Treatment MFN

• Subject to limitation in schedule of commitments,
  the Parties commit to remove any measure that
  discriminates between national and foreign
  investment
• Barbados has few measures (fishing and
  extraction of oil e.g)
• Barbados open to this form of investment from the
  EC
• MFN is applied in the same way as in trade in
  goodshowever CARIFORUM countries can enter into
  investment Agreements with EC members or between
  themselves that offer better concession in the
  EPA.

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Trade in Cross Border Services

• The Treaty defines Cross border services as modes
  one and two
• Commitments were also taken in modes three
  (Commercial presence) and Mode four (movement of
  natural persons)
• Commitments taken in market access and national
  treatment
• MFN and Regional Preference also applies
• However the EC does not have to apply MFN if it
  were to engage in a mutual recognition agreement
  with a third country.

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Commitments

• CF liberalised 65-75 of services depending on
  level of development (using UNCPC Classification)
• EC liberalised around 90
• EC schedule has a number of Economic Needs test
  or other limitations

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Services Sectors Liberalised by Barbados

• Commitments have been taken in a number of
  sectors including Computer Related, Professional
  (Engineering, Accounting, Architectural, Medical
  and Dental, Legal Advisory and Documentation
  Services), Entertainment, Advertising, Management
  Consulting, RD, Environmental,
  telecommunications Tourism (Hotels),
  Distribution, Photographic and Select Financial
  services including non-life insurance,
  reinsurance and retrocession, services auxiliary
  to insurance, Actuarial Services, Lending of all
  types including mortgages an consumer credit,
  payment and money transaction services, Advisory
  and other auxiliary financial services

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Movement of Natural Persons

• Key Personnel (Business Visitors/ICTs)
• Business Service Sellers
• Contractual Service Suppliers
• Independent Professionals
• Graduate Trainees
• Short Term Visitors for Business purposes
• Limited time bound commitments (WTO Plus)

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Regulatory Framework

• Mutual Recognition Agreements (best endeavour)
• Understanding on Computer Services (Definitions)
• Courier Services
• Prevention of anti-competitive practices
• Universal Service
• Individual Licences
• Independence of Regulatory bodies

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Regulatory Framework Contd

• Telecommunication Services
• Regulatory Authority
• Authorisation to provide telecommunication
  services
• Competitive safeguards on major suppliers
• Scarce Resources and allocation of frequencies
• Universal Service

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Financial Services

• Definitions
• Prudential Carve outs
• New Financial Services Member States shall
  permit new services on a non-discriminatory
  basis, however Member States may determine the
  juridical form through which the service may be
  provided. Authorisation may be required
• Data Processing Transformation information for
  data processing where such processing is required
  in the ordinary course of business to provide a
  service

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Tourism

• Anti-competitive practices
• Mutual recognition
• Environment and quality standards
• Small and medium sized enterprises
• Development cooperation
• Upgrading national accounting systems

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Ecommerce

• Purpose is to promote the development of
  Ecommerce between the Parties
• Maintain dialogue on regulatory issues such as
• Recognition of certificates of electronic
  signatures
• Liability of service providers with respect to
  the transmission and storage of information
• Treatment of unsolicited electronic commercial
  communications
• Protection of consumers

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Ecommerce Contd

• Cooperation
• Improve the ability of service suppliers to
  gather information on and to meet regulations and
  standards in the EC
• Improve thee export capacity of service providers
  (marketing of tourism and cultural Services)
• Address in quality and standards in CARIFORUM
  Markets
• Establish mechanisms to promote investment and
  joint ventures

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Trade Related Areas

• Competition policy Five year Moratorium
• Intellectual Property and Innovation
• Cooperation in science and technology
• Cooperation in competitiveness and innovation
• Intellectual Property
• Transparency in Government Procurement
• Environment Right to regulate

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Taxation

• GENERAL EXCEPTIONS
• nothing to prevent a country from disguising
  between taxpayers who are not in the same
  situation in particular with regard to their
  place of residence
• Nothing in the agreement shall be construed to
  prevent the adoption or enforcement of measures
  aimed at preventing avoidance and evasion of
  double taxation
• Nothing should affect the rights and obligations
  under any tax convention

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Dialogue on Finance Issues

• The Parties agree to foster dialogue,
  transparency and to share best practices in the
  area of tax policy and administration
• Collaboration in the fight against illegal
  financial activities e.g. illegal, fraudulent
  and corrupt activities money laundering and
  terrorist financing

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Implications for Private Sector

• Improved Market Access
• Greater competition from like and competing
  products and services
• Market access for service providers is limited to
  a number of domestic regulations
• Need to target development assistance to improve
  quality, standards and delivery of services or
  products
• Opportunities for investment

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Implications for CARIFORUM

• Negotiated as Six Regions as opposed to ACP
• Implications for trade policy
• Increased pace of liberalisation
• Future bilateral negotiations
• WTO negotiations
• Implications for tariff revenue collection
• Limits the measures to be used in domestic
  industrial policy (export policies)
• Need to Review the Negotiation Processes within
  the Region

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Implications for International Business

• Limited impact on international business given
  the open and non-discriminatory nature of
  Barbados International Business Framework
• Must be substantial presence/activities conducted
  in a territory to benefit from the Agreement
• International Business Regime under scrutiny
• Subsidies for services are not covered - Recall
  WTO Decision on Subsidies
• Promotion of Investment (Commercial Presence)
• The EPA does not address portfolio investment
• The EPA does not address promotion and protection
• The MFN Clause could facilitate the inclusion of
  these areas after future negotiations are
  conducted