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Implementation of Caribbean tariff cuts in the spotlight

27 August 2012

According to press reports, an EC trade official has warned Jamaica and seven other CARIFORUM governments that the EU is ‘running out of patience’ over the non-implementation of tariff cuts agreed under the CARIFORUM–EU EPA. While the first round of tariff reductions was scheduled for January 2011, according to EC officials these have not yet been implemented. This non-implementation is attributed to the ‘tight fiscal situation’ facing the governments of the region. However, in the case of Jamaica it was claimed by an EC official that ‘Jamaica would not see a significant dent in customs revenues’ if it were to implement its commitments.

Concern was expressed that no Caribbean government had formally contacted the EC over the delayed implementation of tariff reduction commitments, but it was noted that ‘discussions are continuing with the CARICOM Secretariat’.

CARICOM Secretary General Irwin LaRocque ‘told the media that the CARICOM secretariat was assisting member states in “getting the correct legislation drafted” but noted that the bigger problem was that member states feared loss of revenue from lowering the tariffs’. He noted that because of the dependence of member governments on tariff revenues, reference was made in the EPA to restructuring internal taxes, but that currently these two processes of internal tax restructuring and implementation of tariff reduction commitments ‘are not in tandem with each other’. In this context Secretary General LaRocque suggested ‘there is a horizon of some longer period’ to address necessary restructuring.

EC officials noted that if discussions with Caribbean ambassadors to Europe fail, then ‘the EU would have to treat the matter as a dispute and refer it for arbitration’, given the legally binding commitments entered into through the EPA agreement.

Analysis from Caribbean commentators claims that the delays in implementing tariff reductions should come as no surprise, in view of the state of ratification of the signed agreements and the lack of resources available for the implementation of commitments entered into through the agreement. The current situation is placed in the context of the effects of the global financial and economic crisis on CARIFORUM economies.

A call has been made for the EC to ‘acknowledge the difficulties that the region is facing’ and for the EU to ‘engage in a constructive dialogue that would waive the tariff reductions at this time’.

Equally, it has been suggested that CARIFORUM governments should collectively ‘place the option of renegotiation firmly on the table’. This, it is suggested, could be undertaken as part of the review process for the agreement introduced at the insistence of the government of Guyana and currently scheduled for 2013. The intervening period could then be used to ‘prepare well-researched and professionally prepared arguments that could be jointly put to the European Commission’ by CARIFORUM governments.

Editorial comment

The current dispute relates to tariffs on only 3.2% of current EU exports to CARIFORUM members, in a context where 52.8% of all EU exports currently enter duty free. However the main issue relates to the fact that the EPA is broadening pre-existing gaps in the CARICOM common external tariff, arising from the pre-existing derogations allowed to some CARICOM member states for a wide range of products.

If the current dispute goes to arbitration, the spotlight will fall on these wider anomalies. In addition, since the agreement is between the EU and CARIFORUM (not individual constituent member states), the question arises as to the geographical scope of any sanctions which the EU may eventually seek to apply.

Underpinning the dispute are wider economic concerns arising from the global economic and financial crisis. This has made it more difficult to ensure a ‘win–win’ situation in the implementation of a free-trade agreement between highly unequal partners. Given broader economic fears, the danger exists that normal implementation challenges arising from capacity constraints in the Caribbean could turn into an ‘implementation malaise’.

While there are wider food security concerns arising from rising global food prices, the implementation of first-stage EPA commitments is unlikely to directly impact on the Caribbean food and agricultural sector, given the exclusions and back-loading built into the agreement. Concerns appear to be focused on the revenue effects, despite studies indicating that the implementation of first-stage EPA commitments will have only a tiny effect on government revenues. In this context, getting to grips with fiscal adjustment challenges arising from the global economic downturn would appear to offer the best hope of overcoming any incipient ‘implementation malaise’ in the Caribbean.


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