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UNDERSTANDING INTERNATIONAL TRADE

A publication of the OECS Trade Policy Project aimed at students,businesspersons and the public that explains the operation of the trading

system from the perspective of the Eastern Caribbean

Written for the OECS Trade Policy Project by Edwin Laurent.Editor: Paula Hippolyte.Published by: The OECS Trade Policy Project June 2006.Design layout and artwork: Media Publishing International, Edwin Laurent and EPO Belgium,Paula Hippolyte and T Lindsey-Bethune. Cover design by John Steele - InnaEye Art Studio - legend@hotmail.comPrinted by: Enschedé-Van Muysewinkel June 2006.

Valuable contributions, assistance and support received from: Hon Charles Cadet, Dr. Paul Goodison,Dr. Mark Griffith and Mrs Thérèse Louérat.For making this work possible: The OECS Trade Policy Project, the Canadian International DevelopmentAgency (CIDA) and the OECS Secretariat.

Copyright, 2006 OECS SecretariatP.O. Box 179, Morne Fortune, Castries, Saint Lucia

Disclaimer:The ideas expressed in this publication are those of the writer and do not necessarily reflect thepositions or views of CIDA, the OECS or any of its organs.

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ACP African, Caribbean and Pacific Group

BFA Banana Framework Agreement

BPOA Barbados Programme of Action (adopted in 1994 by the 1st UN conference on the sustainable development of SIDS).

CAP Common Agricultural Policy

CARICOM Caribbean Common Market

CARIBCAN Caribbean-Canada Agreement

CARIFTA Caribbean Free Trade Area

CBI Caribbean Basin Initiative

CET Common External Tariff

COM or CMO Common Organisation of the Market (in the EU)

COTED Council for Trade and Economic Development

CSME Caribbean Single Market and Economy

DDA Doha Development Agenda.

DFID Department for International Development (UK)

DSB Dispute Settlement Body

DSU Dispute Settlement Understanding

DTI Department for Trade and Industry (UK)

EBA Everything But Arms Initiative

EC European Community

ECCM East Caribbean Common Market

EDF European Development Fund

EEC European Economic Community

EIB European Investment Bank

EPA Economic Partnership Agreement

ESM European Single Market

EU European Union

FAO Food and Agriculture Organisation

FLEX Fluctuation in Export Earnings

FOB Free on Board

FTA Free Trade Area

FTAA Free Trade Area of the Americas

GATS General Agreement on Trade in Services

GATT General Agreement on Tariffs and Trade

GDP Gross Domestic Product

GSP Generalised System of Preferences

HTCI Harmful Tax Competition Initiative

ICT Information Communication Technology

ITC International Trade Centre

LDC Least Developed Countries (UN)

LDC Less Developed Countries (CARICOM)

MDGs Millennium Development Goals

MFN Most Favoured Nation

MTN Multilateral Trade Negotiations

NAMA Non Agricultural Market Access

NGO Non-Governmental Organisation

NIP National Indicative Programme

NTB Non-Tariff Barriers

OECD Organisation for Economic Cooperation and Development

OECS Organisation of Eastern Caribbean States

QR Quantitative Restrictions

RTA Regional Trading Arrangement

SFA Special Framework of Assistance

SIDS Small Island Developing States

SSA Special System of Assistance (for bananas by the EU)

STABEX Stabilisation in Export Earnings

SVE Small Vulnerable Economy

TBT Technical Barriers to Trade

TRQ Tariff Rate Quota

UNCTAD United Nations Conference on Trade and Development

USTR United States Trade Representative

WIBDECO Windward Islands Banana Development Export Company

WINFA Windward Islands Farmers’ Association

WIRSPA West Indies Rum and Spirits Producers Association

WISA West Indies Associated States (Council of Ministers)

WTO World Trade Organisation

ACRONYMS

2 So all these lettersreally mean something

then

PREFACE Professor Vaughan A. Lewis1

This is an opportune time to publish this guide to the trade issues which shape thecurrent situation of the OECS countries and the international economic environment. Thefate of the banana and sugar industries, as the conditions for entering an increasinglyintegrated and expanded European market change, in the face of global trade rules change,has awakened many citizens of the islands to the dramatic, negative effects on theirlivelihoods that have already occurred and are still likely to occur. And this has certainly beenforcing a discussion on the manner in which these countries should adapt to such changes,and on the extent to which such adaptation can be successfully achieved.

It is now some twenty years since the European Community indicated to the participatingstates in the African, Caribbean and Pacific (ACP) grouping that its pursuit of a EuropeanSingle Market and Economy would require full liberalization of trade within the Community,and that its intention with to achieve this by 1993. At first, it appeared to the OECS governmentsthat, following the successful diplomatic effort which, in concert with others, had resulted inthe 1975 Lomé Convention, a similar effort of negotiation with the Community could beundertaken. The essential objective of this would be to preserve the benefits accruing fromthe Convention, including the preferential arrangements by which their key products werefacilitated entry into the markets in Europe.

Early on, however, it became apparent that two processes had been taking place, whichwould affect the nature of the negotiations and their potential results:

• First the expanding membership of the Community was effecting a change ofCommunity sentiment away from its previous understanding of and response toparticular concerns of developing states, to one of reduced sympathy for them. Thedeveloping view was that there should be no substantial discriminatory differenceamong Member States with regard to the conditions under which third party productscould enter into Community markets.

• Secondly, at the time of the European decision on its Single Market and Economy, themember-states of the Community were already deeply engaged in negotiations withinthe Uruguay Round for further liberalization of international trade, the extension ofthe principles of liberalization to the sphere of production, and the further extensionof those principles to the spheres of agriculture and services. This orientation wasbeing pushed with a certain anxiety and persistence by the United States of America.

As the writer indicates, as they began their negotiations, the OECS and CARICOMexporters of bananas were caught somewhat by surprise at the extent to which theirtraditional diplomatic relationship with the United Kingdom was not enough to achieve asmooth consensus with the other member states of the EC. This certainly revealed thediminished capacity of the United Kingdom to act as a diplomatic broker on behalf of theACP, and therefore Caribbean states, and to achieve, relatively intact, broader agreement inEurope on proposals reached between the UK and the Caribbean. Britain, of course, had itselfbeen engaged in a policy revolution focused on the liberalization and deregulation of herown domestic economy under Prime Ministers Thatcher and then Major, and thus could notlegitimately resist the extension of that process to the international economy as a whole.

It is useful to recall at this point that the realization on the part of the OECS andCARICOM states that changing international conditions would require substantial “structuraladjustment” and “diversification” of their own economies was not something of sudden origin.In fact in the mid-1960’s, the Governments of the time, shocked into recognizing theimplications of Britain’s decision to apply for membership of the European Communities, hadappealed to that country to seek to ensure that in the process some form of preferences fortheir agricultural exports would be maintained, and “compensation” or “support” for progressive“adjustment” of the economies of their states towards “economic diversification”.

1 Dr Vaughan Lewis is Professor of International Relations of the Caribbean at the University of the West Indies, St AugustineCampus, Trinidad. He was the first Director General of the OECS Secretariat and is a former Prime Minister of Saint Lucia. 3

Consequently the long period of successfully negotiated successive Lomé Conventionswith their arrangements for STABEX compensation for exports periodically affected negativelyby market or production conditions, along with satisfactorily negotiated preferentialarrangements, appears to have lulled Governments into a false sense of the security of thosearrangements as props for their post-colonial mode of economic production and marketing.

The rude awakening of Caribbean governments to the persistent push for liberalizationof the European internal market, spurred on by commitments now made to the World TradeOrganization (WTO), indeed revived the language, in Caribbean diplomacy of the 1990’s ofcompensation, adjustment, special treatment and gradual erosion of preferences, that hadbeen prevalent since the 1960’s and 1970’s. And this has been persistently so, particularly asthe WTO in general has shown no sympathy for ACP countries presumed status as requiring,in this case at least, “special and differential treatment”.

Regional and International Relations

The decision, of the CARICOM states to establish a Single Market and Economy, initiallymade in 1989 and formalized in 1992 was an indication of the compulsions moving the regiontowards principles of liberalization increasingly being implemented as a requirement of theirreceipt of assistance from the World Bank and the International Monetary Fund at a time ofrecession among, in particular, the More Developed Countries of the Region.

This commitment, including reductions in the levels of the CARICOM CommonExternal Tariff, intensified discussions in the region as a whole, on the necessity for domesticstructural adjustment and liberalization, which Governments had been forced to undertakeat the international level (at the level of EU-ACP relations). The requirements for compensationarrangements (including a Regional Integration Fund) and special treatment, which wherebeing pleased for at that international level, were now re-echoed by Lesser DevelopedCountries (largely OECS States) within a regional context.

Again here, the discourse led by OECS Governments has been strangely reminiscent ofthe “demands” made by Antigua and Barbuda and Montserrat at the time of the transformationof CARIFTA into CARICOM in 1973. These resulted in the “compensatory” arrangements forthe establishment of the Caribbean Investment Corporation and a renewed commitment tofocus the Caribbean Development Bank’s efforts on the Lesser Developed Countries efforts.

The banana producing countries which have had to contend since the 1990’s with thefallout from changes in the banana marketing arrangements, and which have been taking thismessage to European capitals since then, in search of a viable solution to the decline in bananapreferences, have now been followed in their diplomatic forays by Governments of the sugarproducing states of the Region. In the early 1990’s, the view was taken that the Sugar Protocol,having been separately agreed, and agreed prior to the Lomé Convention, would be exemptfrom the pressures for change emanating form the liberalization process of the EuropeanSingle Market and Economy.

But ten to fifteen years later, Caribbean Governments have been shocked into recognitionthat the process of internationalization of decision-making on trade arrangements, (the WTOprocess) which ruthlessly negated agreements which the Banana producing countriescontinually negotiated and deemed as settled, has come to affect the status of their sugarexports. The European Union has had to bend to the mandates of the WTO, and ourtraditional “interlocutor valuable” or diplomatic broker, the United Kingdom, has not beenable to roll back the waves of liberalization and deregulation in spite of her professedsympathy for our case.

What all this raises, surely, is the extent to which, over the years of change in ourconditions of international trade and production, the Caribbean countries are being forced toadjust to new trading conditions, either through the reorganization of their traditionaleconomic (and in particular agricultural) activities, or the creation of new activities capableof penetrating existing international markets under the new conditions.

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Reform

The European Union, in a prelude to elaboration of new proposals for what has becomethe formula of the Economic Partnership Agreement (EPA), had given a signal in its GreenPaper (discussed in this Guide) that it had not been satisfied that the provisions of the LoméConventions, providing access to the non-agricultural sector of the EU economy, had beenappropriately made use of. The EU observed that the extensive aid provided to ACP countriesover the years had not resulted in sustained structural adjustment of their economies.

The EU, now reaching into South and Central America in search of new markets and newlocations for investment (through the establishment of free trade areas), is conscious that indoing so, it is required to conform to the disciplines attached to such trading arrangements,particularly those relating to the principles of reciprocity. It was therefore but a matter oftime before the EU was to insist that reciprocity – mutual opening of markets - shouldunderlie any new trading arrangement between itself and the ACP countries, irrespective of sizeof economy. And in turn Caribbean countries have felt compelled to raise the battle cry of theneed for deliberate differentiation based on size and level of economy through mechanismsof special and differential treatment.

As the writer indicates this is a discussion now in progress, and we are left to see whatthe translation of reciprocity into rules and regulations means for these self-categorizedsmall-island developing countries (SIDS) in addition to the larger mainland producers of sugar(Guyana and Belize) and of bananas (Belize).

In a sense, in this process the ball is now squarely in the court of the ACP countries –specifically the Caribbean states. For it is recognized that our negotiations for an EPA will notbe diplomatically “mediated” by the United Kingdom in any substantial sense as were ournegotiations towards the 1975 Lomé Convention. And that, further, our states cannot have theattention of the “traditional” European member states of the EU as they struggle with theirnew venture of simultaneous deepening and widening of their own internal market involvingstates with even less empathy for our objectives than the block of “liberalizing-inclined” ECstates in the 1990’s.

This raises an issue which goes beyond the reach of this Guide: the need to search fornew diplomatic allies in the difficult situation where differences of orientation amongdeveloping countries themselves are tending to become evident – witness the stand ofGuyana’s neighbour Brazil on the sugar issue.

A further issue raised is that of the translation of the demand for assistance within thestructure of a new EPA into efforts conducive to encouraging structural adjustment andsustainable development. The writer stresses the need for the detailed programming of EUfunded projects to coincide with European expectations of visible progress in the structuresof our economies.

These issues are being negotiated at the Caricom regional level, and should presume aneffective single economic space to meet the need for diversification on the basis of scaleadequate to meet the demands of the competitive environment, and to permit diversificationof economic activities and therefore exports.

Charting a new course

The OECS countries have recognized the need to systematically travel the road to someform of economic union and creation of a single economic space. The urgent question now iswhat form is the larger system to take in terms of creation of a Caricom single economic space,and the extent to which this is necessary to give the OECS countries a stronger base foreconomic diversification, or will affect their own process of economic union.

This internal discussion needs to take place with some deliberation within our sub-Regionat this time. As the author emphasizes, it requires extensive technical and financial resources.

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It is a prerequisite for adapting to both the new environments of the EU and the emerging freetrade area agreements in our Hemisphere.

The European Union is presently carrying out an experiment related to the adjustment ofits new members of Eastern Europe, which in a sense speaks to the issue of the arrangementsbetween lesser and more developed countries. As we approach them in our negotiations theywill see us in constant comparison with their own circumstances, and match our progress againstthose circumstances.

The insistence in the EU Green Paper on the need for more appropriate utilization of aidfunds will undoubtedly remain a significant part of European diplomacy, and a condition of thesuccess of our own diplomacy.And our success in this sphere will undoubtedly influence thenature of the relations that we work out in this Hemisphere as the United States pushesrelentlessly on towards the creation of a free trade area, or a multiplicity of free trade areas here.

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FOREWORD

In an environment governed by global trade rules with a capacity for determining theeconomic and social progress of small states vulnerable to change, trade matters have withinthe OECS States become the business of everyone. This is particularly true for students aboutto enter a world of business which demands knowledge of such issues.

Under an assistance Programme designed to Strengthen the capacity of the OECS sub-regionto better participate within the regional integration and wider multilateral trade agreementprocesses, the OECS Trade Policy Project, funded by the Canadian International DevelopmentAgency, included in its activities an awareness component intended to create a generalclimate of understanding of the trade issues which will need to be addressed in this context.

It is against this background that an allocation of resources from the awareness componentof the CIDA/OECS Trade Policy Project was directed by the OECS Secretariat towards thepreparation of this trade policy guide which, while specifically targeted at tertiary schoolstudents, is hoped will be found usefully informative by a wider public.

Dr. Len Ishmael

Director GeneralOECS Secretariat

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Table of Contents

Glossary .................................................................................................................................................................................... 10Introduction .................................................................................................................................................................................... 13Section 1 TRADING SYSTEMS........................................................................................................................................... 15Chapter 1 ECONOMIC INTEGRATION IN THE CARIBBEAN................................................................................. 15

1.1 THE OECS................................................................................................................................................................ 151.2 THE CARICOM AND THE CSME.....................................................................................................................151.2.1 Creating the CSME................................................................................................................................................161.3 HOW DO THE SINGLE MARKET AND THE SINGLE ECONOMY WORK ?...................................181.3.1 What is in the CSME for the OECS ?........................................................................................................... 18

Chapter 2 BILATERAL / BI-REGIONAL TRADING ARRANGEMENTS...............................................................212.1 ECONOMIC PARTNERSHIP WITH EUROPE...............................................................................................222.1.1 The EPA negotiations and their policy context...................................................................................... 222.1.2 Background to EPAs.............................................................................................................................................232.1.3 What is the EPA?....................................................................................................................................................242.1.4 Criticism of EPAs...................................................................................................................................................242.1.5 Issues in the EPA negotiations.........................................................................................................................252.1.6 Matching up the two sides.............................................................................................................................. 272.1.7 Stop EPAs ?.............................................................................................................................................................. 282.2 FREE TRADE AREA OF THE AMERICAS.......................................................................................................282.2.1 Prospects and challenges..................................................................................................................................282.3 BILATERAL TRADE AGREEMENTS................................................................................................................. 29

Chapter 3 A MULTILATERAL ALTERNATIVE - THE WTO........................................................................................ 303.1 ORIGINS AND EVOLUTION............................................................................................................................ 303.2 MULTILATERAL PRINCIPLES.............................................................................................................................303.2.1 The system.............................................................................................................................................................. 31 3.3 THE URUGUAY ROUND AND THE BIRTH OF THE WTO.................................................................... 323.4 THE WTO’S DISPUTE SETTLEMENT MECHANISM................................................................................. 323.4.1 The process............................................................................................................................................................. 333.4.2 OECS Participation in Panel Disputes.......................................................................................................... 333.5 THE WTO DOHA DEVELOPMENT AGENDA (DDA)................................................................................333.5.1 Small Vulnerable Economies............................................................................................................................34

Section 2 THE OECS EXPERIENCE ....................................................................................................................................36Chapter 4 BANANAS –THE FIGHT FOR THE EU MARKET.....................................................................................36

4.1.1 The Banana Dispute.............................................................................................................................................374.1.2 The role of diplomacy........................................................................................................................................384.1.3 Resolution of the dispute and subsequent reforms..............................................................................394.1.4 Consequences for the Windwards................................................................................................................394.1.5 2004 – EU Enlargement.....................................................................................................................................404.1.6 More recent threats: Arbitration and the abolition of quotas.........................................................414.1.7 The CARICOM-OECS position........................................................................................................................414.1.8 Beyond Cotonou.................................................................................................................................................. 424.1.9 Charting a course for the future....................................................................................................................42

Chapter 5 SUGAR...................................................................................................................................................................... 445.1.1 The Sugar Protocol.............................................................................................................................................. 445.1.2 Threats to the Protocol..................................................................................................................................... 445.1.3 Reforming the EU Common Market Organisation for Sugar............................................................. 455.1.4 Consequences for the Sugar Protocol Members.................................................................................... 465.1.5 Securing and using financial support...........................................................................................................465.1.6 What future for sugar ?......................................................................................................................................47

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Chapter 6 TOURISM AND OTHER SERVICES - THE ISSUES IN MULTILATERAL NEGOTIATION.........50 6.1.1 What are the OECS’ interests ?....................................................................................................................... 50 6.1.2 Tourism.......................................................................................................................................................................52 6.1.3 Financial services...................................................................................................................................................536.1.4 Information and communication technology (ICT)................................................................................536.1.5 Mode 4...................................................................................................................................................................... 546.1.6 Other negotiating aims.......................................................................................................................................54

Section 3 THE WAY FORWARD......................................................................................................................................... 55Chapter 7 ADOPTING NEW APPROACHES................................................................................................................... 55

7.1 DIVERSIFICATION AND DEVELOPMENT......................................................................................................557.1.1 A role for the private sector............................................................................................................................ 557.1.2 The experience of external support............................................................................................................ 577.1.3 Was the support effective ?.............................................................................................................................577.2 TRADE AND ENVIRONMENT........................................................................................................................... 587.3 NEGOTIATION- USING TRADE DIPLOMACY TO ADVANCE NATIONAL/REGIONAL GOALS....60

Further reading ..................................................................................................................................................................................... 63

List of tables

Table 1 Supplies of Bananas to the EU 15, 1990-2002 (thousand tonnes).................................................... 36Table 2 Banana Export Values (fob) (US$ million).................................................................................................. 40Table 3 Contribution of sugar to employment and foreign exchange.......................................................... 44Table 4 Projected loss of earnings..................................................................................................................................46

List of boxes

Box 1 The building blocks of the CSME....................................................................................................................20Box 2 Department for International Development and Department of Trade and Industry Report.. 25Box 3 UK Parliamentary Report................................................................................................................................... 27Box 4 Trade policy reviews.............................................................................................................................................31Box 5 UNCTAD.................................................................................................................................................................... 34Box 6 The problem of different production costs between the ACP and Latin America.................. 37Box 7 CommonFund for Commodities.....................................................................................................................47Box 8 Rum............................................................................................................................................................................. 48Box 9 Making Trade Policy..............................................................................................................................................49Box 10 The International Trade Centre.......................................................................................................................58Box 11 Millenium Development Goals (MDGs)..................................................................................................... 59

List of figures and charts

Figure 1. Merchandise trade in the OECS, 2004.........................................................................................................14Figure 2. The position of the OECS within the global trading system.............................................................21Figure 3. Average free on board (fob) prices, 1999.................................................................................................... 37Figure 4. Number of active banana growers in the Windward Islands, 1993-2001, thousands.............. 39Figure 5. Export values for bananas fob, 1991-2002, $US million....................................................................... 40Figure 6. Services Trade of the OECS, 2003.................................................................................................................51Figure 7. Tourist arrivals in the OECS, 2004 (thousands)........................................................................................52Figure 8. Estim. value of expenditure, EC$ m, 2004.................................................................................................53Figure 9. Estim. % total tourist expenditure, 2004................................................................................................... 53

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Adjustment Assistance: The financial and technical supportprovided for States, firms, workers and communities to helpthem adapt to and function satisfactorily in conditions ofincreased competition for their products in overseas and/ordomestic markets. This assistance can include help toGovernments to devise alternative revenue collectionmechanisms to replace duties lost as a result of their reductionor elimination of tariffs on imported goods.

Appellate Body: The WTO group that hears appeals against theconclusions of Dispute Settlement Panels.

Asymmetry in the Trade Agreement: The treatment of the sidesin a trading arrangement where the rate of tariff reductionundertaken by the Parties is different, or asymmetrical. OneParty could be given a longer time compared to the other forcompleting the process. Alternately, a lesser percentage of itstotal imports could be subjected to tariff reduction and elimination,and also, different obligations on the rate or extent of removalof other barriers to trade could apply.

Barriers to trade - (tariff and non-tariff): Restrictions placed bygovernments on imports that take the form of customs duties,charges, limitations on the volume and other measures, whichare not borne by domestic products. These barriers can have theeffect of making imports more expensive and/or reducing theirvolume.

Beggar-thy-Neighbour Policy (Protectionism): A countryseeking to strengthen the competitive position of its domesticproduction vis-à-vis imports through discouraging imports withhigh tariffs and other measures that restrict imports. The imagery stemsfrom a side effect of the policy that exporters could lose themarket and might well be impoverished.

Bilateral: Negotiations, agreements or understandings betweentwo countries.

Binding: When countries agree in the WTO not to increase therate of duty on a particular item imported from other Members,the rate is “bound”. The country cannot then charge duties atrates higher than the bound level; it would be violating the rulesand action could be taken against it. There are, however, provisionsfor it to subsequently negotiate for increases in its tariff rate.A country is free to charge (apply) a lower rate of duty.

Bretton Woods Institutions: The collective name for theInternational Monetary Fund and the World Bank. Named afterthe town in New Hampshire in the US where they were createdin 1944.

Caribbean Single Market and Economy: The single economicspace among members of CARICOM in which there are norestrictions on the free movement of goods, services, labour andcapital.

Commodities: Widely traded bulk goods, often unprocessed andhomogeneous.

Commodity Protocols: The ACP-EU Agreements contain specialarrangements regarding ACP trade in specific commodities likesugar and bananas. The aim is to provide additional provisions tothe ACP that will support development and remunerative tradeof these commodities.

Common Agriculture Policy (CAP): The unified system operatedby EU countries for conducting their agricultural programmesand policies that are based principally on price supports or subsidiesand production quotas.

Common External Tariff (CET): The schedule or list of importduties applied by all Members of a common market on importsfrom non-member countries.

Comparative Advantage: The international trading system isbased on this principle first elaborated in 1817 by the economistDavid Ricardo that a country should produce and export thosegoods and services in which it is most competitive internationallyand import to satisfy its needs for those that it does not produce.

Concessions: In negotiations, countries offer to reduce tariffs orother trade barriers, in exchange for, or to induce similar actionfrom their trading partners.

Consensus (decision making): Agreement is reached when thereis no continuing objection by any participating member of thedecision making group. This is in contrast with unanimity whereagreement of all participants is actually ascertained.

Contracting Party: A country that signed the GATT andaccepted its obligations and benefits.

Discrimination: Providing more favourable tariff or othertreatment for goods and services imported from particularcountries as opposed to others.

Dispute Settlement Body: The grouping of representatives of allWTO Members that administers WTO rules, establishes Panels toadjudicate disputes and authorises punitive measures for countriesthat violate the rules.

Diversification: Expanding the foundations of the economy to awider range of production beyond reliance on a single or a narrowrange of goods and services. This improves the prospects foreconomic growth and development.

Erosion of Preferences: As importing countries reduce tariffsbecause of liberalisation, the advantages enjoyed by their sup-pliers with duty-free or reduced duty privileges are cut back.

Everything but Arms Initiative: The package first offered toLDCs in 2001 in which Developed Countries and now DevelopingCountries in a position to offer it, are encouraged to grant pro-ducts from LDCs unrestricted entry to their own markets byremoving duties and quotas on all imports except for arms andammunition.

GLOSSARY

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Export subsidies: Payments by government to domestic exportersof goods and services. Such payments enable foreign sales to beat lower prices; hence they are more competitive than theywould otherwise have been. The WTO therefore considers thatsuch subsidies change trade patterns and distort trade.

Factors of Production: According to economic thinking: land,labour and capital.

Fairtrade: The production and marketing of goods according tostipulated criteria regarding working conditions, welfare ofworkers, acceptable environmental standards and the provisionof fair returns to producers.

Free Trade: The ultimate theoretical goal where there are nogovernmental barriers to international trade in the form of tariffsand other barriers to goods and services entering the country.

Free Trade Area (FTA): A cooperative arrangement among agroup of countries to remove tariffs and trade restrictionsamong themselves, but they keep their individual tariffs onimports from outside the area. CARIFTA was a Free Trade Area.

Generalised System of Preferences (GSP): A system underwhich tariffs applied by developed countries on certain importsfrom developing countries are reduced or eliminated on thebasis of agreed conditions.

Gross Domestic Product (GDP): The total value of new goodsand services produced in a country during a given year.

Import quota : The maximum quantity or value of a particularproduct allowed to enter a country during a specified time period.

Least Developed Countries (LDCs): These are countries classifiedby the UN on the basis of a range of criteria, principally their percapita income below $900 per annum. According to that criterion,none of the OECS countries are LDCs. The only LDC in theAmericas is Haiti. LDCs are eligible for special trading privilegesincluding the Everything but Arms initiative (EBA).

Less Developed Countries (LDCs): CARICOM designates theOECS and Belize as LDCs in view of their small size, narrowresource base and low level of development. This designationmakes them eligible for special support measures within CARICOM.

Liberalisation: An underlying principle of the WTO and the earlierGATT that seeks the reduction and eventual elimination of tariffsand other measures that impede trade.

Licensing: When Governments limit the volume of imports of acertain product they might grant permits or licenses to importersthat provide them with approval, whether or not in a physicaldocument, that grants them rights to import. Often specificconditions are stipulated. Licensing can also be operated forexports.

Market Access: The availability of a national market to exportingcountries.

Mercantilism: The now discredited policy of the pursuit of tradesurplus and the accumulation of monetary assets by promotingexportation and discouraging importation.

Mode 4: The temporary relocation of workers to another countrywhere they are employed to provide a service. The farm workerprogrammes with the US and with Canada are examples.

Most Favoured Nation (treatment): A cardinal principle of theMultilateral Trading System is that a country will automaticallyapply to all WTO Members the lowest tariffs or reductions itapplies on imports from any source, whether another WTOmember or not. Exceptions to this rule are possible, e.g. in FTAs.

Multilateral: Negotiations, agreements or understandingsamong several countries or groupings.

Multilateral Trade Negotiations: These negotiations among allWTO Members (previously GATT Contracting Parties) have beenheld at intervals to advance the attainment of the objectives ofthe WTO and are referred to as “rounds”. The current round iscalled the Doha Development Agenda (DDA) or Doha Round.

National Treatment: The commitment to treat foreign products,sellers, businesses and those who provide services the same asdomestic counterparts.

Non- Tariff Barriers (NTBs): These are measures, other thanimport duties, taken by a government, that impose limitations onor impede imports. They can range from outright importprohibitions to onerous quality standards and labellingrequirements.

Preferences: Advantages extended to imports from selectedtrading partners in the form of lower or zero tariffs or exemptionfrom certain NTBs.

Quantitative Restrictions (QRs): The limitation of the importvolume of specific products from the rest of the world or fromspecific countries.

Quota Rent: When the importation of a particular product islimited by a quota, the restriction can sometimes lead to ascarcity that increases prices in the import market. The quotarent is the difference between the domestic price (net of theimport tariff) and the world price. This value may be obtained bythe exporters, importers or distributors or shared among them.

Reciprocity: This is the principle that generally guides tradenegotiations; where a country awards trade concessions, they arematched by the provision of equivalent advantages in exchange.

Rule/s of Origin: The criterion that determines whether aparticular item was produced in a country e.g. the productionprocess or the amount of value added locally.

Sanitary and Phytosanitary Import Measures: Controls andrestrictions placed on imports, to protect human, animal andplant health.

Single Undertaking: The requirement in a trade negotiation toaccept the entire package rather than just particular elements ofthe agreement.

Special and Differential Treatment: The principle that theaward of benefits to developing countries and the demandsmade of them should be in keeping with their trade, financialand development needs and capacity.

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Supply-side Constraints: New trading opportunities cannotalways be taken up by a country because it is unable to increaseits competitive production due to a number of reasons(constraints) such as insufficiency of investment, lack of therequired skilled labour, inappropriate public policy framework,limited land space, etc.

Tariff: A tax on imports. This might be charged as a percentageof the value of the product (ad valorem) or a fixed charge perunit (specific).

Tariff-Rate-Quota (TRQ): The application of a different tariff onimports of the same item with the higher rate levied on importsabove a certain volume. This can have the same practical effectas a QR where the upper rate is so high that the imports onwhich it is charged would be made too expensive and thereforeunsaleable with the result that imports do not actually takeplace. (The TRQ device became quite widespread in themid-1990’s when WTO Members were required to end QRs onagricultural products and resorted to it in order to effectivelyretain their prohibition on imports beyond set levels, whilstostensibly complying with the rules).

The Singapore Issues: Investment, competition policy,transparency in government procurement and trade facilitationwere four subjects that Trade Ministers meeting in Singapore in1996 decided should be studied by the WTO.

Trade Diversion: The redirection of trade flows as a result ofproviding preferences to less efficient trading partners. Goodsmight be sourced from them because the trade preference couldmake them competitive with the more efficient exporters.

Trade Facilitation: Reducing red tape and inefficientadministrative procedures so as to enable goods to be importedand exported more easily, quickly and possibly cheaply.

Vulnerability: The frequency and intensity with which a countryis exposed to negative environmental events and other disastersand the extent of damage caused. A country can also bevulnerable to adverse economic developments from abroad suchas a loss of export markets, decline in prices etc. The narrower theproduction and export base the more vulnerable the country.

Waiver: The authorisation granted by the WTO to a Memberpermitting it to deviate from legally binding agreements orobligations.

WTO-Compatible: An agreement, policy or practice that is inkeeping with the rules of the WTO. Trade arrangements,agreements and policies of WTO Members are supposed toconform with its rules.

Now I know what all these big words mean

13

IntroductionThe world of international trade can appear abstract and far removed from everyday

life. The very terms used, the WTO, the FTAA, the CSME, might seem designed to mystifyrather than enlighten. Many people are therefore content to ignore trade negotiations,disputes and agreements, viewing those matters as concerning only Governments and bigbusinesses. Increasingly, however, these processes are defining not only commercial and tradingrelations among countries, but economic activities within countries themselves. Quiteominously, they constrain Governments’ flexibility on an increasing range of economic policyissues.

In the 21st century no country can expect to be an “island unto itself”, shut off from andindifferent to the outside world. This is nowhere more true than in the OECS countries2,whose economies have, from the earliest colonial times, been open to and reliant oninternational trade. The quality of life of their people, their security and standard of livinghave therefore always depended upon the international situation and developments. Ratherthan producing for themselves the things that they need, these islands have earned theirlivelihood through producing goods for sale abroad; initially a variety of commodities,ranging from cane sugar, rum and bananas, to light manufactured goods, and now, increasingly,to the provision of services for foreigners, principally tourism. Their exports of goods havebeen principally to Europe, the Caribbean and the USA. Their imports are more varied,coming from the USA, Japan, Europe, Latin America, China and several other sources. Servicesare sold principally to North America and Europe. The income from the sale or export of thenarrow range of goods and services that they produce is used to purchase from abroad(to import) the diversity of goods and services they consume. Therefore, what happensinternationally affects the lives of everyone locally and is thus of real concern. At the mostbasic level it determines what can be sold abroad and sets the prices that can be received andthose to be paid for purchases from abroad.

This publication seeks to demystify the functioning of the trading system and exploreshow international regulations impact on the trade and economic life of OECS countries.It also assesses whether very small countries can have any significant influence on theinternational processes that influence their future and whether they can be more than passiveobservers while their fate is being determined. Is the international system just a jungle inwhich only the fittest can survive and prosper? In the context within which they operate,economic and political power is important. However, the system is based on rules anddemocratic principles, so even the smallest Members can use their voices to safeguard andadvance their interests. The experiences of the Islands over the last decade are used toexamine these issues and questions, and the conclusion that emerges is that under certainconditions they can actually influence, to their benefit, the course of events.

The first section of this publication assesses the trading position of the OECS, andreviews the origins of regional economic cooperation and the issues at stake for the OECSwithin the Caribbean Single Market and Economy (CSME), the Economic PartnershipAgreement (EPA) with Europe, the Free Trade Area of the Americas (FTAA) and the World TradeOrganisation (WTO). The second section studies the experiences of OECS countries’ principalforeign exchange earners. It also explores public and private sector roles in diversification andassesses the environmental considerations in the formulation of trade policy. Finally, drawingon experience in international negotiations and trade diplomacy, it makes recommendationsregarding approaches to ensuring fuller benefit from the system.

Why participate in the multilateral trading system?

The members of the OECS have no option but to rely on and be open tothe outside world for their survival and prosperity. They do not have the means to produceeven a significant portion of the range of capital and consumer goods that their populations

2 The Membership of the Organization of Eastern Caribbean States (OECS) comprises of Antigua and Barbuda,Commonwealth of Dominica, Grenada, Montserrat, St. Kitts and Nevis, St. Lucia, St. Vincent and the Grenadines withAnguilla and the British Virgin Islands as associate Members.

14

require to maintain the lifestyles that they are accustomed to. (The islands therefore cannotbe self-sufficient). If the goods that they consume are to be obtained from abroad, thenforeign exchange to pay for them must be earned through the countries’ own export of goodsand services. OECS countries therefore have no choice but to trade: they have always beentraders. The trend for OECS countries to import more than they export is illustrated in the

following chart that highlightstheir trade imbalance.

They face numerousconstraints that make themparticularly vulnerable to shocksfrom abroad and limit theirdevelopment prospects. The mostdecisive factors are their smallsize, insularity and shortage ofnatural resources.3 These structuralconstraints cannot be overcomeand they combine to make it moredifficult for the Islands to achieveeconomies of scale in severalareas of production at the sametime. As a result, they have relied

on mono-crop (or single industry) production. Economists however warn that a diversifiedproduction base is essential for sustainable development.

It is within their constraints that the islands endeavour to grow and develop. Butdomestic policy measures alone will not be sufficient. The international environment, whichis increasingly being shaped by regulations, must be favourable. The questions that they faceare: what should they do, and can their efforts really have any impact?

Consequently, as countries seek to ensure that the conditions in the outside world arefavourable to their economic well being, they work specifically for supportive trade rules andother regulations. This is the underlying reason why OECS Member States participate innegotiations, lobbying and economic diplomacy. These activities can be viewed as an essentialcomplement to, as well as an extension of, domestic and OECS policy aimed at fosteringeconomic security, growth and development and the improved welfare of their citizens.

The review of the trading system is presented in this guide, in three sections. The firstaddresses the regional versus the global approach. In the first chapter it considers theexperiences of cooperation within the OECS and CARICOM and in chapter two, with the EU.Chapter three examines the evolution and functioning of the World Trade Organisation(WTO). Section two reviews the actual international engagement of OECS countries from theperspective of the income generating activities on which their participation in the tradingsystem is based. The experience of the banana dispute and the reform of the EU market,reviewed in chapter four offer valuable lessons for small developing countries. The impact oncane sugar exportation is considered in chapter five. Tourism and services in internationalnegotiations are analysed in chapter six in an attempt to identify more precisely the interestsand issues at stake. The final section is forward looking, beginning with the case fordiversification in chapter seven, as well as the key role to be played by the private sector. Thenecessity for OECS countries to incorporate their environmental interests and concerns intothe formulation of their national economic policies is also considered in the final chapter. Itends by drawing on OECS experiences and those of the writer to suggest how small countriescan use trade negotiation and diplomacy to secure and advance their trading interests.

0

100

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300

400

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$ m

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urce

: W

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3Conclusion of the World Bank in its Report No. 31725-LAC “A Time to Choose - Caribbean Development in the21st century” 26 April 2005.

Figure 1. Merchandise trade in the OECS, 2004

Tell me why I should bother

15

hapter 1Economic Integration in the Caribbean

1.1 The OECS

Working together in the Eastern Caribbean is quite understandable; proximity and smallsize make a compelling case for economic and institutional integration. Collaboratingamongst themselves can promote efficiency and optimize the benefits of scarce human,institutional and other resources. This no doubt is the reason why historically, these neighbouringislands have shared institutions4. The 1932 Closer Union Commission appointed by the BritishGovernment, proposed a Federation of all the Leeward and Windward Islands. This did notmaterialize but in 1938, the Moyne Commission repeated this suggestion. Not surprisingly, noprogress was made during the World War that began in the following year.

The Leeward and Windward Islands have always had a strong desire for cooperationboth within the wider Caribbean grouping and among themselves. They all joined the 1967Caribbean Free Trade Area (CARIFTA) but even before that, had set out to pursue closercoordination and integration among themselves. In the previous year, 1966, they created theWest Indies Associated States Council of Ministers (WISA) to administer various commonservices. It met at the level of Heads of Government and had a small secretariat. Then oneyear after WISA, the Heads decided on a more ambitious programme of economic integration,the East Caribbean Common Market (ECCM). This was to be a mechanism to further theislands’ harmonious economic growth and development, improved standard of living andtheir closer economic relations. Specifically, they committed themselves to eliminatingimport duties and restrictions on trade amongst themselves; introduction of free movementof persons, services and capital, the coordination of currency and financial policies (theyalready shared a common currency); harmonisation of tax and incentive legislation, cooperationin transport and communications and agricultural policy. With their Common External Tariff(CET), single currency, judiciary and civil aviation authority, the islands would successfullyoperate a parallel but more advanced and closer unit within the broader regional integrationgrouping.

When most of the islands had attained political independence from the UnitedKingdom, they decided to replace WISA by a unified institution backed by a treaty. This wasthe Organisation of Eastern Caribbean States (OECS), inaugurated on 18th June 1981 with thesigning of the Treaty of Basseterre. The mandate of WISA was subsumed within the OECS,which expanded its scope to broader political cooperation and security issues, collaborationin the purchase of pharmaceuticals and formalised its joint overseas diplomatic representation.The ECCM agreement was annexed to the OECS Treaty so that their Common Market continuedeven within the wider Caribbean Common Market.

Integration among the Windward and Leeward Islands has always been a step ahead ofthat in the wider Caribbean region, but their full participation in the Caribbean “family ofnations”, has also played a central role in the national policy of OECS countries.

1.2 CARICOM and the CSME

The Leeward and Windward Islands had always pursued closer union among themselvesin parallel with their ambitions for broader Caribbean unity. The following paragraphs tracethe origins and changing nature of that wider relationship.

SectionTrading Systems•The bilateral/bi-regional vs. the multilateral approach

•OECS/CARICOM/CSME•ACP/EU & FTAA•The WTOC

4 The Leeward Islands actually had a Federal Government from 1871-1956.

1

One for all and all for one!

16

Evidence can be found of aspirations for Caribbean integration early in the last century.This desire was based on a widespread notion of a West Indian identity characterised byNorman Manley who said at the 1947 Caribbean Labour Conference: “Wherever there is anassembly of West Indians…you feel at home and as one…. The sense of unity in the West Indies…is so powerful and so rapidly growing today that the minor historical differences are irrelevantin the face of innumerable common ties.” Complementing this sense of identity was therecognition that on their own, Caribbean entities are too small to set and effectively pursuetheir own agendas particularly with respect to economic development and improved welfareof their populations.

It was a desire to work together to improve prospects for economic success thatprompted the current phase of Caribbean integration. Its actual conception can be traced tothe meeting of West Indian leaders in Montego Bay in 1947 that formally explored the ideaof “the closer association of the British West Indian colonies”. This meeting of Caribbean leadersactually predated the 1951 Coal and Steel Community, which was the predecessor to theEuropean Common Market. The aspirations and ideas of unity eventually materialised in theform of the West Indian Federation. By 1962, however, the Federation collapsed after Jamaicaand then Trinidad and Tobago withdrew, proceeding to political independence on their own.A last ditch attempt to persevere with a union of just the Leeward and Windward Islands andBarbados, the “Little Eight”, failed.

Five years later, a fundamentally different approach was embarked upon: the 1967Caribbean Free Trade Area (CARIFTA), which lifted duties on goods being traded within theRegion. It is from this initiative that the origins of the CSME can be traced, though its directinstitutional precursor was the 1973 Caribbean Community and Common Market (CARICOM).

CARICOM was a major advance from CARIFTA, taken to strengthen the coordinationand regulation of economic and trading relations among Members in order to advance theirbalanced development. The mandate of CARICOM institutions and the harmonisation ofnational regulations, however, stopped well short of the creation of a genuine single market.This, though, was not for lack of ambition. Caribbean economic integration was an unpredictableprocess conducted without the benefit of similar models or earlier experiences among smalldeveloping countries. Forbes Burnham, the then Prime Minister of Guyana, summarisedthe realism of Caribbean leaders when he said at the 1967 Conference of the Heads ofGovernment of the Commonwealth Caribbean: “we cannot start off with some ideal or perfectarrangement. Neither can we hope to be so prescient of the future as to be able to determineall the consequences and difficulties of integration… This is the naked truth, either we integrate,or we perish, unwept, unhonoured.” When CARIFTA was born and later gave way to CARICOM,there was no detailed or rigid road map and timetable but leaders had a very clear vision ofthe direction in which they would steer the region.

Such clarity among Caribbean Governments of the ultimate goal of regional integrationwas the critical factor in its evolution and survival. Having an agreed destination but withflexibility as to the “route and pace of travel” might well have assisted the region in survivingits most difficult period from 1975-1982. With their economies reeling from the impact of theglobal petroleum crises and many saddled with unmanageable debt, balance of paymentproblems and the region embroiled in the ideological conflict spawned by the Cold War,progress in regional integration was “left on hold”, but never abandoned.

The stalemate came to an end at the Ocho Rios Summit in 1982 and the integrationmovement got back on track. By 1989, at their Summit in Grenada, CARICOM Heads decidedto establish the Caribbean Single Market and Economy (CSME) in order “to deepen theintegration process and strengthen the Caribbean community in all its dimensions”. They envisageda single market that would allow the free flow of goods, services, people and capital acrossborders without tariff or other barriers or restrictions. They expected that it would permitthe coordination and harmonisation of national economic policies covering foreign exchangeand interest rates, taxation and currency policies among Caribbean countries.

We are all on it though!

That was one long road

1.2.1 Creating the CSME

The CSME was built on an institutional base already created by CARICOM. To appreciatethe scope and nature of the change, it is necessary therefore to recognise what was already in place. The 1973 Treaty establishing CARICOM committed its Members to the removal ofrestrictions on intra-regional trade in goods. Under Articles 15, 17, 18, 20 and 21, they agreed,with certain exceptions, to remove import duties and other restrictions on goods producedin other Member countries. They also decided to apply the same level of duty on the goodsthat they imported from non-CARICOM sources and to co-ordinate economic policy morefully and effectively.

The initial aims of the Treaty with respect to the free movement of capital and labourwere quite limited. In the case of capital, it was simply “to examine” the introduction of ascheme that regulated movement, whilst the Treaty explicitly excluded any requirement forpermitting the free movement of persons. Having just free movement of goods but not ofcapital and labour meant that CARICOM could not be a full common market.

Work however continued on achieving the objective of creating a genuine commonmarket and the Treaty was revised on 5th July 2001. Countries for the first time committedthemselves to the goal of free movement of labour and agreed to the immediate removal ofrestrictions on the free movement of certain categories of workers. In a fundamental shiftfrom the original CARICOM Treaty, they now agreed in Article 46 paragraph 3 that the revisedTreaty should not inhibit Member States from permitting free entry of persons from therest of CARICOM5. This distinction was not of mere semantic significance but reflected afundamental shift in labour migration policy between 1973 and 2001.

Progress was also made with respect to the movement of capital. In a real commonmarket, funds must be able to flow freely for investment and for payment of goods and services.CARICOM States agreed in 2001 not to impose any new restrictions on the movement ofcapital (Art. 39) and in Art. 40, they agreed to the removal of all restrictions on the movementof capital and current payments.

The other key area of liberalisation, which had been largely ignored in the originalTreaty, was that of services. Here, restrictions were to be lifted on the establishment ofbusinesses by nationals and firms from other CARICOM States. Persons travelling to otherMember States to provide paid services would not be restricted and steps would be takento develop common standards and recognition of qualifications.

The Treaty Revision of 2001 achieved two critical objectives:- It extended the scope of CARICOM to include the free movement of capital and

of labour and to liberalise the trade in services; and- It enshrined the principle of “national treatment” in all areas. Goods, services, capital

and labour were not merely to be given preferential treatment to those originating from outsideof the region but treatment that is not less favourable than that given to local counterparts.

17

5 The original Treaty (Art.38) had explicitly stated that countries would not be required to grant free movement.

The revised Treaty though, would not itself create the Single Market and Economy. TheGovernments’ mere agreement to grant certain freedoms and promises to carry out measuresdo not make them happen; additional institutional and administrative measures would alsoneed to be taken. Most importantly, domestic laws and regulations might need to be passedfor certain of the arrangements to be implementable and enforceable within each country.

1.3 How do the Single Market and the Single Economy work ?

The two components of the CSME are explained separately. Firstly the Single Market: itallows goods, services, people and capital to move among the participating countrieswithout any restrictions at the border. The Single Economy on the other hand, seeks toharmonise economic, monetary and fiscal policies and measures in an attempt to haveregion-wide policies in those areas. It is expected that foreign exchange and interest rate policies,tax regimes and certain laws will be coordinated and harmonised6.

1.3.1 What is in the SME for the OECS ?

The idea from the outset of Caribbean economic integration was for the eventualcreation of a genuine Common Market, foreseen under the CARIFTA agreement as “a viablecommunity of Caribbean Territories”. In 1974 what the Leeward and Windward Islands joined was however only a partial Common Market but which they all expected would be completed

eventually. In joining they would grow anddevelop as part of the “viable community”with their neighbours. The 2006 CSME isreally a stage (albeit a crucial one) inCaribbean regional integration rather thanthe completion of a process. The questionto be addressed is: having already largelyachieved free movement of goods is thereanything that is substantially new for OECScountries ?

First, what is the theoretical case? Theeconomic justification of the CSME isfounded on classical economic principles of

the gains from expansion of economic size, freedom of trade and competition. OECScountries expect to build on the benefits of economic integration in various ways includinghaving a larger market for their domestic goods and services. Instead of being limited to theirhome island, they have free access to the wider regional market. Hence, production thatwould otherwise not have been possible, can take place because of the expanded consumerbase.

Removal of restrictions on capital flows should contribute to more optimal decisionmaking on the location of investment as well as the pooling of regional resources with theeffect of increasing the impact of investment and promoting competition or the consolidationof regional firms. Similarly freedom of movement of workers should promote flexibility ofthe labour markets and make for more efficient use of the region’s pool of skills.

But will this yield concrete benefit? Of course OECS countries do not have as extensivea range and volume of products available for export as the more developed countries (theMDCs) in the region, hence, the trade benefits of the CSME both intra-regionally and extra-regionally might be disproportionately shared out.

In a speech delivered in November 2005, the Barbados’ Prime Minister pointed out thatinequality among Members of the grouping could lead to fragmentation. It was agreedtherefore that a cohesion fund would be made available for the LDCs (OECS and Belize) thatwould provide them with financial and technical assistance to help them catch up.

The other means through which the CSME is intended to benefit the OECS is via enhancedfunctional co-operation among the countries and stronger positions in external negotiations.

6 “Deepening Caribbean Integration: Barbados in the CSME.”A production of the Ministry of Foreign Affairs & Foreign Tradeof Barbados.

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The realisation of benefits in these areas will depend on a number of factors, including theappropriateness of the actual joint regional policies and the adequacy of their incorporationas well as the reconciliation of the interests of all Members. The benefit for the OECScountries would therefore depend on the effectiveness of their participation in regionalpolicy formulation.

The ability of the grouping to articulate joint positions is expected to secure greaterexternal influence and benefits for CARICOM. However for joint negotiations to actually leadto better outcomes for the individual countries, the following features must characterise thedevelopment and articulation of regional positions:

- Adequacy of incorporation and reconciliation of the interests of all countries andfull national involvement, transparency in decision-making and effective monitoringand oversight.

- Certainty of full and consistent support by all Members for the regionally agreedpositions.

- Full accountability by spokespersons, whether or not they are representatives ofgovernments or institutions.

- Competent and effective articulation, negotiation and advancement of positions.

For a regional approach to negotiations to be of greater effectiveness than the individualcountry approach, the individual States would need to continue to be actively involved in theprocess so that they could contribute to the attainment of the negotiating aims through their continued political backing and support.

January 2006 marked a crucial milestone in the integration of the Caribbean. It was notthe conclusion but rather work in progress on the construction project that was set in trainin 1973. It also represented the coming to fruition of a much earlier Caribbean dream of a singleeconomic space in the region. The case for the CSME ultimately rests on its ability to improveregional welfare through the removal of barriers to allow the free flow of goods, services,capital and labour within the region that is expected to lead to greater efficiency of production,thus enhancing international competitiveness. The CSME is therefore expected to provide aboost to economic development of the participating states.

On the 30th January 2006 only Barbados, Belize, Guyana, Jamaica, Surinam and Trinidadand Tobago signed the instruments and formal declaration launching the CSME, but itsMembership will eventually increase. The OECS group of countries has indicated that theywill join by 30th June 2006, when all their Members would be ready. Montserrat, as a Britishdependency, requires an “instrument of entrustment” from the UK in order to join.

There must be something in it for all of us.

20

7 Including “Council for Finance and Planning” (COFAP), Council for Foreign Community Relations” (COFCOR), and “Councilfor Trade and Economic Development” (COTED).

Together we will take on the world!

TTTT hhhh eeee bbbb uuuu iiii llll dddd iiii nnnn gggg bbbb llll oooo cccc kkkk ssss oooo ffff tttt hhhh eeee CCCC SSSS MMMM EEEE

The transition from a Common Market to a Single Market and Economy was made possibleby amendments to the CARICOM Treaty that centred on nine new elements or Protocols having legal forcewithin each CARICOM State that, in certain cases, require changes to domestic legislation. They are:

ManagementNew Community organs7 and institutions have been gradually introduced in recent years, intended to makethe functioning of the community more efficient. New procedures were also agreed upon, a most notable onehas been the replacement of the unanimity rule by qualified majority voting, except for decisions by the Headsof Government where it has been retained.

Right of establishment, provision of services and movement of capital This Protocol creates a regime for trade and services that will facilitate investment by businesses and personsin other Member States as well as the free movement of services, capital and selected categories of labour.This will have the most dramatic impact on business since it will ensure that CARICOM citizens and businesses will,with few exceptions, be able to establish in any country and enjoy the same treatment as locals. The completeremoval of certain of the restrictions such as the free movement of all categories of labour, as well as commoneducation standards and mutual recognition of certificates/qualifications is to be achieved over time.

Industrial PolicyThis Protocol harmonises industrial policy and seeks to promote industrial production through integration andthe establishment of enterprises with branches, subsidiaries or joint ventures in more than one Member State.A key instrument of this Protocol that will stimulate intra-regional investment is the Regional Double TaxationAgreement. In order to improve the quality of goods and provide a basis for regional participation ininternational standard-setting negotiations, the CARICOM Regional Organisation for Standards and Quality(CROSQ) has been established.

Trade PolicyThis Protocol builds upon and consolidates existing provisions such as the CET, rules of origin and customscooperation that are aimed at enabling the free movement of goods by removing all tariff and non-tariff barriers.

AgricultureThe aim here is to strengthen and upgrade cooperation in diversification and transformation of the agriculturalsectors in keeping with Member State goals of greater efficiency in production and marketing, employment,poverty alleviation and Food Security.

Transport policyMember States commit themselves to cooperate in the development of enhanced air and maritime transportsystems and the uniform application of regulatory practices among themselves.

Disadvantaged countriesA special regime is provided for disadvantaged countries, regions and sectors that need assistance in

order to become viable. The OECS countries along with Belize and Guyana have, in addition to Haïti, beendesignated as “disadvantaged” . They are to benefit from a package of measures including financial assistanceto facilitate their economic adjustment to and full participation in the CSME as well as to provide specialtransitional arrangements and a programme to attract investment.

CompetitionThis Protocol seeks to harmonize legislation on competition policy and fair-trading across the region and topromote and preserve conditions for competition, as well as promoting and protecting consumer rights.

Disputes Through this Protocol, a comprehensive system for the settlement of disputes that begins with referral togood offices, followed by mediation, consultations, conciliation and finally arbitration and adjudication has beenestablished. The Caribbean Court of Justice has been given compulsory and exclusive jurisdiction to hear anddetermine disputes relating to the interpretation of the Treaty.

Box 1

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hapter 2Bilateral / Bi-regional Trading Arrangements C

Economic integration of the OECS and CARICOM has been against a backdrop of adeep-rooted sense of Caribbean identity and long-standing aspirations for closer unity, whichwas driven by the desire to reap the benefits of the pooling of resources and markets. Theregional experience from WISA/ECCM to OECS, and from the West Indies Federation toCARICOM and now the CSME, can be understood in terms of these factors. Beyond theregion, however, trade and economic relations are instead generally motivated by the desireto secure and advance national interests. In interacting with the rest of the world, the questionfacing OECS, CARICOM and many countries is what route to follow, should they dealselectively with other countries or groupings, and seek to develop trade and remove barriersexclusively among themselves, i.e., bilaterally? Or, should they pursue the multilateral route,as advocated by the WTO, and remove restrictions on imports from all sources? The twoalternatives are examined in this section.

Although OECS countries have not yet opened up their markets to other countriesbeyond CARICOM, they are in the process of negotiating to do so. This chapter reviews thosenegotiations and their implications. The multilateral alternative, too, is explored later on. Thechoice of which approach or combination of the two should be followed, will have to bebased not on ideological considerations or political pressure, but rather on the sovereigndecision taken by the countries themselves as to what is in their best interests.

Current OECS policy is based more on the bilateral/regional rather than the multilateralapproach. The chart below illustrates the position of the OECS within the global system. Itshows the OECS within CARICOM and maintaining trading arrangements that are currentlynon-reciprocal with the EU (Cotonou), set to be replaced by an Economic PartnershipAgreement (EPA) by 1st January 2008. It also indicates their relations with the USA throughthe Caribbean Basin Initiative (CBI), and with Canada, via Caribcan, and various bilateralarrangements with neighbouring countries that are to become reciprocal over time. With theexception of Cuba, all of these bilateral initiatives can be expected to be superseded by theFree Trade Area of the Americas (FTAA). The chart shows the OECS and CARICOM fallingwithin that designated zone. All of the countries operate within the WTO; hence their relationsare subject to its strictures. Then there is the rest of the world, with countries that do notbelong to the WTO such as Russia, Seychelles, and many islands in the Pacific like Vanuatuand the Cook Islands. In the Caribbean only The Bahamas is not yet a Member of the WTO.

Figure 2. The position of the OECS within the global trading system

REST OF THE WORLD

So that is how it works !

22

2.1 Economic Partnership with Europe

When the UK joined the European Economic Community (EEC) in 1973, it had to give upthe system of trade preferences that existed throughout the Commonwealth. Under thesearrangements, the Commonwealth had operated as a sort of exclusive trading club whereMembers exempted each other’s imports from duties or charged them at rates lower thanthose applied on imports from non-Commonwealth countries. At the time, most of the formerFrench African colonies were in a similar trading arrangement with the EEC, via the YaoundéConvention. They were able to export duty-free to the EEC and waived duties on importsfrom it (i.e., this was a reciprocal arrangement). Rather than simply seeking to continue theYaoundé Convention and having it extended to the ex-British colonies, the two sets of formercolonies banded together to negotiate a radically new trading arrangement and calledthemselves the African Caribbean and Pacific Group (ACP).

At a time of great insecurity in global commodity markets and the height of the ColdWar, these countries were able to conclude an arrangement that was based on the principlesof special and differential treatment. The arrangement would provide them with financialand technical assistance and duty-free entry to the EEC for most of their exports. The ACPdid not have to offer the same facility to the EEC. It was non-reciprocal. This accord adoptedthe name of the West African city of Lomé where it was signed in 1975. It lasted for five yearsand was renegotiated at regular intervals until the fourth Convention, which entered intoforce in 1990 and had a ten-year life.

At the outset OECS countries were not yet independent and were not able to negotiatethe first Lomé Convention that came into effect in 1975. However, because of their politicalassociation with the UK they were able to participate in the trading arrangements andenjoyed certain benefits. When the various islands achieved independence they were thenable to participate fully in the negotiations with Europe.

With OECS economies so very open to outside influences and their trade and economicrelations extending beyond the confines of the Caribbean region, they are obliged to securetheir economic interests by seeking agreements further afield. So far the relationship withEurope has been central. Since their independence they have been full Members of the ACPgroup of countries and were party to the Lomé trade and aid Conventions, which, in 2000,were succeeded by the “Cotonou Partnership Agreement”. That relationship has been afoundation of their participation in international trade. Over the years a major portion oftheir exports, principally of agricultural goods, have been exported to the European Union(EU)8 where they enjoy duty-free entry, whereas competitors often face high duties. In otherwords, they enjoyed trading preferences. Also, they have been receiving considerable financialand technical assistance for their development from the EU, via its various grant and loanfacilities; the National Indicative Programmes (NIP), Regional Indicative Programme (RIP) andthe Stabilisation of Export Earnings (STABEX) which was replaced in 2002 by the Fluctuationin Export Earnings (FLEX) facility. With other ad hoc programmes like the Special Frameworkof Assistance (SFA) for bananas or for rum and the €2.2 billion Investment Fund that isadministered by the European Investment Bank (EIB), the EU is overall the largest single aiddonor to OECS countries.

That link with Europe has been so extensive, enduring and deep-rooted that it sometimesappears as an integral and permanent fixture of the architecture of the international systemin which the islands operate. However, in reality, there is nothing certain or permanent aboutthat relationship. Indeed, negotiations are currently ongoing that will fundamentallyrefashion their trading dimension.

2.1.1 The EPA negotiations and their policy context

Ever since the signing of the 1st Lomé Convention of 1975, OECS countries have beenable to export to the European Common Market virtually anything that they produce, whichmeets the rules of origin9. In certain cases, as with sugar and bananas, special arrangementsprovided them with additional support that ensured that this trade was viable and couldactually take place even when the islands might have been producing at much higher costthan their competitors.

8 The EU replaced the EEC with the signing of Treaty of European Union, at Masstricht in the Netherlands on 7th February1992.9 See glossary.

My mother wasn’teven born yet !

We really have beenwith these Europeans

for a long time.

The current system, the Cotonou Agreement, under which OECS countries can exportto the EU without having to pay customs duty, expires at the end of 2007. A new trading systemtherefore has to be agreed upon to permit OECS countries to continue their duty-freeexports to the EU from 2008. Negotiations that are aimed at replacing the current arrangementswith a new structure for trade and economic relations between Caribbean countries andEurope are ongoing. It is essential to recognise that despite the negotiations for newEconomic Partnership Agreement (EPA), the current Cotonou Agreement itself has a life of 20years, expiring by 2020. Therefore the financial aid provided in five-year cycles under theFinancial Protocols is to continue independently of the outcome of these EPA talks. This issignificant since the decision on the EPA can be based on an objective assessment of its ownvalue rather than a false perception that concluding it is necessary for the safeguarding offunding from the EU.

Given the tremendous importance to OECS economies of their trade and economicrelations with Europe, the new arrangement will be of major significance for future economicperformance, income and employment. Hence, the negotiations between the ACP and EU,launched on the 27th September 2002 that will define the new arrangements are ofoverwhelming political importance.

While the EPA negotiations have focussed on preparing new WTO-compatible trading10

arrangements aimed at progressively removing barriers to trade and enhancing cooperationin all areas relevant to trade, their agreed objectives are broader and rooted in the widerdevelopment objectives of the Cotonou Agreement. These are the reduction and eventualelimination of poverty in ACP countries, the promotion of sustainable development and, asa tool for achieving these objectives, the progressive integration of ACP countries into theworld economy.

A clear appreciation of the background and broader context of these negotiations onwhich the Caribbean and the other ACP regions have embarked with the EU is vital. Theprogress and their implications for OECS countries are reviewed below.

2.1.2 Background to EPAs

The conceptual origins of EPAs can be traced to the European Commission’s 1997 “GreenPaper on relations between the European Union and the ACP countries on the eve of the 21stcentury”. It took a critical look at the ACP- EU relationship in the light of global developmentsfollowing the end of the ‘Cold War’ and also the changing international economic environment,notably the greatly strengthened regulation of the multilateral trading system under theleadership of the WTO. New approaches to political and financial cooperation were explored,but the most radical thinking related to the options for trade. The Commission appreciatedthat the successful challenge to certain aspects of the European banana import regime byLatin American countries and the USA during the 1990s, had exposed the vulnerability of thepreferential trading arrangements to challenge within the WTO.

Currently ACP countries export their eligible products to the EU market without payingduty; however, they charge duty on imports from the EU. In other words there is no reciprocitysince trade is not free on both sides.

The European Commission wanted change. The clear preference of the 1997 GreenPaper was for a reciprocal trading arrangement with the ACP countries. (In other words,exports both from the ACP and Europe would have duty free entry into each other’s markets).This was consistent with the orientations in the Commission’s 1995 staff paper on Free TradeAreas, which proposed a twin-track approach to the promotion of EU trade and economicinterests – through multilateral trade liberalisation at the WTO and through the conclusionof bilateral and regionally-based free trade area arrangements, which secured better treatmentfor European exports i.e., trade preferences for EU exporters.

By 1998, the European Commission received a mandate from the EU Council ofMinisters to negotiate the replacement of the non-reciprocal trading system with a newtrading arrangement that would be in conformity with WTO rules, particularly GATT ArticleXXIV11. Since the ACP already enjoyed duty-free access for most of their exports to the EU,

10 See Glossary: “WTO Compatible”11 The General Agreement on Tariffs and Trade (GATT 1947), Art’ XXIV ‘Territorial Application – Frontier Traffic – Customs

Unions and Free-trade Areas’ sets out inter alia the rules governing Regional Trading Arrangements (RTA). So they want to change things

But the change mustbe good for us too.

23

the innovation in the proposed trading relationship would essentially be that EU productswould now also enter the ACP on a duty-free basis. Some sceptics saw this as a one-sidedchange offering new benefit to the EU but not the ACP. The Commission, however, insistedthat the EPA was not about market opening per se, but rather, development’. It argued thatthe EPA would achieve this by promoting ACP integration both regionally and into the globaltrading system, it would build trading capacity, be based on principles of asymmetry withmore favourable or special and differential treatment for the ACP and review the rules oforigin. Their contention was that ACP countries would gain overall from concluding EPAs withEurope.

2.1.3 What is the EPA?

This question continues at the heart of the negotiations, but fundamental differencesin perception persist between the ACP and EU sides. Commission negotiators tend often tooperate on the premise that an EPA is essentially a free trade area agreement, which, accordingto conventional WTO practice on free trade areas, must:

a) Involve the removal of import duties and taxes on “substantially all trade” between thecountries that sign the agreement. This is generally considered to cover as much as 90%of current imports and exports;

b) Be fully in place within a 10 to 12 year transition period;c) Exclude no economic sector from the coverage of the free trade area; andd) Include agreements on trade in services and trade related areas.

However, if EPAs are to support economic development and contribute to the eliminationof poverty in the OECS (and other ACP) countries, they cannot simply be classical free tradearea agreements in which all that happens is that OECS markets are opened up. They mustalso include measures to promote and support structural transformation and economicgrowth. Given the different levels of economic development of EU and OECS economies,particular care needs to be taken in devising the EPA. It evidently is important that the removalof duties and other restrictions on imports from Europe does not cause local industries tocollapse under the pressure from increased competition from imported EU goods; whichwould undermine economic development prospects. The rest of the ACP have similarconcerns to the OECS and expect EPAs to be more than classical free trade area agreements,with a little bit of extra financial assistance provided.

2.1.4 Criticism of EPAs

The EPA negotiations have been criticized virtually from the outset. First there wereisolated complaints within the ACP group and then more widely among Non-GovernmentalOrganizations (NGOs) who have been conducting a vociferous “stop EPA” campaign. Theyargue that a disadvantageous deal12 for the ACP would detract from, rather than advance,economic development.

24

12Christian Aid briefing 2004, “Why EPAs Need a Rethink”, www.epawatch.net

25

In May 2004 Botswana’s President, Festus Mogae said, “We fear that our economies willnot be able to withstand the pressures associated with liberalisation as prescribed by theWorld Trade Organisation. This therefore challenges us all as partners to ensure that theoutcome of the ongoing EPA negotiations does not leave ACP countries more vulnerable to thevagaries of globalisation and liberalisation, thus further marginalizing their economies”.

The debate over the likely impact on the ACP of EPAs, received renewed impetus fromtwo reports released in the UK. Firstly, in March 2005, the Department for InternationalDevelopment (DFID) and Department of Trade and Industry (DTI) released a joint reportentitled ‘Economic Partnership Agreements: making EPAs deliver for development13. It questionedthe contribution of EPAS, as they are currently being negotiated, to the development of ACPcountries. Then, in the following month, the Cross Party International DevelopmentCommittee of the House of Commons (The Select Committee), released its own highly criticalreport of the EPA negotiating process.

13 www.dti.gov.uk/ewt/epas.pdf14 ACP-EU Agreement of Cotonou, Art.37 Para’ 6.

DDDD eeee pppp aaaa rrrr tttt mmmm eeee nnnn tttt ffff oooo rrrr IIII nnnn tttt eeee rrrr nnnn aaaa tttt iiii oooo nnnn aaaa llll DDDD eeee vvvv eeee llll oooo pppp mmmm eeee nnnn tttt aaaa nnnn dddd DDDD eeee pppp aaaa rrrr tttt mmmm eeee nnnn tttt oooo ffff TTTT rrrr aaaa dddd eeee aaaa nnnn dddd IIII nnnn dddd uuuu ssss tttt rrrr yyyy RRRR eeee pppp oooo rrrr tttt

This report advanced the view that developing countries can gain in the long run from tradeliberalisation only if they have in place the infrastructure and capacity to trade competitively. In this context iturged the EU to pursue a non-mercantilist approach to the negotiations and avoid resorting to traditionalmarket-opening tactics. It called for ACP regional groupings to be provided with maximum flexibility for theirown market opening for European goods and services and called for the EU to offer an unconditional transitionperiod of a minimum of twenty years. It made the case for additional financial assistance to develop the supply-sidecapacity of ACP economies and to support necessary trade reforms required to build competitiveness.

Finally the report called on the EU to work within the WTO for a review of GATT Article XXIV in orderto reduce the requirements for reciprocity and for the Commission to provide an acceptable and non-punitivealternative to EPAs. This would ensure that any ACP state choosing not to enter into an EPA would not be leftworse off14. (The provisions of the Cotonou Agreement require this alternative so that countries would have areal choice when deciding to accept the EPA or otherwise).

Box 2

2.1.5 Issues in the EPA negotiations

There are a number of issues of underlying concern in the EPA negotiations that willhave to be addressed and reconciled between the two sides. These include:

The adjustment costs of EPAs and Policy responses: A particular concern arises whenformerly protected industries are no longer able to compete with imports following theremoval of tariffs. This lack of competitiveness can lead to factory closures and job losses. Ifthe introduction of EPAs is not accompanied by new and competitive domestic productionfor the local, regional or international markets, then the negative effects on producers canoutweigh the benefits gained by consumers and importers from the introduction of freetrade with Europe.

A key issue in determining the extent of adjustment costs is the level of trade on whichtariffs are to be eliminated and the pace at which this is to be done. It is important that thisprovision for asymmetry in the EPA is fully utilised by the Caribbean, with both the timeframe for tariff reductions and elimination being as long as possible and the number ofproducts that they exclude from tariff reductions being maximised.

Development focus: The initial intention of both sides was that the EPA would have a cleardevelopment purpose, rather than being a classical free trade area with negotiations aimedsimply at market opening and trade expansion. The concept of “development” in the EPA wasintended to be more than a rhetorical device or merely the provision of additional financialresources. Rather it is a shared commitment of the EU and ACP sides to construct an agreementthat in its operations would actually promote sustainable development.

For the EPA to contribute to development, it would have to support the expansion ona sustainable basis of domestic production and exports. The key impediments to achievingthis are the range of supply-side constraints facing the OECS and other ACP countries.Addressing these constraints on competitive production in a systematic and comprehensive

I better open my eyeswide - wide !

26

way is the fundamental challenge of the negotiations and is essential if ACP countries areactually to benefit from EPA’s. There is the need therefore, for the establishment of co-ordinatedand integrated country-specific programmes of assistance to address supply-side constraints,which reach beyond the current instruments and approaches.

The fiscal impact of an EPA: This is an area of concern to the OECS and many ACP countrieswhere revenue from import duties is a principal contributor to government income. Importsfrom the EU into all OECS countries are high and the elimination of duties would thereforeresult in a major reduction in overall customs revenues and have significant adverseeffects on total Government revenues. Consequently, alternative revenue sources need to bedeveloped before the fiscal losses actually occur.

An immediate challenge to the OECS in an EPA would be to establish cost-effectivealternative revenue collection mechanisms. These would have to generate enough additionalrevenue to compensate for losses resulting from the lifting of duties on imports from the EU.

If a budgetary crisis is to be avoided, such programmes of fiscal restructuring must beeffectively in place before the full implementation of any reciprocal free trade areaarrangements with the EU. Such restructuring, however, will be costly. Work undertaken bythe Commonwealth Secretariat suggests that approximately €3,300 million is required15 forthe ACP as a whole to finance programmes of restructuring and avoid the revenue lossesenvisaged under an EPA. It is important to stress that this is a transitional rather than a long-termnet-economic cost.

The erosion of the value of traditional protocol preferences: Of concern to the OECS hasbeen the severe deterioration of their trading position with the EU, even before an EPA. Thiswas due to erosion of the value of the traditional trade preferences granted through thecommodity protocols of successive Lomé Conventions and the Cotonou Agreement. Forexample, the value of the Rum Protocol was lost by the decision of the EU following agreementwith the US in 199616 to phase out the import duties that had been protecting Caribbean rum.Also, the value of the banana preferences for the Windward Islands has been undermined bythe 1st January 2006 reform of the banana regime that replaced the quota system by a singletariff and begun the phasing out of the historical-based licensing system for ACP bananas.Finally, the commercial benefits provided by the sugar protocol to the Caribbean17 will bedrastically cut back by the impact of the November 2005 reforms of the EU sugar regime.

The future value of the commodity exports that have traditionally been the foundationof the OECS trade relationship with the EU is now quite bleak. For the OECS, the critical issueis to secure trading benefits from the EPA, but they must have competitively priced goodsand services to export. Of course, OECS countries can obtain net benefit from EPAs even iftheir exports to Europe decline. However, this would require the development of exports toother markets and possibly the replacement of some imports by domestic production.

WTO compatibility: Complying with WTO rules constrains the flexibility of the negotiationof EPAs. The Cotonou Agreement commits the EU and ACP to defending, within the WTO, thearrangements that they have reached between themselves. Compatibility is therefore to beassessed in terms of anticipated, not current, WTO rules. The Cotonou Agreement uses thewords “in conformity with WTO rules then [sic] prevailing.”18

This clearly implies that the negotiations do not necessarily have initially to be in conformitywith the existing WTO rules. The understanding enshrined in the Agreement is that thenegotiations would not necessarily be strictly within the scope ‘prescribed by’ current WTOrules, their flexibility or interpretation; rather negotiators could anticipate dynamism in therules, conclude an agreement and then seek acceptance at the WTO19. It is the eventuallyconcluded EPA, not the negotiations, that needs to be in keeping with WTO rules. Thesestipulations of the Cotonou Agreement are not a matter of mere semantics, but vital to theACP for achieving their goal of negotiating EPAs that could be to their economic advantage.

A related concern is that the changes to WTO rules required by the ACP need to besecured during, not after the Doha Round, since once it has been completed, the ACP willhave no immediate and realistic prospect of getting adjustments to the rules to rebalancethem in their favour. 15This does not include transitional budgetary support, but solely the financing of programmes to restructure the revenue

base of the state, diversify exports and enhance/adapt skills and employment.16“Zero for Zero” Agreement on liberalizing the trade in White spirits between the US and the EU signed in Singapore in 1996.17OECS countries no longer export sugar to the EU. 18ACP-EU Agreement of Cotonou, Art.37 Para’ 7.19ACP-EU Agreement of Cotonou, Art.37 Para’ 8, “The parties shall closely collaborate in the WTO with a view to defending

the arrangements reached, in particular with regard to the degree of flexibility available.”

2.1.6 Matching up the two sides

Considerable differences in position exist between the ACP and EU sides. The ACPnegotiations are being conducted by regional teams that are fragmented and under-resourced.

They face a European Commission with an integrated negotiatingstructure operated by well-trained, organised and experiencedpersonnel who are backed by considerable institutional resources fortheir preparation and conduct of the negotiations and who have aclear and precise policy mandate. For the EC side nothing is left tochance; interests and objectives are meticulously coordinated andagreed by the Member States in which the views and positions of allare first accommodated or reconciled. From this political consensus,precise and detailed directions are provided to the Commission. As ateam, EC negotiators are amongst the most formidable in the worldwith considerable experience in tough bilateral and multilateral tradenegotiations aimed primarily at prising open foreign markets andsafeguarding the economic interests of Europe. With the advantages inthe negotiations overwhelmingly on the side of the Commission, it is

not surprising that the ACP has been lagging behind in securing ‘victories’ or breakthroughs.

The presentation in this stark manner of the relative power of the Commission shouldnot prompt pessimism or defeatism, but rather encourage realism, closer policy oversight andspur fuller and more professional preparation for the negotiations. Certainly the ACP regionscanimprove their prospects for success by being precise in defining their goals, as well ascoherent and forceful in pursuing them. They can fully utilise their resources and learn relevantlessons from their experiences in multilateral trade negotiations. Since ACP regions havedifferent objectives from the Commission, they do not intend simply to accept the EUpositions. However, if they are to have any hope of actually changing those positions on theEU side that they consider unacceptable, a reappraisal of their organisation, preparation forand conduct of the negotiations, as well as their deployment of political and other resourceswould be essential.

UUUU KKKK PPPP aaaa rrrr llll iiii aaaa mmmm eeee nnnn tttt aaaa rrrr yyyy RRRR eeee pppp oooo rrrr tttt

This report of the Cross Party Select Committee of the UK Parliament on EPAs was verystrongly worded. The Committee took evidence from a range of institutions and individuals, including the EUCommissioners for Trade and for Development.

The Committee observed that the relationship between the EU and the ACP is not and indeed never hasbeen an equal one. The ACP countries lack the negotiating capacity of the EU. ACP regions, most notably theCaribbean, are stretched to negotiate simultaneously in the WTO and various other regional negotiations. TheACP countries are also economically weak compared to the EU. The negotiating process should thereforerecognise this disparity in power. It called for far greater substance to the development dimension of the EPAnegotiations. For example, it noted that EU Trade Commissioner Mandelson told the Select Committee that heis in favour of promoting a more flexible interpretation of GATT Article XXIV (which deals with Regional TradingArrangements) in order to accommodate progressive market opening as envisaged under the EPAs. However ECnegotiators in the WTO have given little support to ACP efforts to secure such flexibilities under WTO rules,including the minimum eighteen-year transition sought by ACP regions before they would have to open theirmarkets to the EU. In the absence of strong EU support, the ACP proposals have been poorly received by otherWTO members, despite the numerical strength of the ACP and the EU together in the WTO.

With regard to alternatives to EPAs, the report recognised that to date none has been devised and proposedto the ACP, despite a clear requirement of the Cotonou Agreement. The availability of a satisfactory alternativeto EPAs is essential since it would permit ACP governments to assess any EPA agreement on its own merits andallow them to reject such an agreement if it did not support their economic development. The UKGovernment was asked to press the Commission to ensure that alternatives for non-LDC-ACP States guaranteethe same level of market access of the current Cotonou arrangements. The Select Committee felt that it wouldnot be sufficient for the European Commission to present the alternative as a second best option, with nodevelopmental component. This is an important issue for the OECS since its Members are not classified in thiscontext as LDCs.

Overall, the Select committee expressed concern that the EU is approaching the negotiations as if theywere “a game of poker” and refuses “to lay its cards on the table”. (Such an approach it felt might of course beacceptable for partners with comparable hands but in this particular case where the ACP is negotiating at aserious disadvantage, the EU’s approach merely reinforces the unequal nature of the process.)

Box 3

27

But if we don’t have anything to sell,

where is the free trade ?

28

2.1.7 Stop EPAs ?

Despite the implicit presumption of the NGO-led “Stop EPAs” campaign, that ACPStates cannot secure, through negotiations, the type of economically beneficial EPA providedfor and envisaged under the Cotonou Agreement, the ACP believe that it is in fact possibleto conclude EPAs that make them better off. The challenge is for the various ACP regions toeffectively negotiate and secure acceptable outcomes in the EPA and related WTO negotiations.Although the challenge facing the ACP can seem overwhelming, the Caribbean and other ACPregions have some bargaining chips that they can, and will need to deploy if the outcome isto reflect their own vision and aspirations, rather than being limited to the level of ambitionenvisaged by the Commission’s negotiating mandate. In the end, when the negotiations arecomplete each OECS and ACP country will have to assess the balance sheet of costs andbenefits of the final package and determine where its national interests lie. But OECS countriesdo not have to await the completion of the negotiations to then decide on the value to themof the deal. Rather, during the course of the negotiations, they can ensure that their interestsare adequately reflected in regional positions and safeguarded and advanced during theactual conduct of the talks.

An approach to the negotiations as outlined above in which the Caribbean and otherACP negotiating teams effectively articulate and negotiate their developmental interests areessential for an outcome that meets the objectives of both sides. It is evident that this is inthe interests of the ACP. Less evident but also true is that this is what the EU also wants.Having economically strengthened ACP regional partners is in the long-term political andeconomic interest of the EU. The process of arriving at the EPA is through negotiation hencethe EU quite correctly expects ACP negotiators to make the case for the arrangement thatwill contribute to their sustainable development. This explains the considerable supportbeing provided by the EU for capacity building in trade negotiations; it has already approved“Trade.com”, a €50 million facility, and the “Hub and Spoke” programme of €18 million thatis being managed by the Commonwealth Secretariat. In other words the EU will not simplyhand over an EPA that contributes to ACP development but leaves it to them to negotiate thesatisfactory terms for themselves.

2.2 Free Trade Area of the Americas

The push for economic integration throughout the Americas to include North, Centraland South America and the Caribbean, was motivated by both economic and politicalconcerns. In December 1994, the then United States President, Bill Clinton invited all Headsof Government of the Western Hemisphere to a Summit meeting in Miami, pointedly excludingthe Cuban leader. They all decided to create a Free Trade Area of the Americas (FTAA) thatwould link their countries, within which barriers to trade and investment would be progressivelyremoved. The negotiations, they agreed, would be completed by January 2005. This would bethe largest FTA in the world with a Gross Domestic Product (GDP) of over US$ 10 trillion anda population of 800 million. They instructed their Trade Ministers to make the necessarypreparations. These held four meetings and agreed upon a structure and guidelines for thenegotiations.

By April 1998, all was ready and negotiations were launched at the Summit of Heads ofGovernment held in Santiago, Chile. They formally agreed that the negotiations would bebalanced, comprehensive and in conformity with WTO rules. Quite importantly, the intentionwas to end up with a single undertaking. In other words at the end of the negotiations,Governments would be faced with a comprehensive and indivisible package of rights andobligations which they would accept, or could indeed reject, but only in its entirety.Countries would not be able to pick and choose aspects of the agreement that would applyto them. The combination of the comprehensiveness of the mandate and the fact that itwould be a single undertaking, make the FTAA negotiations of particular concern to the OECScountries since the outcome would have direct and indirect implications for several aspectsof their economic life.

2.2.1 Prospects and challenges

The prospect of the creation of this massive free trade area was initially enthusiasticallywelcomed. Its backers emphasised the enormous size of the market that would be created,

Hmmm...That is one bigsupermarket !

29

with benefits for trade creation, improvement to living standards and working conditions andprotection of the environment.

With the plans to have an agreement finalised by January 2005, a Trade NegotiationsCommittee was set up to oversee the negotiations and an array of working groups wasestablished to deal with the substantive areas.

However OECS Members, fully involved with EPA negotiations as well as the WTO andCSME talks, were being stretched. The problems faced by the OECS were not unique but werealso affecting other Caribbean countries. They therefore agreed to joint participation in theFTAA talks since, on their own, they did not have the personnel and other resources toindividually service the range of meetings. They therefore worked closely together and theirpositions were often articulated by a single spokesperson.

But the FTAA project itself was in trouble, global political and economic conditions hadbeen changing dramatically since 1995, when the decision to launch the negotiations hadbeen taken. Ten years later differences in vision had emerged and there was a serious rethinkingin several countries. Nonetheless, up till November 2003, Ministers had been speaking as ifthe FTAA was still on track and only Venezuela expressed a reservation on the reaffirmationof the commitment to complete the negotiations by 2005. The differences were over thescope of the talks and the linkages with the WTO Doha negotiations. The FTAA talks thereforeeffectively went into cold storage, though attempts to revive them continued.

Whenever negotiations recommence, the countries that initially joined the FTAA project,will be deciding on their positions according to their assessments of their interests. For theOECS the specific questions can be expected to focus firstly on whether the original idea ofopen markets for the Americas will provide them with net advantages and opportunitiesfrom which they would actually benefit. Secondly whether any compensating measuresprovided will be adequate to ensure that they do not lose but gain overall from the FTAA.They would also be expected to consider the alternative, i.e. the cost of staying out of a FTAAin which possibly the rest of the Caribbean (specifically CARICOM) and the Americas areinvolved. Their decision will have to be based on a carefully calculated assessment of thecosts and benefits of joining or not and their judgement of where their national interests lie.

2.3 Bilateral Trade Agreements

As Members of CARICOM, the OECS also participates in free trade area arrangementswith Costa Rica, Colombia, Venezuela and Cuba. These provide duty-free access for the OECSbut they do not immediately have to grant reciprocal duty-free entry to imports from theseLatin American countries. A longstanding arrangement with Canada, Caribcan provides duty-free access for exports from CARICOM. The future of these bilateral agreements might wellbe influenced by the creation of the FTAA.

30

All the independent OECS Members belong to the World Trade Organisation (WTO)and the others apply its rules and benefit from its provisions because of their constitutionalrelationship with the UK, which is also a WTO Member. Its principles and enforceable rulesdominate international trade and major segments of domestic production and commerce.This system has a major influence on shaping the global trading environment and defining thescope for policy flexibility for all its 150 Members. As a consequence, the WTO plays adetermining role in national economic performance, employment and well-being, especiallyin small islands that are heavily dependant on trade. It is therefore essential to understandthis institution that, during the last decade, has become one of the most powerful entities onthe world stage and whose regulations have a major impact on OECS countries.

3.1 Origins and evolution

The conceptual origins of the World Trade Organisation can be traced back to 1947. Theprevious decade had witnessed a most severe global economic depression followed by aworld war of unprecedented horror and devastation, for which the mercantilist policies thathad characterised international trading relations were partly to blame.

The leaders of the major non-communist nations who were behind this initiative weredetermined to avoid repetition of the chain of disastrous events that led to the war. Thiswould be achieved by a new approach to economic relations among States that would bebased on rules. Negotiations were then launched to create a regulator; the InternationalTrade Organisation (ITO).

The ITO was expected to regulate trade, employment, restrictive business practices,commodity agreements, investment and services and prevent protectionism. It was theambitious mandate of the ITO that anticipated what eventually became the World TradeOrganisation (WTO) on 1st January 1995; an organisation that is committed to the liberalisationof trade and oversees the bulk of global trade.

Whilst negotiations for the ITO were still ongoing, 23 countries decided that theyshould reduce tariffs on a range of imports and committed themselves not to raise them inthe future i.e., to “bind” them. They called this the General Agreement on Tariffs and Trade(GATT) and it came into force on 1st January 1948. Three months later, the ITO Charter wassigned in Havana, Cuba. It however made no headway and when in 1950, the US, the world’sforemost trade and economic power, announced that it would not be ratifying, the ITO’s fatewas sealed. It was the GATT that would manage trade rules and whose principles would shapethe evolution of the multilateral system for the next half a century.

3.2 Multilateral Principles

The principles on which the GATT was founded, have certainly evolved and adapted tochanging circumstances but their essence of promoting fair competition remains at the heartof the WTO system. The mandate to promote free trade was enshrined specifically in theGATT preamble. It achieves this objective through the following key principles.

Most favoured nation treatment (MFN)According to this rule, all Members must be treated equally. (Of course non-Members

can be and often have been discriminated against, e.g. China before it joined the WTO in2001). If an import tariff is lowered for one country or it is granted a trade concession, then,unless special authorisation is received, the tariff must be lowered equally for all other WTOMembers, or they too must be granted the same trade concession. Hence, although the bulkof tariff negotiations under the GATT were conducted among a few countries, the benefitswere made available to all Members. A notable exception to the MFN rule is in Regional

hapter 3A Multilateral Alternative - The WTOC

At least nothing like

that happened again. So that war was so important ?

Ancient history.

Trading Agreements (RTA) such as CARICOM, where Members can be authorised to providebetter treatment to fellow participants than to those that are not, even if they are WTOMembers.

National treatmentThe GATT requires that both foreign and locally produced goods be treated equally

once duties on the former had been paid. No additional charges or impediments are to beimposed on foreign goods that are not also borne by the same type of local products.

Predictability This is achieved through transparency and binding20 by which a country undertakes not

to increase its tariff above an agreed level so an exporter from abroad (or indeed a localimporter) knows what tariff his goods will face. It is true that such ceilings on tariffs can beraised but only after negotiating with trading partners (and often providing them withcompensation).

Transparency is an important factor in ensuring predictability. Whilst tariff reductionnegotiations may be conducted within restricted groups, their results must be notified to allMembers. Also, government policy is scrutinised under the regular Trade Policy Reviewmechanism. A joint review of the trade policy of the OECS Members that belong to the WTOwas conducted in June 2001.21

Supporting development Initially the GATT did not differentiate among its Members. The presumption was that

trade liberalisation and provisions to promote competition and equal treatment would sufficein enabling all countries to gain from trade. However by the early 1970’s the inherentcompetitive disadvantage of some countries was becoming evident. If the rules were to beapplied in the same manner to all, then those whose economies were already more advancedand stronger would be in a better position to take disproportionate advantage of the newopportunities. Liberalisation that did not take account of inequality could therefore lead toskewed sharing of benefits. This idea was given concrete effect in 1974 with the incorporationof a new Part IV to the GATT that recognised the weaker position of developing countries andprovided them with special and differential treatment.

TTTTrrrraaaa dddd eeee PPPPoooo llll iiii ccccyyyy RRRR eeeevvvv iiii eeeewwwwssss

Transparency is central to the operation and integrity of the WTO system. Member countries needto know that their trading partners are abiding by the rules or when they are in breach of any of them.Transparency is essential for the smooth operation, predictability and confidence in the system.

This is achieved by two means. One is a voluminous and extensive set of notifications or self-declarations by governments to be prepared on a regular basis and submitted to the WTO. The other device isthe periodic Trade Policy Review. It has three aims:

1. To increase transparency and understanding of countries policies and practices through regularmonitoring;

2. Improve the quality of public and inter governmental debate on the issues; and3. Enable the Members to assess the effects of policies.The WTO staff conducts an independent assessment, the Governments make a report and there is

the opportunity for all countries to peruse the reports and ask questions. The largest WTO Members, the “Quad”- the EU, US, Japan and Canada- are reviewed every two years,

the next largest 16 others, every four years and the others every six years. In 2001 the six OECS States who were Members of the WTO were reviewed together. The OECS

countries were given a good rating but areas of concern were signalled, notably subsidisation practices andcertain internal taxation measures and import restrictions.

This joint review was an innovation for the WTO. Since the experiment worked well, the approachof simultaneous review of similar and neighbouring developing countries has since been frequently practised.

Box 4

3.2.1 The system

By the early 1990’s the independent Member States of the OECS had become GATTcontracting parties. But before, while still colonies and later Associated States of the UK, theyhad been subject to the rights and obligations of the GATT. Upon independence they continuedto exercise and enjoy them on a de facto basis until they all individually formally becamecontracting Parties in their own right. All but St. Kitts & Nevis and Grenada were foundingMembers of the WTO. 22

31

20 See Glossary.21 OECS-WTO Members Trade Policy Review; Vols 1& 2. Report Published Geneva. January 2002.22 Grenada and St Kitts & Nevis had not ratified the WTO Agreement before the end of 1994 and became Members on the

22 February 1996 and the 21st February 1996 respectively.

A key feature of the GATT/WTO system was the use of Rounds of multilateral tradenegotiations (MTN). Members all come together to negotiate both separately with eachother (bilaterally) and all together (multilaterally). Initially they were exclusively concernedwith tariff reduction and binding. The sixth cycle of negotiations, called the Kennedy Round(1964-1967) made tentative forays beyond tariffs on goods and addressed anti-dumpingmeasures. The Tokyo Round (1973-1979) was even more ambitious, drastically reducing tariffs onindustrial products, but also tackling non-tariff measures that restrict imports. This Roundcame up with a number of agreements that were signed by only some of the GATTContracting Parties.

3.3 The Uruguay Round and the birth of the WTO

The eighth Round of trade negotiations was launched in Punta del Esté, Uruguay in 1986,and dragged on till 1994, taking twice as long as originally expected. But its agenda was ambitious,covering all the perceived outstanding trade policy issues. Not only would the traditionalsubjects be tackled - tariff reduction and binding, non-tariff barriers and anti-dumping andsubsidies - but also the hitherto “no go” subjects of agriculture, textiles and clothing andservices. The list of subjects also included a review of GATT Articles, Dispute Settlement, theGATT system and trade in tropical products.

The talks frequently ran into difficulties and deadlock, particularly over agriculture. Itwas only when the US and the Europe settled their differences over agriculture in November1992 in a deal known as the “Blair House Accord,” that progress in other areas could reallyhave taken place. Resolution of the other subjects took just over a year with agreement reachedon 15 December 1993. Although the talks had formally ended, the Members agreed to reopenand continue formal negotiations in agriculture and services, in what was termed the “built-inagenda”.

This “new creature”, the WTO, the most far-reaching outcome of the Uruguay Round,was really a metamorphosis of the old GATT that had emerged as a larger and more powerfulglobal institution that would be exercising control over a broader area of economic regulationand management. Its most decisive feature was its binding dispute settlement mechanism. Sounlike its predecessor it had real power to oversee its regulations; it had teeth!

3.4 The WTO’s Dispute Settlement Mechanism

The resolution of disputes is of such importance in the overall system that it needs tobe fully explained. It was an ostensibly small change in the procedures regarding the adoptionby the WTO of the reports of Panels that resulted in a fundamental revolution in the regulationof the multilateral system and permitted the enforceability of its rules. Prior to the WTO theGATT had provisions for the settlement of disputes. A country could complain that anotherwas violating the rules and an adjudication Panel of experts would be set up. It would reportto the Contracting Parties and the membership would have to adopt the conclusion for it tobe enforceable. The catch was that this decision needed to be by consensus. In other wordsno one objected. Unless this happened the report would not be adopted. It can well beunderstood that agreement of all countries would therefore be very difficult. At the veryleast, the Party ruled against would be unlikely to support the finding and it alone couldprevent unanimous agreement to the decision. Not surprisingly, very few GATT Panel decisionswere actually ever adopted.

The real upheaval in the system was the change to the consensus rule for the adoptionof decisions at the Dispute Settlement Body made up of Member States. Now, the Panelruling would be adopted unless it was rejected by consensus, not, as before, approved byconsensus. Rejection of a Panel finding has therefore never happened and it seems unlikelythat every Member, including the winner of the proceedings who has achieved victory aftergoing through the cost and burden of the case, would reject the findings. Hence the Panelprocess has become akin to the domestic judicial process. A complaint is made, a trialfollows to determine whether an infringement of the rules has taken place and an enforceabledecision is arrived at.

Another innovation that was introduced was the extension of the mandate of theDispute Settlement Body (DSB) to include intellectual property and services.23

32

23This is why the US, although not a banana supplier, was able to lodge a complaint in 1995 against the EU Banana Regime inorder to “safeguard” the interests of its service suppliers.

33

3.4.1 The process

The Dispute Settlement process begins when a Member or a group lodges a complaint(the Complainant/s) that another is not respecting one or more trade rules. A 60-day periodfor consultation and possible mediation follows when the countries are to seek to settle theirdifferences. If they cannot, the WTO Director General, often through a nominee, tries to helpthem reach a mutually agreeable solution. If this also fails, the Complainant/s can, within 45days, ask for the establishment of a Panel. Other countries that have an interest in the mattercan request to be Third Parties. That gives them specified rights including making submissionsand participating in certain of the meetings. The Panel, normally made up of three experts(can also be five) from different countries, examines the evidence and makes a ruling. It normallyhas six months24 to consider the case and prepare its report, with a further 3 weeks to presentit to WTO Members. If either or both Parties do not appeal against the ruling within 60 days,it is presented to the DSB for adoption. (The approval of the DSB would invariably be aformality because of the practical impossibility of obtaining a consensus in favour of rejection).In the event of an appeal, the matter is referred to the Appellate Board made up of sevenjudges. Three of them would be assigned to the case reviewing the points of law. This, theydo in 20 days and the DSB has 30 days to adopt the report.

Panel and Appellate Body decisions, once adopted by the DSB, are mandatory andenforceable. Should the Party ruled against refuse to comply or compensate the winner, thelatter can obtain approval to invoke sanctions that either compensate for non-compliance orpunish the offender so as to encourage compliance. However given international political andcommercial realities, most countries are loathe to impose sanctions, particularly againstthose that are more powerful.

This is worldgovernment !

3.4.2 OECS Participation in Panel Disputes

Although some legal assistance is available to developing countries, bringing or defendinga case is very costly and can constitute a tremendous strain on the limited financial andpersonnel resources of small countries like those of the OECS Members. They have, however,participated actively as Third Parties when they perceived their vital economic interests asbeing under threat viz. the Windward Islands in the series of Banana Panels appeals and relatedcomplaints over the last decade and St Kitts & Nevis in the case against the EC export subsidieson sugar brought by Australia, Brazil and Thailand. In only one instance has an OECS Statebeen a complainant in a dispute. Antigua and Barbuda initiated proceedings against the US inthe 2003 case on “Measures affecting the cross-border supply of gambling and betting services.”

3.5 The WTO Doha Development Agenda (DDA)

This still ongoing Round of WTO negotiations warrants special attention. It was launchedat Doha in November of 2001 and was to have been concluded no later than 1st January 2005.During that time it would continue to expand the liberalisation agenda of the WTO and addressthe concerns of developing countries.

24In cases of perishable goods, the period for the Panel to review a case can be reduced to 3 months.

34

Although the Uruguay Round had given rise to the WTO and ushered in an era ofunparalleled liberalisation particularly in agriculture, textiles and clothing and services; theprocess that had been set in train was nonetheless viewed by the major trading nations asunfinished business. They considered that markets were still too restricted and WTO disciplineswere still not being applied to a sufficiently broad range of economic and commercial activitysuch as investment, competition and trade facilitation. However, the majority of developingcountries, many of whom were becoming more assertive in the WTO, were not enthusiastic.They felt that far from benefiting from the Uruguay Round changes and the WTO, they werelosing from liberalisation. The few that were benefiting wanted to first consolidate their gainsbefore further changes were contemplated.

Following prolonged political activity, a decision to launch the Round was finallyagreed upon at Doha in 2001. But in order to win developing country support, it was to bedifferent from all of its predecessors. Whilst the Round would continue the ongoing work ofmarket opening and expanding the scope of WTO regulation, it would also seek to rebalancethe operation of the system in favour of developing countries and facilitate their participationand fuller integration into the system. However the scope of the Ministerial Declaration atDoha was broad and had at its core support for development, even if the actual negotiationsare largely preoccupied with market opening. The actual focus has been principally over theterms of a final agreement on agriculture that will eliminate export subsidies by 2013, reduceimport duties on agricultural imports and domestic support for farmers. With respect tonon-agricultural trade (NAMA), work has been progressing on alternative approaches to thephased reduction of import duties. Services negotiations, which have been taking place on a“request and offer”25 basis, are to be intensified. So far, the development dimension of thenegotiations has been largely focused on the concerns of the LDCs (the WTO uses the UN’sincome per capita criterion to determine which country is part of that category. That excludesthe OECS).

UUUU NNNN CCCC TTTTAAAA DDDD

The United Nations Conference on Trade and Development (UNCTAD) has achieved a high profilesince it was born in 1964 in response to the need for a UN conference specifically to consider the problems ofdeveloping countries and identify international actions. That conference meets every four years.

A formal structure and Secretariat were established in Geneva with the Argentinean economistRaoul Prebisch as its first Secretary General. Its mandate was to promote the beneficial integration of developingcountries into the global economy. UNCTAD would serve as the focal point in the UN system for the integratedtreatment and attention to trade and development and related issues of finance, technology and sustainabledevelopment. It would conduct research and analysis and provide technical assistance to developingcountries. The regular Ministerial and other conferences and meetings would serve as a forum for inter-governmental discussion and consensus building.

Among the notable initiatives successfully championed by UNCTAD, has been the GeneralisedSystem of Preferences (GSP). This was an arrangement under which developed countries would, under certaincircumstances, provide non-reciprocal trade preferences to developing countries. The qualifying imports fromthe developing countries would enter at a reduced or zero rate of import duty. The distinguishing feature isthat the developing country does not have to offer any trade benefit in return.

Another innovation was the international commodity agreements championed by UNCTAD. Somelike the cocoa agreement have been thriving whilst attempts to create an international banana agreementnever materialised. Work on the control of restrictive business practices did not result in any concreteinstitutions but evolved into competition policy, which is now on the WTO agenda.

The current Secretary General, Dr. Supachai Panitchpakdi, was appointed in 2005.

Box 5

3.5.1 Small Vulnerable Economies

The OECS are among those developing country Members of the WTO with specificdifficulties stemming from the small size of their economies. Reference has increasingly beenmade in the negotiations to “small vulnerable economies” (SVEs). This is quite positive sinceit indicates recognition of those countries’ concerns. However, whilst the focus has been verymuch on the SVEs as a group with shared interests in the DDA, so far there is little progresson the acceptance of concrete initiatives that would actually benefit them, such as thoseprovided to benefit LDCs. The key factor is that the group is open and membership hasessentially been on a self-selection basis. The result is that some countries that are notgenerally considered as small and vulnerable have joined the group. Its composition now

25Participating countries place on the negotiating table lists of the market opening and other measures that they wish othercountries to take (their requests) and volunteer market opening and other measures of their own (offers).

A lot of fancy talk

35

reflects a broad range of sizes and economic power in which the negative impact and theconstraints of smallness apply with varying degrees of intensity among its members.

WTO Members are understandably unwilling to grant any real trade benefits unlessthey can be clear which countries will benefit. All attempts though, to determine thecomposition of the group, have been frustrated by the objection of those countries thatparticipate in the group but might not qualify under any particular definition of SVEs that isbeing considered. In addition, paragraph 35 of the Doha Declaration stated that a new categoryof members was not to be created, so it has often been conveniently used for frustratingprogress.

Whilst representatives of small countries might be pleased to have secured referencesto SVEs in negotiating texts, success needs to be measured instead by the tangible benefitsthat are actually being secured. For instance references to LDCs only became meaningfulwhen backed by special provisions like the Everything but Arms (EBA) initiative, special accessto international finance including the Integrated Framework and now priority under the Aidfor Trade initiative.

Conclusion

The international trading system, based on rules and principles of free trade andcompetition, was not established to satisfy the needs of small countries like the OECS butthey can use it to secure their interests. Despite their numerous constraints they canparticipate in and have a voice in rule making and the management of the system. Morefundamentally they can gain from the application of the core principles of the WTO. Freecompetition assures that correct signals will be sent to investors resulting in the rationalallocation of resources, something that is most beneficial from an economic standpoint. It istrue that the system has shortcomings; maybe the most glaring is that the rules are sometimesselectively applied so that the full gains from trade are not realised because liberalisation isonly partial.

Given that the vast majority of countries belong to the WTO including virtually all ofthe trading partners of the OECS, the latter cannot afford to be left out because the costsand obligations of the rules would be applied to them anyway but they would enjoy none ofthe safeguards, rights or benefits of membership. Meaningful protection of their interests canonly be assured within the system.

Hmmm...?

36

hapter 4Bananas –The fight for the EU market

SectionThe OECS Experience •Bananas, Sugar, Rum•Tourism and other Services

C2

Table 1 Supplies of Bananas to the EU 15, 1990-2002 (thousand tonnes)

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002EU DOM 737 699 706 644 585 658 685 811 786 729 782 767 791ACP 622 596 680 748 727 764 800 693 655 676 756 730 726Of which:Caribbean ACP* 384 342 384 374 328 340 362 295.4 273 278 288 207 185Ivory Coast 95 116 144 161 149 160 181 166 158 193 200 218 211Cameroon 78 115 110 147 158 165 167 157 155 161 205 216 230Dominican 4 10 39 62 86 75 61 49 56 42 60 86 97Republic Dollar 2363 2641 2731 2560 2450 2405 2470 2462 2426 2522 2543 2561 2611Of which:

Colombia 421 518 533 452 511 557 653 569 541 552 617 644 665Costa Rica 643 608 520 565 727 564 604 603 640 663 656 634 686Ecuador 381 646 745 651 612 632 686 738 569 697 691 702 829

Panama 649 591 601 569 427 416 311 358 417 422 389 347 307

Total 3722 3936 4117 3951 3762 3827 3955 3966 3867 3927 4081 4058 4128

Source: European Commission, DG Agriculture. * Traditional suppliers

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Green gold !

The previous sections have reviewed the working of theinternational trading and regulatory system and the operationof the OECS countries within it. This section deals with thevarying experiences of the major foreign income earners andseeks to draw lessons from those experiences.

The cultivation of bananas for export to the United Kingdom market was graduallyintroduced into the Windward Islands starting from the late 1950s and steadily supplantedsugar cane. Two decades later, it had come to dominate agricultural production in Dominica,

Saint Lucia and Saint Vincent and theGrenadines, and was making a major economiccontribution in Grenada. The Islands’ share ofthe UK market grew steadily because of strictrestrictions placed on the import of cheaperbananas from Latin America. At the start of the1990s, production had peaked in the Islands,but by then, threats to the foundations onwhich that trade could continue, were emerging.In particular, the high profile and long-runningtransatlantic dispute on the trade in bananas,with its diverse mix of participants that includedthe EU and ACP on the one hand and the US andLatin American exporters on the other. At the

centre, were the Windward Islands, who were among the most determined and active, and asa result, had a decisive bearing on the evolution of the banana regime.

This chapter examines their performance, the implications for them of the outcome ofthe dispute and the lessons to be learnt, amongst the most intriguing of which is that smallnessdoes not preclude States from actually being more than passive onlookers in the processesof international decision-making that determine their future.

In 1986, the European Communities (EC) decided to unify the various national marketsby 1st January 1993, thus creating a Single European Market (SEM). Prior to this, the variousMember States had operated their own import arrangements for bananas, often applying avariety of tariff and quota restrictions. As that date approached, a struggle began over thenature of the regulation of that Single Market and the extent to which it would restrict cheaperLatin American bananas, thereby permitting European and ACP bananas to be sold.The following table indicates the changing origin of bananas supplied to the EU before andsince the single market. It shows that the countries that have been most forceful in seekingreforms have been the ones whose exports have increased the most.

37

TTTT hhhh eeee dddd iiii ffff ffffeeee rrrr iiii nnnn gggg pppp rrrroooo dddd uuuu cccc tttt iiii oooo nnnn ccccoooo ssss tttt ssss ---- AAAACCCC PPPP aaaa nnnn dddd LLLL aaaatttt iiii nnnn AAAA mmmm eeee rrrr iiii cccc aaaa

An underlying complication in the EU banana market is the substantial differential in the productionand shipping costs of its various suppliers. The large and highly capitalized plantations of Central and SouthAmerica benefit from favourable climatic and other conditions, such as vast expanses of suitable flat land withdeep fertile soils and most especially, economies of scale in production and shipping. These plantations, whichin general enjoy low unit labour and related costs, are able get their bananas to Europe at substantially lowercosts than those produced by the ACP or the overseas European producers of the Canary Islands, Martiniqueor Guadeloupe (DOM).

By contrast, production costs in the Windward Islands are high, due to a variety of factors includingtheir hilly and difficult terrain, the small size of the severely under-capitalized, family-owned and operatedfarms, unfavourable rainfall patterns and limited availability of arable land, all of which preclude any ability tobenefit from economies of scale. Their competitive disadvantage is compounded by susceptibility to stormsand hurricanes, and a wage and social cost structure that are significantly more burdensome than the averagefor plantations in the Americas and Africa.

The following table shows the differences in cost of production in 1999 among a sample of producers.

Average 1999 f.o.b. prices of a sample of suppliers (US$ per tonne)Ecuador 235Belize 419Jamaica 558Dominica 547St. Vincent 500Saint Lucia 498

Sources: FAO Year Book and Windwards Islands Banana Development Company (WIBDECO)

It is evident that being so much cheaper, "dollar" bananas (as the Latin American bananas are popularlyknown), would, unless impeded by regulation, quickly supplant European and most ACP bananas on the EU market.To prevent this happening and to permit European bananas and those from the ACP, to be sold, variousnational tariff and non-tariff barriers were introduced.

Box 6

4.1.1 The Banana Dispute

The ACP banana suppliers, felt under threat as the 1993 Single Market approached. Theywere concerned that Europe could introduce a liberal regime that would so dilute theireffective preference that they would not be able to compete with bananas from LatinAmerica. On the other hand, producers in these countries and the companies that marketedtheir fruit, principally Chiquita, Dole, Del Monté and Noboa, were keen for a more liberal

regime that would permit greateraccess for "dollar" bananas.

The first skirmishes of the "bananawar" were therefore over the nature ofthe unified regime. The EC had animport duty rate on bananas of 20%,but given the low price of “dollarbananas”, it was clear that such a tariffon its own would be insufficient topermit continued marketability ofEurope’s own and ACP bananas.

In the end, the CommonOrganisation of the Market (COM) inBananas, enshrined in EC Regulation404 of 1993, maintained overallprotection by transforming the existingnational regimes into a unified system. Itallotted tariff rate quotas (TRQs) forLatin American bananas totaling 2.2million tonnes, and each ACP traditionalexporter was assigned a maximum exporter

0

100

200

300

400

500

600

Figure 3. Average fob prices, 1999

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Selected banana suppliers

Ecua

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Cost of Bananas

was assigned a maximum tonnage within an autonomous quota for the ACP. There was noprice support given to ACP exporters, although the European suppliers were subsidized upto maximum volumes per region. In an attempt to further unify the market and provide aninducement for traders to handle the more costly ACP and European bananas, a systempopularly referred to as the "B" license system was established. It gave importers, a share ofimport licenses for the cheaper Latin American bananas, according to the volume of ACP andEuropean bananas that they handled. They could then cross-subsidise the more expensivefruit with their larger profits from the cheaper fruit.

This system was challenged from the outset; five Latin American countries (Colombia,Costa Rica, Guatemala, Nicaragua and Venezuela) were able to get a GATT Panel establishedin 1993 to review the quota system. Following negotiations with the Commission, all exceptGuatemala withdrew their complaint and later signed the Banana Framework Agreement(BFA), which gave them fixed country quotas and the consequent potentially lucrative powerto control their exports to Europe. However the 1994 BFA itself did not end the dispute sinceit excluded one of the WTO complainants, Guatemala, which enthusiastically pursued thedispute.

4.1.2 The role of diplomacy

The safeguarding of their banana industry was the top foreign policy goal of theWindward Islands. Initially they had hoped that UK support would have assured a favourableconsensus among Member States. They soon realized that despite its tremendous value in thearticulation and promotion of their interests in Council, the UK’s voice was only one amongseveral. They therefore had to learn quickly and adjust their strategy to persuading, not justone “old friend” but instead targeting the whole grouping both individually and collectively.Consequently from the outset, they were at the forefront of the coalition seeking to ensurethat the COM would effectively limit imports of "dollar bananas" so as to ensure a tight marketand high enough prices. Their message was clearly and consistently articulated by theirdiplomatic representatives to the EU but most importantly also, by senior political figureswho were quite visible and vocal campaigners in Brussels, London and Washington. Thecoalition appreciated that securing a favourable position in the European Council ofMinisters, which had the decision-making authority, would require winning over publicopinion and enlisting the support of various groups including the Commission, the EUParliament, national Governments and Parliaments, NGOs, church groups and journalists,among others. Since EU banana trade policy would not be made in isolation, the campaignerstargeted important third parties that would be exerting pressure on Europe for liberal reform.Hence, they were active in Washington focusing principally on the Congress. Also, directthough limited contact was maintained with Latin American supplying States and the multi-national companies themselves in the hope of at least tempering their opposition to arestrictive banana regime. It was the economic and social threat and danger posed to theWindward Islands that provided the moral legitimacy and rationale for the campaign.

The ACP group itself had become more active in the dispute with a prominent role forthe OECS, as the Ambassador of the three Windward Islands began presiding over the ACPWorking Group on bananas and became the group’s Ambassadorial spokesman on bananas.ACP participation in the dispute process was organized and a legal defence of the contestedprovisions was prepared. A legal consortium was engaged which worked closely with officials.Indeed, two of the legal advisers were included on the delegation of Saint Lucia to one of thePanel Hearings in Geneva. The Panel expelled them on the grounds that they were notfull-time employees of the Government. This prompted the leader of the delegation to walkout in protest at what he condemned as an unjust ruling. He complained that this woulddisempower small State Parties that cannot afford to retain the required specialists on apermanent basis and must rely on outside expertise to assist in the presentation of their casebefore a Disputes Panel. Denying them that possibility would entrench their disadvantage inWTO disputes.

This ruling by the Panel would have been appealed by Saint Lucia and the Caribbean butas Third Parties, with limited rights, they could not introduce independent grounds of appeal. Even if the Appellate Body did not explicitly overturn the contentious ruling, it reaffirmed

38 That was real war.

39

the sovereign right of countries to determine the composition of their delegations to itsmeetings. In effect, it implied dissent from the Panel's ruling. As a result, subsequent WTOpractice has allowed Parties to disputes to engage outside experts. This facility has since beenused in many instances by developing countries. Indeed, the WTO Advisory Law Centre wassubsequently created in recognition of that capacity gap in developing countries.

4.1.3 Resolution of the dispute and subsequent reforms

In an attempt to conform to multilateral trade rules, following the successful WTOchallenge to the regime by the Latin Americans, the EU introduced a new system on 1 January199926 that among other things abandoned the “B” licences. However, the new system wasonce again successfully challenged, this time by Ecuador, which claimed that the EC had stillnot complied with the previous Panel's decisions.

The earlier defeats in the WTO compounded by the US imposition on the EU of US$191million worth of trade sanctions (the US levied duties of 100% on a range of imports from theEU), more than anything else, completely changed the attitude of Member States. With thedispute now costing their exporters, they were determined to end it and directed theCommission accordingly.

In a surprise announcement on 11th April 2001 the Commission and the US TradeRepresentative jointly confirmed that agreement was reached to end the dispute. Ecuador,the winner of the last Panel, incensed that a deal was struck without its involvement, threatenedto initiate new proceedings in the WTO. To avert this, the EU quickly started discussions withEcuador. They were formally concluded on the 30th April 2001 with an agreement that leftintact most of the US/EU deal but made some minor changes to the proposed reform.

The Agreements were reflected in a new set of import rules enshrined in a CommissionRegulation adopted on 2nd May 2001 and the licensing system was changed to allocate sharesdifferently among operators. The EU undertook to replace the TRQ system by 1st January 2006with a single tariff that would not impact negatively on Latin American bananas.

With the implementation of the Agreement, the US ended its sanctions and along withEcuador agreed to support the EU application within the WTO for a waiver for the EU-ACPCotonou Partnership Agreement. This was done at the Doha Ministerial Conference ofthe WTO on 14th November 2001, and the EU was authorized by a “waiver”27 to grant tradepreferences to ACP countries.

4.1.4 Consequences for the Windwards

The Windward Islands, through their marketing company WIBDECO, controlled sufficientimport licenses to be able to handle their exports. However production was declining sharply,due principally to the reduction in the number of farmers and the abandonment of farms.The following shows the declining number of growers in the Windward Islands, falling from24,100 in 1993 to 7,300 in 2001. The consequences of such a decline on rural employment andincome were massive since there is no evidence of sufficiently widespread establishment ofalternative productive activities.

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Figure 4. Number of active banana growersin the Windward Islands, 1993-2001, thousands

26 The EC implementation measures are contained in the following regulations: i) EC Regulation No. 163/1998 amending thecontested parent EC Regulation No. 404/1993 which established the Common Organization of the Market in bananas ii)EC Regulation No. 2362 of 1998 which laid down the detailed rules for implementing Regulation 404 of 1993. EC 1998Regulations, No’s 1637 and 2362 were applied from 1 January 1999.

27 See Glossary.We did all that.

It was not only the loss of direct and indirect employment (at the ports, in transportation,production of packaging materials, etc.), which resulted from the decline in banana production,but also the loss of national income due to declining export earnings from banana exports.The following table (table 2) and chart (fig. 5) show what has been happening, in constant USdollar terms.

Table 2 Banana Export Values (fob) (US$ million)

Year Windward Islands Jamaica Belize Surinam

Dominica St. Lucia St. Vincent Grenada Total

1991 32 60 34 4 130 49 7 10

1992 32 72 40 3 147 40 10 101993 26 55 25 2 107 36 12 111994 24 49 17 92 46 15 111995 18 52 25 2 97 46 22 81996 18 52 22 1 93 45 29 91997 18 37 16 - 71 45 26 241998 15 37 22 - 74 36 25 151999 15 34 20 - 69 29 27 212000 12 28 19 - 59 23 .. ...2001 8 16 13 ... 36 ... ... ...2002 ... ... ... 45 ... ... ... ...

Source WIBDECO (Windward Islands 1992-2002) FAO Yearbooks vols 47, 50, and 53. Values for Jamaica, Belize and Surinam for 1999 and 2000 are from NERA.

Figure 5. Export values for bananas fob, 1991-2002, $US million

Source : WIBDECO

The economic consequences of such a massive loss of earnings by a sector whose incomerapidly circulated within the rural and national economies, was quite catastrophic. The ACPMinisterial spokesman on Bananas, Senator Julian Hunte, addressing the 28th ACP-EU Councilof Ministers in May 2003 stated, "Dominica, one of the most vulnerable suppliers, has been sodamaged by the falling prices and resultant export volumes that its economy is literally on theverge of collapse. It had to have recourse to the IMF but a turnabout would only be possible ifthe country can again begin to earn sufficient foreign exchange".

4.1.5 2004 – EU Enlargement

In May 2004, 10 new Members acceded to the Union and in keeping with its WTOcommitments to MFN suppliers and the new Member States themselves, the EU increasedthe "dollar" quotas. However, this still did not contribute to increasing the volume of exportsfrom the Windward Islands. The ACP quota had been left unchanged and in any eventWindward’s production and export had continued to decline, in part due to previous reformsand falling investment as many farmers lost confidence.

40

That is a lot of people to lose their work

41

4.1.6 More recent threats: Arbitration and the abolition of quotas

After a period of relative calm following the 2001 EU/US and EU/Ecuador understandings,the next challenge for Windward Island bananas came with the dismantling of the tariff rate

quota system and its replacement by a flat or singletariff in 2006. Just one tariff was to be levied on all MFNimports. Given the differences between costs ofproduction in the Windward Islands and the mostcompetitive "dollar" suppliers, unless the tariff issufficiently high, the former would not be able to findbuyers for their bananas because their bananas would betoo expensive. Whilst the Windwards required a hightariff under the 2006 flat tariff regime for their dutyfree bananas to be competitive, the Latin Americanproducers resisted that. The lowest cost Latin Americanssuch as Ecuador feared that a high tariff would increaseprices and depress demand, hence their exports woulddecrease. The higher cost producers were concernedthat they would lose market share to the lowest costACP suppliers. Many of the trading companies envisagedthat they would lose income as quota rent disappeared.28

Quite early, the Commission embraced the ideaof placing a ceiling on the volume of ACP bananas thatwould be eligible for duty-free entry under the new

system. This could partially appease the Latin Americans and the European producers, theLatin Americans and the European producers, who were concerned about the expansion ofexports from West Africa. This, though, would cause problems of its own for the ACP, unlessadequate safeguards were introduced, since the restriction of the growth of overall exportswould lead to the displacement of other, more vulnerable Members of the ACP Group.

According to the agreement reached at Doha in 2001, the EC, upon request, wouldenter into consultations with any interested Member of the WTO that had interests in the EUbanana market. The Latin American suppliers had the right to take the issue to arbitration ifthey were not satisfied with the proposed tariff level. The outcome that the WindwardIslands dreaded was that the tariff could be too low to provide a sufficient margin ofpreference to permit their bananas to be saleable.

4.1.7 The CARICOM-OECS position

Facing such a grave threat to the banana industry that could well result in their completeinability to continue to sell bananas to Europe from the start of 2006, CARICOM appointedthe Prime Minister of Saint Vincent and the Grenadines, as “the lead Head of Government onbananas”. He quickly organised an International Banana Conference in Kingstown in June of2004 to assess the prospects for the industry and chart the way forward. Its varied list ofparticipants included Prime Ministers and other high level representatives from the otherWindward Islands.

The conference renewed the islands’ firm commitment to the continued production ofbananas and to securing the future viability of the industry by taking the necessary measuresto safeguard it and ensure its sustainability. A detailed domestic strategy was drawn up, andit included the minimization of costs and maximisation of efficiency at all stages of production,handling, transportation, ripening and wholesale distribution; the application of moreinnovative production and marketing techniques, as well as product differentiation such asFair and Organic Trade, and the greater utilisation of the tourist and regional market for bananas.

The conference agreed upon a “comprehensive, focused, action oriented, lobby andpolitical awareness campaign aimed at bringing about a more informed and favourable attitudeto our interests among decision makers in the EU.” 29 For this purpose a series of actions wereinitiated, including a letter campaign to key EU leaders. To assist the CARICOM Spokesmanin coordinating the political campaign and to complement the work on bananas of theWindward Islands Diplomatic Representatives, a Special Envoy to the EU was appointed.

28See Glossary.29 Extract from Communiqué following the International Banana Conference,St. Vincent & the Grenadines, 10 June 2004.

But we had guts too!

Just sticks and stonesagainst their big guns

42

The Special Envoy assessed and analysed the prospects for safeguarding market accessand recommended strategy and tactics to be pursued by the Windward Islands. He manageda lobby campaign directly targeting European and UK Parliamentarians and leadingjournalists, NGOs and others with influence in policy formulation in the EU. A website,www.bananasontheline.com, was created to assist in getting the message to a broaderaudience. An informal alliance that eventually became know as “The Friends of Status Quo”was established, comprising selected Ambassadors, representatives of the European producerorganisations, trade union representatives, NGOs and certain marketing companies.

Information was regularly fed to and exchanged among the group. Other activities ofthe Office of the Special Envoy included monitoring and analysing the rapidly changingdevelopments and reporting on them to Governments and providing advice on preferredstrategy and options.

Towards the end of 2004 the MFN suppliers and the Commission began consultationsfor setting the level of the flat tariff that they had agreed would be implemented in 200630.The talks, though, made little progress. The Latins were arguing for a tariff at a maximum levelof €75 per tonne whilst EU producer interests were advocating tariffs ranging from €275 to€300 per tonne. The ACP had been seeking a tariff of €275 but initially did not insist on itsright to be fully associated with these consultations. The Commission announced at the endof January 2005 that it would set a tariff of €230 and the MFN suppliers immediately hadrecourse to WTO Arbitration and the WTO Director General appointed a three-MemberPanel. It was only at this stage that the ACP sought full participation. However, it was notsuccessful and was relegated to Third Party status.

Two Arbitration procedures were conducted during 2005 in Geneva, during which theEU defended its tariff proposals of €230 and €187 respectively.31 Both ended in favour of theMFN countries, and against the EU and the ACP who required a high rate in order to maintaintheir access to the EU market. In the end, the Commission unilaterally imposed a tariff of€176 euros on MFN imports, and decided that ACP imports should continue to enter undera quota that was increased from 750,000 tonnes to 775,000 tonnes. This did not satisfy theLatins, who contested the figure and raised the matter at the 6th WTO Ministerial Conference,held in Hong Kong in December 2005. The Conference did not rule on the level but set up amonitoring mechanism, under the supervision of the Trade Minister of Norway to assess theimpact of the new rate on imports from MFN suppliers. Despite this arrangement some ofLatins have had recourse to the Dispute Settlement mechanism of the WTO.

4.1.8 Beyond Cotonou

By 2008, the current Cotonou trade preferences for ACP countries would have expired.Whatever replaces them will be determined by the current negotiations between the ACPand the EU for new Economic Partnership Agreements (EPAs). However, the prospects for thecontinued marketability in the EU of Windward Island bananas will depend not only on thelevel of duty on “dollar” bananas and the nature of the preferences secured but also thestructure of the banana market in place at the time, which will impact on market prices andsecurity.

4.1.9 Charting a course for the future

The aim of the small Caribbean traditional banana suppliers at the start of the lastdecade was simply to secure continued access to the EU banana market on a viable basis.They sought to ensure that the changes to the regulatory system would be sufficiently benignto ensure adequate preferential margins and high enough market prices. This was in thecontext of general appreciation of the need for drastic restructuring of their banana industriesto substantially reduce costs of production to make the industry more competitive. Of greaterlong-term significance was the acceptance that the agricultural sector and wider economywould need to be restructured to create new sources of income and employment.

Despite their small size and lack of power in the traditional commercial and politicalsense, these islands, through commitment and perseverance, were able, along with their alliesand supporters, to ensure that the banana import regime retained its preferential character

30 Annex to WTO decision on the waiver for EC-ACP Partnership Agreement - 14 November 2001 Doha.31 The Arbitrator’s first decision indicated that the EU’s proposal of €230 did not maintain total market access for MFN

countries and the EU made a second proposal of €187.

43

and that the market continued to be regulated so that prices remained remunerative for theirfarmers. Their problem however is that despite advances in efficiency, reflected in reducedcosts and improved quality, the differential between the competitive Latin American producersand the Windward Island producers remains wide. Whilst these islands have achieved aconsiderable measure of success in the battle over the regulation of the system, they havebeen losing market share with their exports falling drastically, from 274,000 tonnes in 1992 to99,000 tonnes by 200232. The result has been an increase in unemployment and sharp declinesin foreign earnings.

If the Windwards are to avoid the complete loss of the market before alternativeproductive activities have been developed, they will need to ensure that regulatory changesto the market over the next few years preserve the required favourable and preferentialaccess terms essential to their ability to dispose of their bananas in Europe. For their longterm economic stability and growth, it will be essential that continued attention is paid tominimizing costs of production at all levels in order to reduce as much as possible the costhandicap which they face. Most importantly, renewed commitment and efforts will need tobe put into diversification into new lines of agricultural and non-agricultural production andservices. The long banana fight by the Windward Islands, their supporters and allies, was notto change the underlying economic and commercial realities militating against the Islands’lack of competitiveness. However, the real achievement was to “buy them time” that couldbe used to undertake the required diversification and economic restructuring.

32 Source: Windwards Islands Banana Development Company (WIBDECO)

Sold down the river...again !

44

hapter 5SugarC

For centuries the Leeward and Windward Islands had earned their livelihoods from theproduction of cane sugar. The islands began to leave the industry from the 1950s and by thebeginning of the last decade only St. Kitts/Nevis remained in production. Its sugar exports tothe European Union were made possible by special guaranteed preferential arrangementsenshrined in the Sugar Protocol of the ACP-EU Cotonou Agreement. The secure earnings fromthis trade contributed to stability of rural incomes and earnings from sugar exports, whichwere the foundation for national economic growth and development. However, threats tothe regulatory basis on which this trade operated began emerging within the last decade. Thebackground and the recent experiences and challenges that faced St Kitts/Nevis exports andthose of other ACP producers are explored in this chapter.

5.1.1 The Sugar Protocol

The sugar industry is a dominant force in the economies of most of the ACP supplyingStates. The following chart summarises its contribution to foreign earnings and employment.

Country Year

BarbadosBelizeFijiGuyanaJamaicaMalawiMauritiusSt Kitts/NevisSwazilandTrinidad &TobagoZimbabwe

2001200120012000199920012001199920012001

2000

Contribution to ForeignEarnings Share of Employment

% of agricultural

exports% of total

exports% of

employmentin Agriculture

% of totalemployment

100%22%

67.4%65.2%48.7%11.2%89.6%92.3%34.4%18.2%

7.6%

12.5%19.6%23%

22.6%8%9%

19.5%21.8%9.4%0.6%

3.3%

52.6%51.2%12.8%32.2%16.4%5.5%

80.2%58.27%80.9%61.7%

7.8%

1.8%14.1%7.3%9.7%2.9%1.3%6.4%8.45%8.6%4.8%

2.1%

Source: compiled from Third Party Submission by the ACP Sugar Industries, to the WTO Panel. 18 March 2004.

Table 3 Contribution of sugar to employment and foreign exchange

33 Protocol 3 of the ACP-EU Partnership Agreement, Cotonou, Benin, 2000.34 Milner C. R. and Morgan L.W. “The impact of the ACP of the reduction by the EU of import export subsidies on Sugar”. 35This system also encompasses a production quota scheme, guaranteed price and intervention mechanism, export refund

programme and production levies operating within a unified and interlinked structure. That was a sweet deal

The Sugar Protocol, originally signed on 28 February 1975, committed the EuropeanCommunities (EC) “for an indefinite period to purchase and import, at guaranteed prices,specific quantities of cane sugar, raw and white which originate in the ACP States and whichthese States undertake to deliver to it.”33 This arrangement initially boosted the development ofthe sugar industry in St Kitts/Nevis and other ACP States and provided them with guaranteedmarket access at predictableand stable prices, which for several years have been significantly in excess of world marketprices. The latter had, in general, been too low to cover costs of production and offer aremunerative return to ACP producers. Between 1990 and 2001, average EU prices were 61.14US cents/kg as opposed to a 22.20 US cents/kg on the world market.34

The key elements of the Sugar Protocol from its Members’ standpoint are the guaranteedpurchases of a fixed quantity of sugar (1.3 million tonnes from ACP and India) and the annually“negotiated” price, whose level is to be “within the price range obtained in the communitytaking into account all relevant economic factors.” The preferential arrangements for the ACPand India are part of a much broaderstructure, the Common Market Organisation (CMO) forsugar in the EU.35 If for whatever reason changes in the character or operation of the SugarProtocol result in significant price declines, exporting countries will be obliged to reducecosts of production, find new sources of replacement income or both.

5.1.2 Threats to the Protocol

Whilst the legal integrity of the Protocol has so far not been explicitly challenged, itsability to continue to provide prices that are sufficiently remunerative, has been undermined.

It is dependent on the EU’s CMO which is being reformed, causing drastic price cuts. Changeis being forced by both internal and external pressures, the latter coming principally from themandate set out in paragraph 13 of the WTO Doha Ministerial Declaration of 14 November2001.

Negotiations that made reform imperative had already been launched in the WTOsince 2000 under Article 20 of the Agreement on Agriculture,36 but were given new impetuswhen, in the following year, Ministers launched the Doha Development Agenda with itsambitious plan for agriculture, to “establish a fair and market-orientated trading systemthrough a programme of fundamental reform encompassing strengthened rules and specificcommitments on support and protection in order to correct and prevent restrictions anddistortions in world agricultural markets.” Based on that objective, Ministers in theirDeclaration, committed to “comprehensive negotiations aimed at: substantial improvementsin market access; reductions of, with a view to phasing out all forms of export subsidies; andsubstantial reductions in trade distorting domestic support.”37

Even as these negotiations were proceeding, Australia and Brazil on 27th September2002 filed a complaint in the WTO, alleging that export subsidies in excess of the EC’s approvedceilings were being granted and that the provision of the guaranteed price, since it is availableonly to domestic producers, violates the national treatment provisions of GATT Article III.The complaints were followed by fruitless consultations and eventually a Panel, the“European Communities - Export subsidies on sugar” was established on 29th August 2003 bythe WTO’s Dispute Settlement Body and was composed on the 23rd December of the sameyear with Thailand joining in as a complainant.

The ACP sugar suppliers were Third Parties to the dispute and provided both writtenand oral testimony. This dispute was less about the ACP than about Europe’s own productionsupport and subsidisation policies, the principal beneficiaries of which were its own farmerswho supplied the bulk of the market. Even if the ACP’s share of the EU market was small, theexports were of overwhelming importance to the countries. The quota allocation of StKitts/Nevis was 14,800 tonnes accounting for virtually all of its exports to Europe. This is whySt Kitts & Nevis and the other Sugar Protocol Members were so determined to secure afavourable result from the Panel proceedings.

The Panel ruled in favour of the complainants. The report was presented to the Partiesin the first week of August 2004 and the ruling was appealed, but the Appellate Body foundthat certain EU sugar exports benefited from cross-subsidisation and that the EU had beenexceeding its export subsidy commitments. Reform of the CMO for sugar became clearlyinevitable and was being forced on Europe by the final outcome both of this dispute and ofthe ongoing WTO Agriculture negotiations.

5.1.3 Reforming the EU Common Market Organisation for Sugar

Anticipating these pressures and obligations to “liberalise”, the EU Commission, in July2004, announced plans for reform of the CMO. In a communication to the EuropeanParliament on the fourteenth of the same month, the Commission proposed: “A significantreduction in two steps of the institutional support price for EU sugar with the abolition ofintervention and the introduction of areference price. This reference price will serve in theestablishment of the minimum price for sugar beet producers, the trigger level for privatestorage, the level of border protection and the guaranteed price under the preferential importmechanism.” It also noted that: “In addition, the proposal will provide the basis for initiatinga structured dialogue with EU partners in the developing world on the sugar sector, in orderto consider the manner in which the EU can best contribute to necessary and inevitable adjustmentin sugar production in African, Caribbean and Pacific countries (ACP) and India.”

As the EU Agriculture and Rural Development Commissioner, Mrs Fischer-Boel said to the EUParliament in June 2005, “The need for change is born of forces working both at home andabroad.” That month, her Directorate put out a public document summarising the imperativefor reform as being driven by:

The unacceptability of artificially high prices, currently three times those on the worldmarket. The reform would promote more market-orientation while the restructuring of thesugar sector takes place. Ultimately market prices will revert to their intended role of being

36“Continuation of the Reform Process” Article 20; WTO Agreement on Agriculture; Marrakesh 15th April 1994.37Doha Ministerial Declaration, 2001, paragraph 13.

•

45

the (undistorted) factor in the allocation of resources and investment decisions.The ruling of the WTO’s Appellate Body against certain of the practices of the EU’s

sugar regime.The need to replace the existing sugar regime that is set to expire on the 30th June 2006.

Given EBA commitments and the WTO ruling, continuation of the existing system was rejectedas an option.

As outlined in the European Commission’s June 2005 statement, “The European Sugarsector- Its importance and future”, it will “Substantially cut back sugar exports and exportrefunds, abolish intervention, reduce EU production and the informal sugar price and grant ade-coupled payment to sugar beet farmers”. According to the projections of the Commission,support prices will drop by 36% over three years.

The negative economic consequences of such a major fall in prices and hence revenuewill be considerable. (There will be no increase in overall volume since the country allocationsunder the Protocol are fixed). The Commission confirmed that it will assist the Protocol countriesand India to adapt to the new market conditions with programmes for improving thecompetitiveness of the sugar sector, where it is economically viable, and provide support fordiversification, when improvements in competitiveness in the sugar sector are not sustainable.

5.1.4 Consequences for the Sugar Protocol Members

St Kitts/Nevis and the other beneficiaries of the Sugar Protocol are all small economiesand their very heavy traditional dependence on the income from their sugar exports toEurope makes them particularly vulnerable, since changes to the system that result in incomeloss or contraction of the industry are greatly magnified and can have severe consequencesfor the entire economy. The Technical Centre for Agricultural and Rural Cooperation based inthe Netherlands computed the likely impact on national earnings for ACP States of theCommission’s reforms. The following table summarises the projected loss of earnings.

•

•

Country Sugar

Protocolquota(tonnes)

Current earningseuros

(€523.70/t)

Earnings AfterStage 1 reform

(€329.0/t)

Income losses from

reform euros

Table 4 Projected loss of earnings

Source: “Agritrade,” a publication of the Technical Centre for Agricultural and Rural Cooperation

Belize 40,349 21,130,771 13,274,821 - 7,855,950

Congo 10,186 5,334,408 3,351,194 - 1,983,214

Ivory Coast 10,186 5,334,408 3,351,194 - 1,983,214

Fiji 165,348 86,592,747 54,399,492 -32,193,255

Guyana 159,410 83,483,017 52,445,890 -31,037,127

Jamaica 118,696 62,161,095 39,050,984 -23,110,111

Barbados 50,312 26,348,394 16,552,648 - 9,795,746

Madagascar 10,760 5,635,012 3,540,040 - 2,094,972

Malawi 20,824 10,905,528 6,851,096 - 4,054,432

Mauritius 491,031 257,152,935 161,549,199 -95,603,736

St Kitts/ Nevis 15,591 8,165,007 5,129,439 - 4,313,432

Swaziland 117,845 61,715,426 38,771,005 -22,944,421

Tanzania 10,186 5,334,408 3,351,194 - 1,983,214

Trinidad & 43,751 22,912,398 14,394,079 - 8,518,319 Tobago Zimbabwe 30,225 15,828,832 9,944,025 - 5,884,807

The economic impact of such massive loss of income will be considerable and will forceACP countries to adapt. Already St Kitts/Nevis has found that it is unable to continue underthese circumstances and has abandoned the industry altogether.

5.1.5 Securing and using financial support

At a meeting with CARICOM Trade Ministers in Guyana in January 2005, EUCommissioner Mandelson spoke of the early provision of restructuring assistance that would assistcountries to prepare for the anticipated changes rather than seeking to adjust subsequently.

46 So they wanted cheap sugar

47

The Commission put out a working document in the following month indicating its preferencefor funding and delivery of assistance through country-specific sugar adjustment strategies inthe form of budgetary support. Project funding would also be possible but considered torequire too much bureaucratic effort. A compensation figure for the ACP of €40 million wasincluded in the Commission’s 2006 budget. Caribbean and other sugar suppliers protestedvigorously that this sum was inadequate. The actual figure has since been increased to €165million in 2007, gradually increasing in later years and ending at €190 million in 2013. Thoughsubstantial, this figure falls short of the earnings that the ACP envisages that it will lose as aresult of the reforms.

It could be narrowly argued that St Kitts/Nevis, having given up the industry, no longerwould be entitled to support for restructuring and diversification. It will take the country aconsiderable amount of time to replace the income and employment from sugar cane withnew productive activities. Consequently a long-term programme of assistance is justifiedand substantial external funding will be required. The challenge to the country will be todemonstrate that even if it no longer has an industry to restructure, it remains fully entitledto EU support for diversification.

CCCCoooo mmmm mmmm oooo nnnn FFFFuuuu nnnn dddd ffffoooo rrrr CCCCoooo mmmm mmmm oooo dddd iiii tttt iiii eeee ssss

The common fund for commodities is an inter-governmental financial institution that was negotiatedin UNCTAD during the 1970s. It came into force in 1989 and has 106 Members. It provides financing fordevelopment projects, with a commodity rather than country focus. It currently is operating a five-yeardevelopment plan (2003-08) with activities geared to benefiting commodities of interest to LDCs and thepoorer strata of the population and small holders as well as small and medium sized industries involved inprocessing and trade. Projects that have been funded include cocoa quality improvement, pilot facility forcoconut coir processing, organic banana promotion, use of cassava in animal feed, cassava processing, forestproduct processing.

The executive office of the Fund is located at P.O. Box 74656, 1070 BR Amsterdam, The Netherlands,tel: 31 205 754 949, fax: 31 206 760231; e-mail: themanaging.director@common-fund.org

Box 7

5.1.6 What future for sugar?

The ACP Sugar Protocol Members, especially St Kitts/Nevis will need considerableand multi-faceted external financial and other support for the adjustment of their economiesas income and employment in the sugar industry decline or disappear. An essential componentof the adjustment process will be diversification of their economies. However a most seriousobstacle is the inadequacy of access to risk capital on affordable terms for entrepreneurs inproductive enterprises. Unless this obstacle is overcome, diversification programmes willeither fail or make unacceptably slow progress.

The offer made by the Commission to initiate dialogue with the ACP sugar suppliersand to draw up tailor made assistance programmes, needs to be seized upon. This will ensurethat the programmes are consistent with national economic policies and that the scope andterms of support are adequate. Also, it is for the countries to ensure that the funding andsupport programmes are devised and administered in such a manner that they can have realimpact as intended. There is already experience with external support for adaptation anddiversification of the banana sector using Special Framework of Assistance (SFA) and SpecialSystem of Assistance (SSA) funds. It would be in the interests of ACP sugar suppliers to learnfrom that record.

RRRR uuuu mmmm

The Rum Protocol of the ACP-EU conventions of Lomé had given to the ACP, essentially theCaribbean, a quota for duty free entry of bulk rum to Europe, where it was bottled. However, in 1996, theProtocol was effectively abandoned. In that year, the quotas on ACP rum were lifted and the Caribbean wastherefore for the first time able to freely export rum to the EU, including bottled rum. The advantage did notlast very long and in March of the following year, Europe and the US agreed to lift their tariffs on four of theeight customs classifications of rum. This would considerably reduce the tariff preference that the Caribbeanhad previously enjoyed. This was the result of an agreement reached in the margins of the WTO MinisterialMeeting in Singapore known as “zero for zero”. This EU/US trade deal, reduced duties over a phasedtransitional period (2000-2003) not only between the two parties, but also on imports from all other WTOMembers in keeping with the MFN principle.38

Caribbean Governments and the West Indies Rum and Spirits Producers Association (WIRSPA), whoonly learnt of the deal subsequently, were incensed that the US and the EU had arrived at it in secret. Followingvociferous Caribbean protests and intensive negotiations the EU agreed to provide support for the ACP rumproducers. A Declaration, number XXV, was agreed upon and appended to the Cotonou Agreement. It wasaimed at providing support for the rum industries of the ACP sector to achieve the following:

- Enhancement of the competitiveness of existing exporters of rum;- Assistance in the creation of rum marques or brands by ACP region or country;- Enabling of marketing campaigns to be designed and implemented;- Assistance of ACP rum producers to meet environmental and waste management standards and

other norms in the international markets including the Community market;- Assistance of the ACP rum industry to move out of bulk commodity production into higher value

branded rum products.The most innovative feature of this €70 million EDF support scheme was that it was managed by the privatesector rather than being channelled through the public sector.

The Caribbean rum industry used this support to help in its branding, bottling and marketing, whichhas permitted a greater degree of value addition in the region itself and secured greater economic benefit forexporters. The aging, blending and bottling processes permit substantially higher selling prices and earningsthan from the export of bulk rum.

A new threat however is looming. The EU is determined to proceed with the liberalisation of thoseremaining rum tariff lines on which it still maintains duties but had agreed with the US that it would lift. Thiswould complete the elimination of the remaining tariff preference enjoyed by Caribbean rum exports to theEU. The Caribbean exporters argue that they do not oppose liberalisation but urge the EU to avoid theprecipitate lifting of the remaining protective tariffs. This, they fear, would have a devastating impact on theindustry by exposing it to increased competition from other producers like Brazil.

Box 8

38See GATT/WTO principles, chapter 3:2.

Conclusion

The recent experience of commodity trade has been mixed. However the economiccontribution of those productive activities is undeniable. The essential problem that theOECS faces however, is that largely because of relatively high labour costs, small size anddifficult terrain, they are high cost producers of agricultural goods - not only the traditionalcrops. This is a key policy concern to them. The factors that have prompted traditionalcommodity production to be caricatured as “sunset industries” would equally constrain theachievement of international competitiveness in other areas of agriculture.

Sunset industriesor economic base?

48

49So that is

how they do it.

MMMM aaaa kkkk iiii nnnn gggg tttt rrrraaaa dddd eeee pppp oooo llll iiii ccccyyyy

Like other national policies, trade policy is conceived and developed by the Governmentadministration, principally the Ministry responsible for foreign trade, with the involvement of other Ministries,though the extent varies from island to island. The Ministry takes into account the interests of the country asa whole and seeks to reconcile views of the business community, professional organisations, workers,consumers, and others. In the end therefore, the policy is one to which not just the Ministry has ownership,but the entire Government, and it enjoys national commitment.

National policies often have to be taken to a higher level, that of the OECS. Here, they have to bereconciled, refined and coordinated. The institutional mechanisms for those tasks are the Trade NegotiationsCommittee, which meets at the level of officials and the Trade Ministers, who meet periodically. The supremerule-making body is the Authority of Heads of Government. Via this route, OECS-wide policies are devised.The OECS Secretariat and its Trade Policy Project facilitate this intergovernmental coordination.

The OECS might often wish its policies to be incorporated into wider CARICOM policy oralternatively, to influence development of the latter. The organ with the principal responsibility for policycoordination at the CARICOM level is the Council for Trade and Economic Development, (COTED) whichmeets regularly at Ministerial level. All OECS countries are represented on COTED. The Regional NegotiatingMachinery coordinates negotiations and regional positions.

Box 9

50

hapter 6Tourism and other Services The issues in multilateral negotiation

C

With the combined effects of the erosion of preferences for traditional agriculturalexports and the islands’ relatively high wage structure making it difficult to compete inagriculture and labour-intensive manufacturing, the services sector is widely seen as thehope for the future of the OECS. After all, world trade in services has been growing at anaverage of 9% since 2000, reaching a value of US $2.1 trillion in 2004. Conventional wisdommight suggest that increased focus should therefore be placed on services in trade negotiations.

One of the prerequisites for success in multilateral negotiations is clarity and precisionof interests and goals. However, since the multilateral services negotiations have alreadybegun and are being conducted along set principles, the OECS has to draw up its position tofit into the already existing framework. Hence, its strategy must be fully informed by andcoherent with the broader negotiating processes. This section reviews the issues and considersthe options for the OECS.

The fundamental aim of the WTO’s General Agreement on Services (GATS) is theliberalisation of trade in services. In other words, the removal of governmental restrictions ontrade and the promotion of international competition, the fuller extension to services of themost favoured nation (MFN) principle and ultimately subjection to the other principles ofnon-discrimination and national treatment. The negotiations have been about the removal ofrestrictions both through changes to the Agreement in which negotiators have been seeking tomore fully reflect core WTO principles in the framework for services regulation and on a“request and offer” basis. Here, participants volunteer to reduce, remove or phase out therestrictions that they place on foreign service-suppliers and their services and make specificrequests for improved access for their own service exports to identified markets.

6.1.1 What are the OECS’ interests?

The services sector in the Caribbean has been growing steadily over the last halfcentury, at an average rate of 5% per annum, and OECS countries have been sharing in that

51

Figure 6. Services Trade of the OECS, 2003

Source: WTO

Not surprisingly, given the region’s natural beauty, proximity to North America andWestern Europe, the perception of a relaxed “sun, sea and sand” island lifestyle, theCaribbean is the most tourism-intensive region in the world and has an absolute internationalcompetitive advantage in tourism. To illustrate, the North American tourist will choose tobuy a Caribbean holiday, but the European finds the Windward Island banana too expensive.As a result of the heavy international demand for Caribbean holidays, tourist arrivals increasedby an average of 2.9% since 1990 and, according to the World Travel and Tourism Council(WTTC), the region hosted 30 million visitors in 2003.

Other service activities that have been growing include offshore education. Currently,70% of the international medical graduates entering US colleges are trained in the Caribbeanwith the majority trained at schools in Grenada and Dominica. The temporary movement ofworkers to Canada and the US under farm labour schemes is also important. This is consideredas a trade in services and is referred to as Mode 4 in WTO terminology.

Another area that is considered to offer promise is that of financial services, whichcurrently account for 5.2% of world services trade. All OECS countries have special legislationto attract and regulate international financial services. Opportunities have also been soughtin Information and Communication Technology (ICT).

The questions facing the OECS are what role, if any, would multilateral negotiationsplay in advancing the development of these sectors and how should they be approached ?

We can use ourbrains too

growth. The following chart (fig. 6) indicates the value of services trade to the islands andillustrates that unlike trade in goods, the islands all earn more from their export of servicesthan they pay for those that they import.

52

6.1.2 Tourism

Tourism plays a vital role in the island economies as mentioned earlier. The followingfigures (figs. 7 to 9) indicate the importance of the sector, showing the large numbers of visitorsand the considerable income that the sector generates.

Figure 7. Tourist arrivals in the OECS, 2004 (thousands)

Source: ECCB

Even before deciding on the stance to be adopted in negotiations, interests andconsequent goals need to be clear. The first question to be addressed is therefore what doesthe OECS need from tourism? The goal is growth and development of the sector and its fullerlinkage with and integration into the rest of the economy. The realisation of these objectivesis dependent largely on investment decisions, domestic policy and regulation and relativeattractiveness of the destination. Whilst the WTO negotiations can impact on the foregoing,they do not directly influence growth and the development of the tourism sector in theislands. They may, however, constrain the flexibility of governments to use certain policymeasures aimed at promoting expansion of the sector and its fuller contribution to thedomestic economy.

The ongoing WTO negotiations pertaining to “Tourism and Travel Related Services” arenot about growth and development per se. Members have, instead, been addressing theextent to which initial offers tabled can contribute to advancing such aims as the facilitationof movement of natural persons supplying services in Tourism and recognition of theirqualifications; elimination of anti-competitive practices and unfair competition; eliminationof requirements for commercial establishment or presence and of nationality or residencyrequirements.

A key objective of OECS Governments is to ensure that the relative attractiveness ofthe islands as a destination for foreign investment is maintained. In this regard, an importantfactor can be the support granted by governments for the establishment of hotels. OECSGovernments provide exemption from income tax and from import duty on building materialsand equipment for hotels. This device has been a key incentive in their hotel developmentstrategy. These are seen as being in breach of current WTO rules on subsidies, even if the ruleson subsidies in the services sector are subject to negotiation.

It could be argued that given the attractiveness of the islands for tourism, the hotelswould have been built anyway and by exempting the sector from certain taxes, the islandshave been depriving themselves of well-needed revenue. The retort might be that theinvestment might then have been sited on another island. However investors can oblige theislands to compete against each other in their pursuit of maximum fiscal advantage.

We have a paradise here

If the tax and duty waivers (subsidies) were prohibited in all countries, such implicitcompetition that benefits the investor at the expense of the State would not be possible. Noisland would suffer any change in its relative ability to attract hotel investors. On the premisethat the Caribbean is an attractive tourist destination, overall investment in the industryshould not be affected. Of course even if such adherence to the disciplines prohibitingillegal subsidies is accepted, OECS countries might need to seek a grace period to satisfy theirlegal obligations to existing investors and adapt their investment promotion strategies.

Figure 8. Estim. value of expenditure, EC$ m, 2004. Figure 9. Estim. % total tourist expenditure, 2004

Source: ECCB

6.1.3 Financial services

Exploiting certain niches in the area of financial services seems to promise benefit forthe islands. However these opportunities can be inherently unstable since very often theydepend on specific provisions in existing legislation and regulation in particular foreigncountries that provide an advantage to individuals and firms to deposit in, transit funds orconduct business through offshore jurisdictions. Should that advantage or facility disappearor be reduced by changes to the legislation in the source countries or because of internationalregulation, e.g. via the OECD’s Harmful Tax Competition Initiative (HTCI), then the niche itselfcould cease to exist.

The survival and growth of offshore financial services is subject not to multilateralnegotiation in the WTO but rather to policy in source countries and international groupingslike the OECD where OECS countries have little direct influence.

6.1.4 Information and communication technology (ICT)

Information and communication technology (ICT) had been perceived as offering promisefor investment in the islands. Hence negotiating deregulation and liberalisation that removerestrictions in this area should make sense. However, the OECS has not demonstrated

substantial ability to attract and retain suchinvestment. A recent example was that of CallCentres Antigua Ltd, which was set up as ajoint venture with the Government. Its goal ofcreating a skilled workforce of 800 was notmet, the most it ever employed was 200 andit eventually closed.

Another service industry in whichAntigua and Barbuda ventured is InternetGaming that was providing high-tech jobs ofUS $750 per week. However various US federaland state laws that prohibited the cross-bordersupply of gambling and betting services ham-

pered the operations. Antigua and Barbuda took the matter to a WTO Dispute SettlementPanel and won, then, through an Appeal process where its case against the US was largelyupheld. However, there is no indication that the US will revoke the restrictions. The lesson ofthis case is that the continued viability of such an industry is largely at the mercy of policiesin other countries over which OECS countries are likely to have no control.

53I know where the real money is

6.1.5 Mode 4

The temporary movement of workers from the OECS has been going on for many yearswithin bilateral agreements (for example the farm labour programmes with Canada and theUSA). Since access is not made available to workers from all countries, the conformity ofthese agreements to WTO principles of non-discrimination can well come under closerscrutiny. It is therefore in the interests of the OECS to promote and campaign for the extensionof the authority for such agreements.

6.1.6 Other negotiating aims

The OECS would also have concerns regarding the ability of its professionals to operatein other countries but, given issues of small size, this is not a major negotiating aim. It also hasdefensive interests regarding the protection of certain domestic services (such as small scaleretail, utilities, construction etc) that are not yet in a position to withstand full internationalcompetition. Fortunately, these concerns are shared by the many other developing countries,such as the rest of the ACP and the LDCs. Hence there is a block of Members already arguingfor those safeguards and policy flexibilities that OECS countries wish to have reflected in therules.

Conclusion

Services negotiations are of key concern to OECS countries. However, their interests arelargely defensive, viz. to ensure that their “policy space”39 and the bilateral arrangements fromwhich they benefit are preserved and their “infant” service sectors are not wiped out bypremature exposure to full deregulation. The development of the services sector is of majorimportance to the OECS countries but mere participation in current multilateral negotiationsaimed at liberalisation will not make any substantial direct contribution to that goal. Rather,the growth of the services sector will be facilitated by the appropriateness of domestic policies,the adequacy of investment and whether international conditions are favourable.

39The scope for flexibility that is available to governments to select and use policies of their choice.

54

55

hapter 7Adopting new approaches

SectionThe Way Forward•Diversification•Environment•Tools of NegotiationC

37.1 Diversification and development

7.1.1 A role for the private sector

Whilst Government representatives deal with the regulations and structures ofinternational trade and economic relations, in free market economies like those of the OECS,investment in productive activities is principally undertaken by the private sector. It actuallyproduces the goods and services that are traded. Hence, the success of diversificationultimately depends on their adaptation and the creation of production structures.

Reliance on trading in just one traditional commodity, tourism or one of the new servicesectors will not be enough to secure the economic future of OECS countries. Instead, theislands need a range of productive activities that generate employment and income. This isso even if small size and limited natural resources make it hard for them to be competitive ina range of activities. The key reason is that economies of scale are often required in severalareas, but the islands might not have the capacity to produce the minimum volumes thatwould permit them to be internationally competitive. As a result they have relied onmono-crop (or single industry) production. Their specializing permits them to be able toproduce at the lowest unit price and thus helps them minimise their size disadvantage.However, external shocks and slowdowns in specific export sectors are inevitable; so if theeconomy relies for its income on a range of activities, it could continue to make overallprogress and grow, even when one particular industry slows down or suffers a reversal.

A diversified production base is essential for balanced and sustained economic growthand development of the OECS. Furthermore, the traditional sources of income and employment,bananas and cane sugar, are being lost. Admittedly, it was rational to seek to maintain for aslong as possible the preferential arrangements that permitted these commodities to be soldat relatively high prices in the secure and protected EC market. The strategy of seekingto prolong the protection, which defined policy for many years, has contributed to thecontinuation of the arrangements that permitted the marketability of their bananas.However, with the reforms set in train by the EC, the advantages that permitted theirtraditional exports to be sold on a remunerative basis are disappearing. St Kitts/Nevis hashad to abandon the sugar industry and the prospects for Windward Islands bananas are bleak.

To view the policy of safeguarding current marketing arrangements as a substitute fordiversification could be a mistake. Instead it was the countries’ attempt to “buy time” duringwhich diversification could take place in a stable environment without the catastrophicshocks of massive employment and foreign exchange losses that would result from the suddendemise of these traditional industries.

However, diversification is not easy for very small single-commodity exporters. In fact,their economies were structured that way in the first place largely because, given their size,such extreme specialisation permitted them to make fullest use of their limited scope foreconomies of scale. The process of diversification, though, is not simply switching reliancefrom one existing industry to another single crop or industry. If the countries are to develop,the production base will have to be extended to a mix of industries turning out a range of

Don’t put all your eggsin one basket

Earlier sections have sought to explain anddemystify the working of the trading system. This finalchapter explains some of what the islands need to do inorder to ensure that they can actually benefit from themultilateral system.

goods and services in which they have an international competitive advantage. Even if actualinvestment in productive and income-generating activities is undertaken principally by theprivate sector Government has an indispensable role in providing support and creating anenvironment that is conducive to business and risk taking.

The need for support

Governments have an essential role in creating favourable conditions for private sectorled diversification and can make the following contributions:

1- Provide a predictable, stable and supportive environment for business (both local andforeign);

2- Provide institutional support and investment incentives for marketing, exporting andimprovement in technology and standards; and

3- Promote the upgrading and adaptation of the labour force and of managers throughadequate investment in appropriate technical education and skills training.

For certain of these activities Governments will invariably require donor assistance.

At the national level there is need for clear commitment to diversification and thesupport for investment in new areas of productive activity where the OECS is competitive.A key role for Governments will be to devise and administer investment incentives andinducements that are coherent with their policies for diversification into new areas in whichthe countries have existing or potential advantage. The signals sent to investors in existingand new industries, through incentives etc., must be rational and clear with no masking ofmarket realities pertaining to international competitiveness. Incentives that promoteinvestment will be essential but where the beneficiaries are in activities with no economicfuture, they will invariably prove to be counter-productive.

Even though the right signals and institutional and other support facilities are available,entrepreneurs, particularly in new or non-traditional activities often face severe obstacles,the most widespread of which is inadequate access to financing. This manifests itself in threeways: 1) Exorbitant cost of capital in terms of interest rates;

2) Repayment periods that are too short in relation to the project’s envisaged income-generation patterns;

3) Excessive collateral requirements; i.e. the security required to borrow from banks.

External grant and concessionary funding can be used in such a manner as to overcomethese impediments. These difficulties are quite common among developing countriesand to varying degrees have been recognised by international institutions such as theCommonwealth Secretariat and even the European Investment Bank. It will be essential thatarrangements be devised to ensure that entrepreneurs can access investment funds on areasonable basis that does not place them at a disadvantage to their international competitors.

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7.1.2 The experience of external support

The Windwards have received considerable financial support from Europe for theirdiversification. Firstly, the EU introduced the Special System of Assistance (SSA) in 1994 byRegulation 2686/94. The amount provided under the SSA was €78 million during the entirefour year programme. The Special Framework of Assistance (SFA) established by ECRegulation 856/99 replaced this system in 1999. Funds averaging €45 million were madeavailable every year. A study by external consultants40 to evaluate the efficiency, effectiveness,impact and viability of the arrangements recommended that priority in future should begiven to diversification. Steps were certainly taken to implement the recommendations, forwhilst diversification projects accounted for 12% of SFA funds in 1999, by 2002 they wereusing up to 64% of the total. During the four years 1999 to 2002, out of a total of €176.18million, the bulk of the funds, €118.33 million, nonetheless went into projects aimed at boostingproductivity. Diversification projects accounted for €14.84 million in Dominica, €24.9 millionin Saint Lucia, and €6.10 million in St. Vincent.

7.1.3 Was the support effective ?

According to the European Commission, the Windward Islands,41 which received asubstantial portion of the total assistance, have not made considerable progress indiversification.42 In a 2003 evaluation of the SFA, the UK based consultancy firm, Landell MillsLtd., highlighted various short-comings including unclear objectives, which permittedconsiderable influence of individual decision makers with negative consequences, unrealisticexpectations and an ill-defined approach to diversification. By the end of the last decade,there was much greater enthusiasm and commitment but, nonetheless, the pace of actuallygetting the projects operational has been slow. This was due to a number of factors, but itshould of course be appreciated that it is only a few years since the Islands’ serious acceptanceof diversification as a policy imperative. Given that diversification in single-commodityexporting countries is a long-term process, it probably is too soon to expect dramatic resultsin the Windward Islands. However, there might have been scope for more result-orientedmanagement of the process, particularly assisting and encouraging investment in new areasof productive activity and ensuring the transmission of clearer market signals to entrepreneurs.

The experience of banana suppliers to mobilise and apply EU funding for diversificationprovides useful guidance, not for replicating the experience but learning from it so as to avoidpitfalls and errors and building on its lessons. Maybe the most important lesson is the needfor genuine commitment in the country to economic diversification. This might seemsuperfluous, but without such commitment there cannot be the consistency of policy or theadequacy of institutional support and facilitation needed for what would invariably be aparticularly challenging enterprise. This entails fundamental economic restructuring, and notsimply the selection and introduction of a replacement crop or service activity. The searchhas to be for a range of new areas of productive activity in which the country has or canrealistically expect to develop a comparative advantage. Such identification and developmentof new industries requires long term vision and programming with implementation within aconsistent policy framework. Indeed, the Commission itself recognised this as essential and,in its report to the European Parliament on the 23 December 2002, undertook to explore thepossibility of devising multi-year action plans.

The islands, however, face severe impediments that make it more difficult to switch toand develop new industries. These include:

- Labour market rigidities. Although the OECS has surplus labour there is inadequateflexibility in the labour force; workers do not move rapidly from one industry to another;this is in part because they lack the skills and training;

- Undeveloped capital markets that do not mobilise sufficient funds for investment or ingeneral make risk capital readily available for new ventures on reasonable terms,particularly to entrepreneurs who are not yet established;

- The small size of the domestic market that obliges reliance on exports even in the currentcontext of the decline of trade preferences and the intensification of internationalcompetition.

40Hubbard M, Herbert A and Roumain de la Touche/ Evaluation of EU assistance to ACP banana producers.41Except for Grenada which has an historical trade in spices and cocoa.42Gary Melville, “Situational analysis of the Agricultural Sector of the OECS Member Countries”. Dec. 2002

57If not bananas,what else ?

ConclusionDiversification is a prerequisite for the development of small mono-crop or single

industry developing countries. That will only come from investment in new enterprises thatcreates income, employment and growth, the task of the private sector. The banks are essentialfor mobilising and providing risk capital on acceptable terms to entrepreneurs. Governmentshowever have a crucial enabling role in creating and sustaining a climate that is conducive toproductive investment and risk taking and must provide support for the development of theprivate sector.

IIII nnnn tttteeee rrrr nnnn aaaatttt iiii oooo nnnn aaaa llll TTTTrrrraaaa dddd eeee CCCCeeee nnnn tttt rrrreeee

Whilst UNCTAD operates at an intergovernmental and Public policy level dealing with such issues ashelping governments formulate diversification policies, the ITC works with the business community. LikeUNCTAD it was set up in 1964 and supports firms in developing countries to develop exports with an emphasison competitiveness.

The ITC is located in Geneva and uses several hundred consultants to actually provide the specialisedassistance required by the business community, particularly small and medium sized enterprises. Thegovernments of beneficiary countries provide the liaison services for the ITC. Hence business people needingassistance contact first the Trade or other designated Ministry in their home countries.

Box 10

7.2 Trade and environment

As small islands that are prone to natural disasters and most vulnerable to the adverseconsequences of climate change, OECS countries have a keen interest in ensuring that themultilateral trading system supports rather than detracts from environmental protection.A brief assessment is undertaken below of the linkage between international trade andenvironmental issues and concerns.

Environment and sustainable development issues are an integral part of the agenda ofthe multilateral trading system. Even though not currently at the centre of the debate, indevising the long-term regional negotiating strategy, these issues will have to be given dueprominence. The question is how will the focus on environmental and sustainable developmentconcerns improve the OECS’ trading position or how could the islands benefit fromincorporating these concerns into their trade policies? Such a focus has the potential to createadditional opportunities for growth and expansion. Examples can be the production ofenvironmentally friendly products from timber and non-timber forest products usingDominica as a base and targeting developed country markets. Closely related to this would bea range of issues including intellectual property, the protection of traditional knowledge etc.

Where there is recognition of environmentally- sound and sustainable productionmethods, exports can attract higher prices e.g. organic fruit and vegetables. Also in certaindisputes and negotiations, it can provide valuable “moral” leverage for a country.43 Eventuallyinternational regulation of environmental measures can provide advantages in the case ofrestriction of market access due to non-compliance. The critical issue for the region, in thiscontext, is to ensure that measures are put in place to facilitate their effective participationin the international standard setting processes so that their concerns are addressed and thatthe necessary resources and conditions are put in place to assist them in complying with theinternational standards embraced by the multilateral trading system. A laissez-faire approachto environmental and sustainable development issues on the agenda of the multilateral tradingsystem could well work to the disadvantage of all countries in the long term.

At the initiative of Barbados, the United Nations held a conference on Environment andDevelopment in 1990, which called for attention to be paid to addressing the vulnerabilitiesof Small Island Developing States (SIDS) and the promotion of their sustainable development.A specific work programme, the Barbados Plan of Action (BPOA), was adopted that recognisedthe special environmental security and development requirements of SIDS. A UN Summitheld in Mauritius in 2005 adopted a strategy for the further implementation of the BPOA. Inview of the UN’s recognition of SIDS as a special case for environment and development,there is also a case for special attention, within the WTO work programme onSmall Economies, to address the needs of SIDS, as defined by the UN. The WTO, though,has not recognised the special needs of SIDS as distinct from those other small economies.

43 In order to capitalize on this Dominica is working on being categorized as an Organic Island.

58Keep it clean

and tidy

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MMMM iiii llll llll eeee nnnn nnnn iiii uuuu mmmm DDDD eeeevvvveeee llll oooo pppp mmmm eeee nnnn tttt GGGG oooo aaaa llll ssss (((( MMMM DDDD GGGG ssss ))))

The UN Millennium Summit of September 2000 unanimously adopted a Declaration “of values,principles and objectives for the international agenda for the twenty first-century”. It acknowledged collectiveresponsibility of Governments to uphold human dignity and recognised equality and equity. It pledged toeliminate extreme poverty. Whilst the Summit agreed to work for open and non-discriminatory multilateraltrading and financial systems, also set specific targets, the MDGs as a way of monitoring the implimentationof those goals. The following is a list of those goals and indicates how Latin America and the Caribbean haveso far been performing.

Goal 1 Reduce extreme poverty by half- Off target

Reduce hunger by half - On target Goal 3

Promote gender equality/ empower womenOn target

Goal 5Reduce maternal mortality by 3/4

Off targetGoal 7

Ensure environmental sustainability Progress mixed

Goal 2Achieve universal primary education

On target Goal 4

Reduce child mortality by 2/3rdsOn target

Goal 6Combat HIV/AIDS- halt and reverse

Off targetGoal 8

Develop global partnership for Development

Box 11

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This would, however, demand greater clarity of the criteria for determining which countriesshould be categorized as SIDS. Definitional precision is a key element in advancing the interestsof SIDS in the multilateral trading system, since it would be difficult to formulate a WorkProgramme for them without a clear understanding as to whom the Programme is beingdesigned to benefit.

From the SIDS’ standpoint, two essential concerns emerge in the debate; firstly, thattrade should not cause environmental damage, degradation or loss of biodiversity; and

secondly, that the multilateral system makes provision that accommodatesthe special vulnerability of small islands like the OECS.

Several studies have been undertaken and negotiations conducted withinthe framework of the WTO to seek to better understand the relationshipbetween trade and the environment. A lot of the emphasis was placed onensuring that environmental protection would not be misused as anexcuse to impede trade. As the negotiations and the understanding of

the issues have progressed, certain goods and services have been classified as “environmental”.Their production and trade can have a positive or negative impact on the environment. Anexample is those plants that can be important for halting erosion on hillsides. Campaignershave therefore advocated that special incentives should be provided to support production,trade or regulation of the products of such plants.

A service with major environmental impact is tourism. Large numbers of stay-over andcruise ship visitors and the facilities that support them can place a strain on the fragileenvironment of small islands. Hence governments seek to ensure that they retain enoughpolicy flexibility to adequately regulate the industry to prevent it from undermining theenvironmental integrity of the islands. For instance, one of their aims is that internationalrules do not preclude the imposition of environmental taxes.

A related area could be the restriction or prohibition of the export of certain items toavoid damage to the environment or depletion of particular resources or the loss ofbio-diversity. Examples could be restrictions on removal and export of coral from reefs ortrade in endangered plant or animal species.

In the contexts of the debates over the EU banana and sugar regimes, OECS countries hadargued that their production of bananas and sugar cane fulfil a particular role in safeguardingtheir environment. They pointed out that these plants slow down soil erosion and given theirshort production cycles and rapid regeneration following wind and flood damage, are ideallysuited for islands that are located in the hurricane belt. The argument they have advanced isthat even if production that is environmentally friendly is more expensive, the cost should betaken into account in the selling price of the end product. Alternatively preferential terms tosupport trade of products that benefit the environment could be provided.

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7.3 Negotiation- Using trade diplomacy to advance national/regional goals

The economic prospects of small open economies like those of the OECS are largelyfashioned by external, forces and developments. If their aspirations for development are tobe realised, then the external environment must be benign. But such small developing countriesoften feel powerless and overwhelmed in the face of major international developments andtrends, and even more so during the current wave of global trade liberalisation. The result isthat they can be hesitant about seriously and constructively engaging in international tradediplomacy because they might privately view efforts on their part as largely futile.

It is true that a vast portion of multilateral regulation and negotiation could be beyondthe means of individual OECS countries realistically to actively and effectively manage.Formal negotiations take place within the WTO framework in Geneva, as well as between theACP and European Union in Brussels, for the FTAA, within the CARICOM etc., in addition tothe plethora of informal and ad hoc negotiations. For all of this, the required skilled manpowerand financial resources are not always available.

An additional challenge is that, in general, small countries like the OECS Members lacksignificant political and economic power to back up their negotiating stances; hence outcomesfor them are primarily dependent on the actual performance of their negotiators at the table.

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Since OECS countries must seek to survive and develop, no matter how hostile theinternational environment, they need to find the means of bringing about change that isconducive to their interests. Their key method is collaboration and cooperation within theOECS and CARICOM regions. This entails the preparation and articulation of joint positions,which greatly assist individual countries by permitting their interests to be represented andadvanced by fellow Members of the grouping, even when they cannot be physically present.Of course, to be meaningful, this arrangement must be accompanied by effective prioragreement on reconciliation and incorporation of national positions into the sub-regional orregional positions. Facilities for oversight, monitoring and reporting to the national authoritiesare essential. It is though still necessary to prioritise and be selective regarding the activitiesto be pursued. After all, even the collective resources of the sub-region and the region areinadequate for the effective and consistent representation of the countries’ interests in allareas of international economic negotiation.

Based on experience and lessons of the past, the following principles have been identified andcan provide guidelines in the use of trade diplomacy to achieve national and regional goalsof small countries like the OECS:

• Small size and consequent lack of commercial and political power do not, on theirown, preclude countries from exercising influence in international decision-making and overevents that impact on their vital national interests. As a very first step in becoming effective,the representatives must fully understand and appreciate what is in their real national interests.They would then define clear, readily articulated and comprehensible objectives to whichcombined national effort can be devoted in a coherent and consistent manner.

• Achieving the ambitious task of securing favourable international conditions and orchange by any country or group requires substantial and continuous political and diplomaticcommitment. For small developing countries, with limited political and commercial power,visibility or influence on the international stage, the amount of resources to be investedwould be considerable which, given their limited human and financial resources, wouldinvariably constitute a major portion of what is available nationally. The implication is that ifthey are to have real influence, small States are obliged, whether alone or with their allies, toconcentrate their efforts on achieving their priority goals.

• It is a truism that the stronger the international opposition to the particular goal/sbeing sought, the greater the commitment of resources and effort that will be needed.Though the formulation and skilful presentation of valid arguments are essential prerequisitesfor changing or influencing the positions of governments and of major institutions, particularlyfor small States, considerable effort beyond the negotiating table is also required.44 Thefrequently encountered unwillingness of negotiators, when facing weaker partners, to concedeeven if presented with irrefutable arguments, could be due to a number of factors includinga resistance to change already endorsed decisions or positions (sometimes simply bureaucraticinertia). Also, it is often the case that the representatives sent to negotiate on behalf of majorcountries or institutions are not the real decision makers but are instructed by superiors andinfluenced by other entities such as national Parliaments, public opinion or even third countries,international institutions or the business community. When presented with convincingarguments that conflict with their original national or institutional mandates or perceivedinterests, these interlocutors who engage in international negotiations would of course beexpected to seek adjustment to their brief or national position. However, when they facerelatively weak States that lack coercive or retaliatory power, they might not feel the necessityto undertake the required negotiations with and/or persuasion of their superiors, legislatures,business and other interest groups in order to be able to accept the position that the smallStates have successfully championed but are in conflict with their own.

• Partly as a result of the above, as the OECS seeks, through lobbying and negotiation,to change the position of more powerful countries, it will need to employ more than thetools of traditional diplomacy in which the target is not just the executive arm of the hostGovernment and the interlocutors at the negotiating table. In contemporary developeddemocratic societies, influence over decision-making is diffused; hence the alternativeapproach of public diplomacy aimed at generating favourable public opinion would need tobe added to the arsenal if campaigns are to be won. This approach also applies when the targetfor influence is an international institution.

• The historical association of many small States with major powers can sometimesresult in an over-reliance on and trust in international goodwill and dependence on friendlydeveloped countries to secure their interests. Whilst there is evidence of such principledcommitment, it could be uncertain in the long-term or when the small States' aims are inconflict with the national interests or priorities of their "benevolent partners". Hence, theOECS countries have the ultimate responsibility for achieving, through their own domesticand concerted international action, the outcomes which they desire, whether or not theyrequire mobilizing international support and working with allies.

• As has already been explained, securing change at the international level can be verydemanding and likely to be proportionately difficult for small developing countries. Hence,in order to be able to commit the required resources, they need to effectively mobilize andengage all their national capacity. Their political, diplomatic, business, NGO, academic andother emissaries who will articulate and advance the identified goals must be very well briefedand able to present persuasive, consistent and coherent arguments. Senior Ministers andeven Heads of Government need to be enlisted to use their influence and the opportunitiesthat arise or are deliberately created for interaction with and persuading decision makers intarget countries and institutions. This can be very beneficial since such political representativesare likely to be able to offer a broader range of concessions and can interact with their highlevel counterparts where a greater scope for compromise and accommodation is often possible.

• In their pursuit of favourable decision-making at an international level, OECS Statescan obtain leverage through working with allies and benefiting from the support of friendly

61

44This includes the optimal use of and deployment of limited human and other resources. Targets of advocacy and lobbyingmust include potential supporters and allies.

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countries and institutions. However, actually securing the desired objectives will need effectivepreparation of positions and arguments and skilful negotiation by their representatives.Hence, it is essential that they field skilled and committed tacticians and negotiators who canactually win debates and change the views even of the experienced and highly competentnegotiators and representatives of the developed countries and the multilateral institutions.The methods to ensure that capability will be long term and entail a combination of specializedtraining, careful recruitment, development and retention.

• To be successful in the pursuit of their objectives, small countries like those of theOECS have no option but to be ambitious and courageous. They will even have to be preparedwhen necessary to seek to change the premises of the debate, expanding it to encompassmore fundamental issues such as development considerations, equity and the right of allcountries to participate on a sustainable basis in the global trading system.

Conclusion

In the contemporary world it is countries themselves, regardless of size, that areultimately responsible for their welfare and advancement. This review has sought to assesswhether OECS countries can effectively participate in international negotiations andsuccessfully defend their interests and if their participation in the negotiating exercise is notfutile. The experiences of OECS Members and their prospects have been examined in thispaper. They demonstrate that small size and minimal resources pose serious challenges.However, the resulting difficult situation is not an insurmountable impediment to success,but rather a challenge to be overcome. Though it is not an easy task, with ingenuity, commitment,determination and an enlightened strategic and tactical approach to negotiations, they can,in certain circumstances, be effective players and actually influence the course of internationaldevelopments to their advantage. Within a system based on rules in which all participantshave a voice, even small countries like those of the OECS can be more than mere spectatorsor “cheerleaders”. They can be active participants in and contributors to the internationalprocesses that shape their future. But for that, new thinking and innovative approaches, areessential.

This is Davidand Goliath again

But David won ! We willin the end

Girl, to win you must work hard and run faster than them

Further reading

Arthur The Rt. Hon Owen, “The Caribbean Single Market and Economy.” Published in theIntegrationist Vol “No. 1 June 2004.

Bilal S. & Rampa F., Alternative (to) EPAs, Possible scenarios for the future ACP trade relationswith the EU, Policy Management report 11, ECDPM, February 2006.

Christian Aid briefing 2004, “Why EPAs Need a Rethink”, www.epawatch.net.

East Caribbean Central Bank, http://www.eccb-centralbank.org/Statistics/index.asp

Hall K., Re-inventing CARICOM: The road to a new integration, 2003.

Laurent E The Banana Dilemma: The Challenges Facing CARICOM” Published by theUWI/CARICOM collection of studies “Appropriate Adaptation to a Changing GlobalEnvironment”. December 2004.

Laurent E., Bananas: What future? March 2005.

Laurent E., Beyond EU sugar reform: financing diversification in ACP sugar exporting countries,Trade Hot Topic, No 39, Commonwealth Secretariat, 2004.

Stiglitz J., An agenda for the development round of trade negotiations in the aftermath ofCancun, Commonwealth Secretariat, 2004.

World Bank, A time to choose: Caribbean Development in the 21st Century, April 2005.

World Trade Organisation, Understanding the WTO, 3rd edition, September 2003.

World Trade Organisation, Trade Policy Review, OECS-WTO Members, volumes 1 & 2, 2001.

World Trade Organisation, Trade Profiles 2005.

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