Study Tour for the University of West Indies

1. Study Tour for the University of West Indies Regional Integration and EPAs Luisa Rodriguez Trade Negotiations and Commercial Diplomacy Branch 26 May 2011

2. Outline • RTAs • Trends and risks regarding RTAs • The expanding “behind the border” agenda • Potential effects of RTAs • Implications of N-S RTAs • Concerns of Dev/ing countries • EPAs • Context: • Motivation: Why shift to reciprocity? • Process • Controversial issues in EPAs • Commercial interests • SDT and implementation • Impact on regional integration • Compatibility with WTO Rules • The way forward • What is important? • A framework to assess needs/challenges when entering into negotiations • Other recommendations

3. Trends Proliferation of RTAs Overlapping RTAS Increased number of FTAs between D/ed and D/ing (N-S RTAs) Deeper integration: Elimination/reduction of regulatory barriers to trade Risks Regulatory confusion Distortion in regional markets Increased risks of inconsistencies in rules and procedures among RTAs Increased risk of inconsistencies between RTAs and multilateral framework Implementation problems Intro - RTAs

4. Positive Welfare gains Creation of larger markets for goods and services/economies of scale Economic efficiency Attraction of FDI Positive externalities from institutional changes Negative Loss of tariff revenue Displacement of local industry Implementation cost of regulatory harmonization Broader coverage of domestic policy space Potential effects of RTAs • These effects will depend on… • Design of the RTA • Capacity of countries/business to adapt to changing competition environment

5. The expanding “behind the border agenda” • Environment • Labor standards • Competition • Investment • Intellectual Property Rights • Services

6. Implications of N-S Agreements • Adjustments costs accrue to Dev/ing countries • Reciprocal, as opposed to non-reciprocal • Dev/ing tend to have higher tariffs, import dependence, dependence on tariffs on tariff revenue • Limited scope for improved market access • Low MFN rates and unilateral preferences in Dev/ed • Inadequate treatment of asymmetries (SDT) • Technology transfer and productivity gains (?) • Deep integration under new generation RTAs • “Behind the border” policy reforms in less mature markets

7. Concerns of Dev/ing countries • Loss of space to regulate • Are international/regional rules better suited than national or regional schemes to regulate on certain policy matters? • Fear that new disciplines will entail: • Protectionism in disguise • Elimination of comparative advantage • Trade sanctions

8. Intro - EPAs • Motivation: Why shift to reciprocity? • EU: WTO compatibility, preferential trade stiffed production and exports in ACP countries • ACP: • Maintain market access (bind existing market access - goods) • Securing additional market access in services • Upgrading production, export composition and value addition (through increased investment) • Capacity building (standards) • Other: DS case (India/GSP) • Process • 2007: End of trade pillar in Cotonou Agreement • The WTO waiver • 2007: 1 comprehensive agreement = CARIFORUM • Status of other agreements / negotiations • The built in agenda “services and other”

9. Controversial issuesCommercial interests Are interests of the ACP = LDCs? Benefitted already from 100% DFQF access (Everything but Arms) Erosion of preferential margins will happen EU negotiating with other countries Competition with export goods from Central America and Andean countries Reduced offer of goods Exclusion of agriculture Elimination of commodity protocols + European agricultural reform ACP exports confront technical barriers and sanitary and phytosanitary measures Compliance with standards Non-binding language regarding technical assistance Cooperation related to standards is limited to information exchange Rules of origin don’t favor regional cumulation

10. Controversial issuesSDT and implementation • Development aspects • Asymmetric provisions? • Example (Agriculture) • ACP: • Significant reduction of tariffs + standstill provision • Cannot implement quantitative restrictions • Safeguard mechanism might not be useful • EU: • Level of subsidies is maintained • Development cooperation is largely non-actionable • Lacking binding financial commitments beyond 10th EDF

11. Controversial issuesImpact on regional integration Reinforcement of dependency on imports from Europe = danger For local production For intraregional and interregional trade flows For export diversification efforts Regions who negotiated EPAs are not the same where regional initiatives already exist: Case of Eastern and Southern Africa

12. Controversial issuesCompatibility with WTO Rules Interpreting what is necessary to deem an RTA compatible with WTO Rules Liberalization of “substantially all trade” Less than full reciprocity Transitional/implementation period should be “a reasonable length of time” Provisions that are not required to ensure compatibility Services, competition policy, government procurement, intellectual property Restricted policy space MFN Clause Standstill clause Interim agreements not notified to the WTO

13. What is important? • Approaching negotiations in a coherent and strategic manner • Need for a policy framework and assessment of costs and benefits • Identification of national objectives, consistent with national trade and development policies, to pursue different levels of integration • Maximizing trade gains in different levels of integration • Market access, • Development support, • Regulatory cooperation • Global value chain integration • Strengthening administrative capacity of developing countries to implement and monitor commitments

14. Economic relationship between partners FTA or customs union? Overlap with other agreements Expected difficulties in negotiation Barriers to trade Elements of deep integration WTO compatibility Role of aid donors Size, asymmetry, tariff levels, cost differences Flexibility, rules of origin Complementarities or spaghetti bowl? Depth and scope of PTA, sensitive sectors, exceptions Tariffs, NTBs-incidence, level and range Trade facilitating institutions and policies: investment rules, competition policy, labor mobility standards property rights, dispute resolution Important if third countries might be affected Political motivation behind agreements, presence of technical and development assistance Needs assessment

15. Recommendations • Experimentation with trade related disciplines (Government procurement, investment competition) • at the national and regional level • prior to engaging in N-S agreements • Assessing regularly the development impact of provisions (linked to review of commitments) • Facilitating exchange of experiences, best practices and lessons learnt

16. Conclusions • North South Agreements have become a prominent feature of the current ITS • They can have potential negative and positive effects in terms of economic development • These will depend on the design of the RTA and the capacity of countries/businesses to adapt to a changing competition environment • Such agreements pose challenges to developing countries from the perspective of • Policy space • Regional integration • N-S RTAs entail policy challenges because of the asymmetries among partners (Institutional, supply-side constraints, financial means) • They imply greater concessions from developing countries • in terms of reducing border and behind the border measures • They imply greater adjustment/compliance costs • In the context of EPA negotiations regarding EPAs, questions and concerns were raised in terms of: • Real trade benefits accruing to ACP/their transitory nature • effective special and differential treatment • WTO compatibility • Implementation • Impact on regional integration • Maximizing potential positive effects will depend on: • Approaching negotiations in a coherent and strategic manner • Adequate assessment of • Cost and benefits prior to negotiations • Development impact after negotiations (implementation surveillance with the possibility of reviewing commitments) • Ensuring coherence between RTAs/MTS • Adequate SDT provisions