RNM UPDATE 0602

January 23, 2006

Prepared by the Communications Division of the Caribbean Regional Negotiating Machinery (CRNM), this
electronic newsletter focuses on the RNM, trade negotiation issues within its mandate and related activities.

Special Issue: - Caribbean EPA Negotiations, Embarking on Phase III

Erratum

Launched in September 2005, Phase III of Economic Partnership Agreement (EPA) negotiations
involving the Caribbean and the European Union are poised to undergo a qualitative shift in focus
and specificity next month, with the start of the first in a series of substantive technical negotiating
sessions set for 2006 between the two sides. Building on Phase II discussions that focussed on
regional integration content, processes and ambition within CARIFORUM, Phase III constitutes the
structuring and consolidation of negotiations, such that the points of common understanding will be
channelled into elements of a draft EPA Agreement. These negotiations are at a mature stage,
and the expectation is that they will be further advanced through 2006. So at this juncture, at the
cusp of an intensification of the negotiating process, this 'Special Issue' of RNM UPDATE takes
stock of: (a) the background of EPA talks; (b) the state of play of negotiations; and, (c) the
importance of EPAs for CARIFORUM.

Background to the EPA

The Cotonou Agreement and EPA

Having been forged within the broader political context of the ACP-EU partnership, the
CARIFORUM-EC EPA takes into account the overall principles and objectives of the Cotonou
Agreement. Signed in June 2000, the Cotonou Agreement, which replaces four successive Lome
accords, puts in place a comprehensive framework for ACP-EU relations, centred on economic
development, the reduction and eventual eradication of poverty, and the smooth and gradual
integration of ACP states into the global economy.

With a view to achieving these objectives, the Cotonou Agreement makes provision for the ACP
and EU to engage in WTO compatible trading arrangements. In this vein, Article 36 of the Cotonou
Agreement commits the Parties to conclude new WTO compatible trading arrangements, removing
progressively barriers to trade between them and enhancing co-operation in all areas relevant to
trade. Six ACP regions are currently engaged in EPA negotiations with the EU, with a view to
concluding their respective Agreements by mid-2007.

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Fifteen Caribbean countries that make up the Caribbean Forum of ACP States (CARIFORUM)
launched EPA negotiations with the EU in April 2004; they are: Antigua & Barbuda, The Bahamas,
Barbados, Belize, Dominica, the Dominican Republic, Grenada, Guyana, Haiti, Jamaica, St. Kitts &
Nevis, St. Lucia, St. Vincent & the Grenadines, Suriname, and Trinidad & Tobago.

Phasing of Negotiations

Preceded by an all-ACP phase, there are four regional phases guiding interchange between the
two sides; namely: i) Initial Phase: Establishing the Priorities of EPA Negotiations (April 2004 to
September 2004) - the objective of this phase was to establish an understanding of the
fundamental concerns and interests of EPA negotiations for both CARIFORUM and the EU; ii)
Second Phase: Convergence on strategic approach to CARIFORUM regional integration
(September 2004 to September 2005) - the aim of EPA negotiations during this phase was to
establish a common understanding on the priorities for support of Caribbean regional integration,
and the targets to be attained by the time of the commencement of implementation on January 1,
2008 and beyond; iii) Third Phase: the current phase of negotiations, ending in December 2006;
and, iv) Final Phase: Finalisation (January 2007 to mid-2007) - negotiations during this final phase
should concentrate on consolidating the results of the negotiations and completing them.

Negotiating Architecture

The negotiation of the EPA is taking place at three tiers, namely: Ministerial, Principal Negotiators
and subject-specific negotiators.

The Lead Ministerial Spokesperson for EPA for the Region is Dame Billie Miller, Senior Minister
and Minister of Foreign Affairs and Foreign Trade-Barbados. Director General of the Caribbean
Regional Negotiating Machinery (RNM) Ambassador Dr. Richard Bernal serves as CARIFORUM
Principal Negotiator. At the technical level, negotiations are being conducted by members of the
EPA College of Negotiators.

RPTF

The ACP Guidelines for the negotiation of EPAs define as one of their strategic objectives to foster
inter-linkage and complementarity between development strategies supported by the EU, and
economic and trade cooperation so as to make them mutually reinforcing. Achieving this objective
through the creation of a Regional Preparatory Task Force (RPTF) for the whole duration of the
negotiations is considered vitally important.

Both the CARIFORUM and the EC agreed to the establishment of a RPTF, in order to cement the
strategic link between EPA negotiations and development co-operation. The mandate of the RPTF
is to translate needs for support identified in the course of the negotiations into operational ideas
for trade-related and other development assistance and work out these ideas up to the level of pre-
identification of fundable actions.

While not comprising a formal element of the negotiating structure, the RPTF is closely aligned to
it.

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EPA to Contribute to Specific Objectives, Principles

In an effort to support and promote such objectives as sustained growth, enhancement of the
Caribbean’s role in the international community, facilitation of Caribbean structural transformation,
and the adjustment of Caribbean economies in a manner and at a pace conducive to economic
and social development, the CARIFORUM-EC EPA is guided by a number of principles. They
include: (a) supporting and building upon the regional integration process; (b) promoting the
development objectives of countries of the Region, while being consistent with their development
strategies; (c) encompassing Special and Differential Treatment, including provisions that go
beyond existing WTO measures in addressing the constraints of small size and vulnerability; (d)
flexibility such that countries can individually calibrate the pattern and schedules of implementation,
consistent with their national circumstances, while pursuing the objective of regional integration; (e)
incorporating and improving on the Lome and Cotonou acquis regarding market access, for
traditional and non-traditional Caribbean exports; and (f) a binding commitment to engage in
consultations on any matter deemed necessary in order to safeguard the benefits of the
Agreement.

CARIFORUM Regional Integration and the EPA

A well-designed EPA should complement the existing Caribbean regional integration process, that
is framed in the context of measures stated in the CARICOM-Dominican Republic Free Trade
Agreement (C-DR FTA) and the Revised Treaty of Chaguaramas establishing the Caribbean
Community including the CARICOM Single Market and Economy (CSME). There is no mandate or
programme to pursue at this time a more ambitious integration agenda beyond the scope of the C-
DR FTA.

CARIFORUM’s regional integration processes were framed by two paramount principles; namely,
those of variable geometry and differentiation. The former takes account of the variance in scope
and implementation level of both the CSME and the C-DR FTA. The latter takes account of
extending to Less Developed Countries (LDCs) special and additional trade measures.

Both CARIFORUM and the EC share the conviction that deeper regional integration forms an
important tool for development. Strengthened regional regimes can enable increased
competitiveness, enhanced flows of investment, the harnessing of sustained growth and the
delivery of sustainable development.

The pursuit of development is a multi-dimensional undertaking. Seeking to capture the benefits

accruing from trade integration also requires accompanying adjustment measures and institutional
capacity building.

The ‘Development Dimension’: EPA, A Tool for Caribbean Development

The EPA must be more than just a Free Trade Agreement. Consistent with this view, both sides
have a common adherence to the centrality of a development dimension in an EPA. The Joint
CARIFORUM-EC Plan and Schedule underscores the need to address the sustainable
development of the Caribbean region. In fact, the ACP and EU are guided by Article 37 (7) of the

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Cotonou Agreement that EPAs should “take account of the level of development of ACP states and
the socio-economic impact of trade measures on the ACP, and their capacity to adapt and adjust
their economies to the liberalisation process.”

Injecting the development dimension into the EPA must, however, transcend notions of asymmetry,
in spite of its obvious importance. It is well established that if market access opportunities are to
be seized by the Caribbean, supply-side constraints must be overcome so as to enable increased
exports from the Region.

Phase III of EPA Negotiations

Phase III of CARIFORUM-EC negotiations for an EPA was launched in September 2005, with
substantive negotiations slated to get underway in February 2006.

Phase III will build on Phase II, which garnered qualified success, as measured in terms of
harnessing results on its two primary objectives defined in the Joint CARIFORUM-EC Plan and
Schedule. These two primary objectives, which were at the heart of discussions during the
regional integration phase, are: (a) developing an understanding of the respective regional
economic spaces that will assume commitments under an EPA; and, (b) identifying CARIFORUM
regional integration priorities to be supported by an EPA.

In pursuit of the second objective of Phase II, namely the identification of support measures for
Caribbean regional integration, CARIFORUM tabled concrete proposals in eleven specific fields. It
is of paramount importance that these proposals be acted on without delay; given that Phase III
builds on Phase II and as such is guided by that Phase. Getting resolution to issues outlined by
CARIFORUM in Phase II is essential to effective and efficacious negotiations in Phase III.

Also in pursuit of the twin primary objectives, CARIFORUM and EU Principal Negotiators met three
times through Phase II (November 2004, May and September 2005). In addition, four technical
sessions were convened in December 2004, March, April and May 2005 on Regional Market
Access (twice), Services and Investment and Trade-Related Issues. Negotiations covered tariffs
and non-tariff measures, customs and trade facilitation issues, SPS, TBT, services and investment
regimes, intellectual property, competition policy and government procurement.

The current phase of negotiations is intended to consolidate discussions, channelling the points of
common understanding into elements of a draft EPA Agreement. As regards objectives, the focus
of Phase III will be threefold; namely:

* Forging consensus on the structure of an EPA Agreement;

* Consolidating the outcome of discussions on the priority issues for CARIFORUM regional
integration; and,

* Agreeing on an approach to trade liberalization.

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The Third Phase of negotiations is a critical one, allowing just one year to address a wide range of
issues. As regards scope, a CARIFORUM-EC EPA would be built on the following three platforms:

* Trade and Trade-related Provisions

* Trade and Economic Development Co-operation

* Institutional Arrangements and Dispute Settlement

CARIFORUM is at an advanced stage in its preparations for negotiations with the EC in Phase III.
Three Technical Working Groups (TWG) are being convened consecutively; all immediately prior to
technical sessions with the EC, that mark the onset of substantive negotiations. The TWGs are on:
i) Market Access, to be held in Port of Spain, January 23 to 24; ii) Services, to be held in Port of
Spain, January 25 to 27; and, iii) Trade Related Issues, to be held in Port of Spain, February 1 to 3.

The bulk of substantive negotiations will be taking place in Phase III, notably from next month.
Negotiating sessions are set to take place from February, with encounters at Principal Negotiators
level underway from March, culminating in a year-end Ministerial meeting. (Both sides will have to
rely on supplementing formal negotiating sessions with continuing exchanges.) Set to take place
are: six CARIFORUM-EU Technical Negotiating Sessions; three meetings of Principal Negotiators;
one Joint CARIFORUM-EU RPTF, followed by a Joint RPTF presentation to the international donor
community. The Third CARIFORUM-EU Ministerial on EPA Negotiations will be convened in
December.

EPA’s Importance for CARIFORUM

The EPA is an important arrangement for CARIFORUM, given its role in advancing regional
integration. The EPA is unique amongst other arrangements involving the Caribbean, in that it is
the first and only bi-regional agreement encompassing the CARIFORUM configuration. It provides
the framework to support and provide impetus for regional integration amongst CARIFORUM.

Underpinned by a development dimension, the Agreement will take account of differences in levels
of size and development, thereby creating a bi-regional agreement with wider scope than just a
traditional Free Trade Agreement.

The envisioned ‘development package’ is critical to providing the development financing necessary
to build the export capacity and infrastructure of the Caribbean’s private sector, so as to take
advantage of market access opportunities presented under an EPA. Allied to this, the package
which will constitute technical and financial assistance would also be used to put in place an
enabling environment in Caribbean countries for foreign investors.

Importantly, the EPA arrangement will provide for the establishment of a stable and secure trading
environment for goods from the Caribbean. It will also allow for the negotiation of a Services and
Investment framework between CARIFORUM and the EU, for the first time. The EPA is expected

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to open the door to an improved trade and investment relationship with Europe. In recent years,
trade and investment flows from Europe to the Caribbean (with the exception of the Dominican
Republic) have been growing at a slower pace. The EPA is intended to be an enabling mechanism
for the revitalization of these flows. It is intended to stimulate greater investment between Europe
and the Caribbean, through mutual removal of barriers to investment, as well as the enhancement
of the attractiveness of the Caribbean economic space in respect of foreign investment
opportunities. The Agreement is also intended to stimulate Caribbean exports of non-traditional
products and services, encouraging and supporting diversification in these economies.

Therefore, from the Caribbean perspective, the partnership with Europe is expected to position the
Region to take advantage of a more dynamic trade and investment relationship.

Looking Ahead

The EPA negotiating process is intensifying at a time when other negotiating theatres are also
maturing. The sheer volume of meetings on the EPA front alone will increase significantly in 2006.
In between these encounters, the RNM will have to dedicate a significant amount of time and
resources in conducting regional consultations with both Member States and regional
stakeholders. The intensity of the agenda of EPA talks that lies ahead underscores just how
stretched the limited negotiating resources of the Region will be in 2006.

Additional negotiating obligations in other theatres like the WTO will simultaneously command the
negotiating attention of the RNM and the Region. The multitude of negotiating sessions in this
context will also place a strain on existing resources.

And then there is the question of timeframe for negotiations in 2006 arising from the need to bring
resolution to certain trade talks. While the WTO and EPA theatres will in tandem occupy a
significant amount of the Region’s negotiating energies, the RNM’s CARICOM Member States will
also be focused on the bilateral track, of which possible talks with Mercosur and Canada,
respectively, are to top the agenda.

Erratum

In RNM UPDATE 0601 – January 17, 2006, the second sentence of paragraph 3 of the section
entitled: ‘Global Trade Talks, Securing Negotiating Space for the Small and Vulnerable’, makes
reference to “larger countries”. This is an error; and instead should read ‘smaller countries.’

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For More Information Contact:

Nand C. Bardouille
Caribbean Regional Negotiating Machinery
3rd Floor, The Mutual Building, Hastings Main Road, Hastings, Christ Church, Barbados
Tel: (246) 430-1678
FAX: (246) 228-9528