RNM UPDATE 0711

July 31, 2007

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

• PROGRESS IN US –CUBA RELATIONS NORMALIZATION

• CRITICAL DISCUSSION OF LABOUR MOVEMENT ISSUES WITHIN THE OECS
• WTO CHAIRMAN PRESENTS NEW PROPOSALS ON AGRICULTURE
• 10 CARIBBEAN COUNTRIES MAY GET WTO EXTENSIONS
• NEWS BRIEF
• UPCOMING EVENTS

PROGRESS IN US –CUBA RELATIONS NORMALIZATION

The US Senate Appropriations Committee approved legislation allowing travel to Cuba in order to
sell agricultural goods or medicines. This legislative change comes on the heels of the release of a
report issued by the US International Trade Commission reflecting findings that reducing
agricultural trade restrictions would significantly increase sales in every single US agricultural, fish
and forest product sector.

With regard to travel, the report predicts that legalising travel to Cuba would profoundly affect
visitor traffic of US citizens to Cuba, where between 550,000 to one million US citizens would visit
Cuba annually. In turn, increased tourism traffic from the US to Cuba would increase the demand
for American produce in Cuba. The report further indicated that while in 2006, US agricultural
products constituted 30 percent of Cuban imports, lifting other trade restrictions, such as export
financing restrictions, would allow US exports to double from the 2006 levels.

The ITC report appears to buttress other arguments for lifting the Cuban travel ban and easing
restrictions on agricultural exports to Cuba. A CRS Report indicates that justifications offered for
removing the travel ban include the argument that the ban abridges the rights of ordinary
Americans who are not restricted from travel to other communist or authoritarian governments. The
findings of the ITC report are also consistent with the arguments proposed by US agribusiness
companies as disclosed in the CRS Report, that the current restrictions on agricultural exports
prevent US farmers from capitalising on a market of over $700 million annually.

Commenting on the findings issued in the ITC report, the Senate Finance Chairman, Max Baucus,
who also requested the report, has stated in a press release,

“Common sense tells us that barring agricultural producers from doing business with the largest
market in the Caribbean is hurting American interests. Now this study gives us hard proof that the
Cuban market holds real promise for American farmers and ranchers.”
This legislative step could be one that advances complete US foreign policy change towards Cuba
when open trade engagement between the two countries can be realised. This would be of
significant favourable consequence to the advance of Cuban development. Furthermore, given the
attractive size of the Cuban market, (in excess of $11 million) this could lead to a waning of
American investment interests in the smaller CARICOM countries. According to Dr. Neville
Duncan, even with the restrictions of the US embargo on Cuba, many US firms have established
agreements awaiting activation precisely at the time in the future that the embargo will be lifted by
the US government.

Therefore, if American firms stand at the ready, in anticipation of the advent of normalized relations
between Cuba and the US, is the Caribbean similarly poised? CARICOM has made some progress
in addressing trade relations with US during the June 2007 Conference of the Caribbean and more
recently during the Heads of Government meeting with Rangel during the Conference of the Heads
of Government of CARICOM. While securing an extension of the waiver for Caribbean Basin
Initiative is a practical achievement for CARICOM at this juncture, some unanswered questions of
US-CARICOM relations beyond CBI remain.

As alluded to earlier (RNM Update 0702), within this current context of hemispheric developments
– this recent progress towards US-Cuba normalization and the implicit ambiguity in Caribbean
relations with the US – the exploration of the deepening of CARICOM relations with Cuba may be
useful.

Since the early days, when Jamaica, Guyana, Barbados, Trinidad and Tobago, boldly facing the
risk of US reprisal established full diplomatic relations with Cuba in the early 1970s, CARICOM
must be commended for the steps made to more deeply engage Cuba. The 2000 Cuba-CARICOM
Trade and Economic Cooperation Agreement and the continuation of diplomatic dialogue with
Cuba through the Havana Summit and the CARICOM –Cuba Ministerial processes for example,
have been designed to improve CARICOM–Cuba linkages.

These notwithstanding the evidence indicated in the Caribbean Trade and Investment Report
indicates that within the five year period between 2000-2004, neither the value of CARICOM’s
exports to Cuba nor the value of CARICOM’s imports from Cuba have increased significantly.
Moreover, according to United Nations COMTRADE figures, Cuba’s overall imports grew by over
13% between 2000 and 2004 to reach some US$2.6 billion in 2004. However, CARICOM export
activity with Cuba declined by 32% between 2000 and 2004. Export opportunities in coffee, meats,
fish, processed fruits and vegetables, leather goods, aluminium and ships/boats remain largely
unexplored. It is estimated that some US$2.5 billion in unexplored export potential exists for
CARICOM’s private sector in Cuba.

It is perhaps cliché but highly relevant to observe that the early bird gets the worm.

Be that as it may, language, distance and inadequate transportation systems between Cuba and
CARCIOM, to varying degrees, may be inhibiting the expansion of the CARICOM-Cuba trade link.
Notwithstanding these challenges, which need to b e mitigated, meaningful CARICOM trade
engagement with Cuba, even the exploration of broadening the existing Agreement into an FTA,
would certainly help the region be primary beneficiaries of future US-Cuba relations normalization
and expand the Region’s competitiveness. Many things are possible but the CARICOM private
sector must first seize their opportunities.

CRITICAL DISCUSSION OF LABOUR MOVEMENT ISSUES WITHIN THE OECS

Last week in Grenada on July 18th, 2007, during a Meeting hosted by the Canadian International
Development Agency and CRNM, the consultants from A-Z Information Jamaica Limited presented
the findings of their Pilot Study to Assess the Likely Impact of the Free Movement of labor in the
CSME on the OECS Labor Market.

The study found that not only was awareness of the Caribbean Single Market and Economy
(CSME) in the Organisation of Eastern Caribbean States (OECS) strong, but there was a positive
attitude towards the CSME and movement of labour within the OECS. Amidst unofficial regional
reports of xenophobia and apathy towards the CSME and regional labour movement, this finding
would be refreshing for regional policy makers.

The respondents from the OECS sampled by the consultants reported that OECS States have
benefited from free movement of skills under the CSME regime in both emigration flows to other
CARICOM States and immigration flows into OECS States.

However, discussion of the findings during the Meeting revealed that labour migration within the
OECS is currently dominated by the work permit regime not the free movement regime, where
labour movement has primarily occurred within categories of labour not approved under the CSME
regime such as artisans, security guards and domestic workers. This fact may be responsible for
inspiring the opinion amongst the respondents that all categories of labour should be allowed to
move freely within the Region. It should be noted that CARICOM Heads of Government made a
decision to facilitate complete free movement by the end of 2009.

According to the study, the OECS has issued approximately 82% of work permits to non-OECS
CARICOM nationals, with Antigua and Barbuda issuing the majority of those permits. Of the work
permits issued by the OECS, Guyanese nationals were the principal recipients. They would have
received 39% of the issued permits, followed by Jamaican nationals at 29% and nationals of
Trinidad and Tobago at 6%.

While the study found that most respondents were favourably disposed to free movement on a
temporary basis, there were several push and pull factors reported that affect the willingness of
respondents to move on a more permanent basis. The factors that inspire movement included
improved job prospects, increased earning potential and low crime rates. In contrast, the
perception of higher crime rates in other CARICOM States, nationalist sentiments including the
desire to contribute directly to national development, and family commitments, were all noted as
deterrents to permanent movement.

Opinions emanating from the discussions, suggested that more coherence was needed at the
policy and planning levels to ensure better management of labour migration under work permit and
free movement regimes, especially with regard to enabling greater crime control and prevention,
the treatment of workers, the improvement of social services administration and the administration
of Contingent Rights.

The findings emanating from the study and from the ensuing discussion in the Meeting provoke
policy response to several issues. Given the disincentives of movement, the consultants were of
the view that significant movement under the CSME remains unlikely. While policy makers have
been generally successful in information campaigns designed to create public awareness on the
CSME, recommendations from the Meeting suggest that it is critical to continue public awareness
campaigns.

It was widely viewed however, that these campaigns should be nuanced to address specific target
groups and designed to encourage such groups to take advantage of the benefits of the CSME.
Improved information campaigns together with improved management of labour migration and
related social factors such as crime, were thought of as critical to encourage greater labour
movement under the CSME regime.

In general, the study is instructive in providing guidance to improving policy response to the
management of migration especially as the Region advances towards the facilitation of full free
movement of persons. The study and the recommendations emanating from the Meeting are
scheduled to be distributed to key Regional agencies including the Council for Human and Social
Development (COHSOD), the OECS Secretariat and the CARICOM CSME Unit.

WTO CHAIRMAN PRESENTS NEW PROPOSALS ON AGRICULTURE

“Suffice it to say that this document is intended to take everyone out of their comfort zones. That
has to happen if we are ever to get an agreement. Some of those narrow ranges or target numbers
or technical draft text will be very painful, for sure. But that pain will be required to get agreement. I
have done my level best to ensure that at least that pain is spread in a reasonably balanced way
within the terms of the framework.”

These are the words of the chairman on Agriculture in his correspondence to WTO Members on
the occasion of the issue of his July 17, 2007 proposal. This document as well as the proposal on
NAMA also issued on July 17, are to serve as a basis for further multilateral negotiations after the
WTO summer recess in August. It is uncertain as to the degree to which Parties believe that the
proposal reasonably balances the spread of the pain in order to reach an agreement. Earlier this
week, WTO Members were expected to lodge their preliminary views on the proposal. However
initial reactions from Parties especially some of the G4, were cautiously optimistic.

What Chairman Falconer has attempted to present are specific figures that juxtapose higher cuts in
farm support with deeper tariff reductions. In other words, a compromise based on balancing
market access with concessions on trade distorting farm subsidies. Falconer’s proposal suggests
that the US cap overall trade-distorting farm subsidies at $13 billion or $16.4 billion, which is a cut
of 73% and 66% respectively. These figures are much lower than the cap the US had initially
proposed of $22.5 billion or the figure of $17 billion that was tentatively offered during the Potsdam
G4 session. It is also important to recognize that the proposed caps are higher than the estimated
amount that the US actually spent in farm subsidies last year ($11 billion).Certainly, however, the
proposal does not suggest such a steep cut as $12 billion, as proposed by the G20.

Relative to marker access, Falconer’s proposal suggests that developed countries reduce the
highest agricultural tariffs by a range of 66 – 73 percent, which is higher than the benchmark
proposed by Europe (60%) but still much lower than demanded by the US (83% in the upper tier).
According to proportionality formula, developing countries would be expected to cut their own tariffs
by two thirds of the benchmark agreed to for developed nations. However the Chairman has
accommodated some flexibility to allow developing countries to keep their average reduction below
36 or 40 %. However in exchange for deeper farm subsidy cuts, developing countries would have
to concede to the higher degree of tariff cuts of as much as 40 percent.

In as far as there is middle ground, the text has sought to achieve it. However, agriculture is but
one pillar in the WTO negotiations. Therefore, political will to reach a compromise must extend to
the other pillars of negotiations especially NAMA. Much review of the proposal, the previous
positions of Members and political will to reach compromise, will have to be undertaken in the
upcoming weeks.

There is the question of whether Caribbean interests as they relate to the inclusion of Special and
Differential Treatment (SDT) and the treatment of small vulnerable economies (SVEs) have been
addressed in the Chairman’s proposal.

Section H of the text defines States that qualify as small vulnerable economies and further outlines
the obligation for developed countries and some developing countries in an appropriate position to
grant enhanced improvements in market access for products of export interests to SVEs.

However, in relation to Special and Differential Treatment specifically text on Special Products
(SPs) and a Special Safeguard Mechanism (SSM), the proposal goes no further than to
acknowledge that this is critical. Instead Falconer excused the inclusion of this in his proposal on
the grounds that modalities on these areas are ‘simply not yet developed well enough to go to
precise text’.

However in the proposal there is a suggestion for Members to work with the proposed SPs list as
designated by the G33 as a model to develop modalities in this area. He further challenged
Members to disregard ideas of using a one-size-fits-all approach in relation to SPs.

It must be remembered that even if compromise is made one the numbers related to market
access and subsidies cuts, an appropriate framework for Special and Differential Treatment is
critical to the Development Agenda of the Doha Round. Falconer and Members must work
assiduously to bring compromise on SDT modalities in order for the Round to succeed.
10 CARIBBEAN COUNTRIES MAY GET WTO EXTENSIONS

The WTO Committee on Subsidies and Countervailing Measures has made progress in facilitating
the allocation of a time extension for 19 developing countries, the majority of which are Caribbean
Members, to completely eliminate export subsidies.

An export subsidy is a government policy to encourage export of goods and discourage sale of
goods on the domestic market usually through low-cost loans or tax relief for exporters. Export
subsidies artificially lower world prices and distort trade flows. With export subsidies, the lowest-
price suppliers are not necessarily the most efficient exporters. Instead, with export subsidies, the
lowest prices available to foreign importers are determined by the ability of national governments to
offset the costs of exportation for domestic exporters. Hence, the world market supply of these
commodities does not depend upon normal competitive market forces but rather on the level of
government intervention.

Export subsidies are often used to limit internal market fluctuations by forcing more into export
markets during years of high domestic production and fewer exports during years of low
production. Employing export subsidies to stabilize internal markets causes instability and volatility
of the world market as trade flows are affected largely by the subsidizing country’s internal policies.
Export subsidies for all products other than raw materials (primary products) have been illegal
under international trade rules since 1958. However these subsidies were still permitted for primary
products including agricultural products until the Uruguay Round. The Uruguay Round Agreement
on Agriculture provided for the reduction of the volume and value of these types of export
subsidies. There was further consensus in the Doha Declaration to phase out these subsidies but
the Hong Kong Declaration established an end date for all forms of export subsidies and disciplines
on all measures with equivalent effect by the end of 2013.

However this extension will allow these specific countries to eliminate their subsidies by December
31, 2015, facilitating a final phase out period of two years.

The Decision by the Committee outlines the procedures in respect to the continuation of the
extension up to 2015. The procedures include transparency provisions in the form of required
annual reviews by the Committee to ensure that Members undertake measures to eliminate the
export subsidies especially as these measures relate to legislative changes, administrative
amendments or other necessary procedures.

It is expected that the Decision, which is good news for Antigua and Barbuda, Barbados, Belize,
Dominica, the Dominican Republic, Grenada, Jamaica, St. Lucia, St. Kitts and Nevis and St.
Vincent and the Grenadines, will be considered for adoption by the Council at a meeting scheduled
for Friday 27 July 2007.
NEWS BRIEFS

Regional News

CARIFORUM negotiators make further progress the EPA negotiations

In the Technical Working Group Meetings which took place between 16-19 July 2007 and in the 9th
round of the Technical Negotiating Group Meetings held this week from 24- 27 in Brussels,
CARIFORUM negotiators have made important progress in resolving outstanding issues related to
the EPA negotiations.

Strides have been made in Services and Investment negotiations where for the first time, an
Investment offer has been laid and an improved Services Offer has also been tabled. Progress has
also been accomplished in Trade Related Issues Negotiations.
Principal Negotiator, Ambassador Richard Bernal stated “The progress achieved this week is
commendable and encouraging but there is a lot left to be completed particularly in the all
important area of tariff liberalization”

Canada and CARICOM begin a New Trade Relationship

Canada is ready to move forward on a free trade deal with the Caribbean Community CARICOM.
In an afternoon speech, Prime Minster of Canada Stephen Harper told Caribbean leaders that
preparing for free trade negotiations between Canada and the community was "one of the key
purposes" of his visit.

Outside the U.S. and Mexico, the Caribbean nations are Canada's largest trade and investment
partners in the region. While losing the tariffs might hurt Caribbean nations initially, community
countries hope gains made through Canadian investments will outweigh the short-term losses.

"Frankly, there is no better way to boost living standards over the long term," PM Harper said. "And
your region is following a proven path by working toward a single trading block."

Barbadian Prime Minister Owen Arthur, welcomed PM Harper's words, saying the region has been
ready for free trade since 2001.

The time has come to move beyond the one-way traffic of Canadian aid and preferential access on
a limited number of goods to "a modern trade agreement," he said.

However, PM Arthur was sure to make the point that “a trade agreement must respect the special
circumstances of smaller, poorer islands in the community that may not be ready for full-fledged
free trade”.

Arbitrators to decide on Antigua’s sanctions against the US

Arbitrators will decide on Antigua's attempt to impose 3.44 billion dollars in fines on the United
States over a dispute on Internet gambling, the World Trade Organisation said Tuesday. A meeting
of the WTO's Dispute Settlement Body was informed that Washington lodged the arbitration
request on Monday, objecting to the level of the sanctions and procedural issues.

"The United States would emphasis that the level of Antigua's request is patently excessive," the
United States said in a statement to the meeting. "In particular the level sought by Antigua and
Barbuda is several times higher than Antigua and Barbuda's annual Gross Domestic Product of all
goods and services," it added.

The WTO ruled in March that Washington had not complied with previous rulings on the dispute,
which enabled Antigua to seek sanctions.

International News

New EU offer proposed to appease Latin American banana producers

Faced with the prospects of a new banana war, EU negotiators have offered to cut import duties for
Latin American bananas, hoping to placate major exporters like Ecuador and Panama and
persuade them to drop international trade suits.

Latin American producers object to the current standard duty in force since January 2006 which is
176 euros ($240.3) a ton. The European Commission (EC) has proposed two options for cutting
the tariff.

For the EC, the ideal solution to resolving this and future conflict lies in the Doha Round. Clinching
a deal at that level will require the EU to cut agricultural tariffs generally. Thereafter, a further deal
could be negotiated to reduce the applied tariffs related to banana market access in a form more
acceptable to the Latin Americans. Within this scenario, bound rates would be set between 273
and 307 euros. Failing a Doha Round arrangement, the EC propose to set bound rates at 185
euros. In both scenarios, the EC propose to immediately set the applied rate at 170 euros a ton,
with a scheduled reduction to 123 euros per ton after five years.

ACP banana producers are worried that the improved market access to Latin American producers
will result in the flood of the cheaper Latin American bananas on the market.

Latin American banana exporting countries have August to consider the Commission's offers.
Chiquita charged with banana price fixing by EU Chiquita Brands International Inc. and Fyffes Plc
said they have been formally charged by European Union antitrust regulators with fixing the price
of bananas.

The EU probe began in June 2005 when inspectors raided the offices of fruit suppliers. Chiquita,
the No. 1 banana seller in Europe, has said some of its employees shared pricing and volume
information over many years with competitors and may have violated EU competition law.

"The company has cooperated and will continue to cooperate" with the EU investigation, said
Chiquita spokesman Michael Mitchell. He said the commission has granted Chiquita immunity from
fines on the condition that it continues to cooperate.
Under EU rules, companies can be fined as much as 10 percent of annual sales for antitrust
violations. Companies have two months to respond to the accusations.

An internal investigation by Chiquita showed "certain of its employees in one Latin American
country shared information with competitors regarding the volume of fruit shipped from that country
to North America," the company said.

Tonga becomes the 151st member of WTO

The WTO, on 27 July 2007 welcomed the Kingdom of Tonga as its newest member. Tonga applied
for accession to the WTO in June 1995, but negotiations effectively started in April 2001.

Tonga is one of the world's smallest economies with a population of approximately 116,000 and an
area of 748 sq km. Trade accounts for 54% of GDP. Its annual growth reached 1.9% in 2006 and
its major Industries are agriculture (41% of GDP) and fisheries (20% of exports). Tonga's main
trading partners are Japan, the United States, New Zealand and Australia.

Brazil files case against US farm Subsidies

Brazil has filed a new complaint against the United States at the World Trade Organization,
alleging that U.S. payments to farmers have exceeded WTO limits.

The request for consultations marks the first step in what could become another lengthy dispute
between the U.S. and Brazil over the billions of dollars (euros) Washington gives out annually in
farm subsidies. They have argued for the last four years over the legality of U.S. payments
American cotton farmers.

This case will increase the strain on relations between the two nations, which is already taxed by
the failed G4 process in Potsdam earlier this year.

Brazil accuses the U.S. export credit guarantees for being in breach of WTO rules, mirroring a
complaint made earlier this year by Canada.

The U.S. has rejected the accusations. "These claims were unfounded when they were made by
Canada, and they are just as unfounded when they are made by Brazil," said Gretchen Hamel, a
spokeswoman for the Office of the U.S. Trade Representative in Washington. U.S.
UPCOMING EVENTS
August
• 06-07 IDB, High-level Seminar “Expanding Bioenergy opportunities in the Caribbean”, Georgetown
• 07 CARICOM Preparatory Meeting, Port-of-Spain
• 08 Ministerial launch of CARICOM- Central America negotiations, Port-of-Spain
• 08-10 CARICOM- Central America Technical Negotiations, Port-of-Spain
• 09-10 OECS WTO Trade Policy Review Focal Points Meeting, St. Lucia
• End of: WTO-IDB/INTAL-CRNM, Training Programme on Trade & Environment for Caribbean
Countries, Barbados

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For More Information Contact:

Marsha Drakes
Programme Officer-Trade Information
Caribbean Regional Negotiating Machinery (RNM)
3rd Floor The Mutual Building
Hastings Main Road
Hastings, Christ Church, Barbados
Tel: (246) 430-1678
Fax: (246) 228-9528
marsha.drakes@crnm.org