RNM UPDATE 0713

October 11, 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.

• THE SPECIAL MEETING OF CARIFORUM HEADS OF GOVERNMENTS AND EC

COMMISSIONERS FOR TRADE AND FOR DEVELOPMENT – THE COMMUNIQUÉ
• THE NEGOTIATION OF RULES OF ORIGIN
• WTO UPDATE
• ANTIGUA MAKES FIRST SUBMISSION TO WTO ARBITRATION PANEL
• NEWS BRIEF
• UPCOMING EVENTS

THE SPECIAL MEETING OF CARIFORUM HEADS OF GOVERNMENTS AND EC

COMMISSIONERS FOR TRADE AND FOR DEVELOPMENT – THE COMMUNIQUÉ

With the EPA deadline fast approaching, CARIFORUM negotiators have been trying to finalize the
negotiations. The Special Meeting of the CARIFORUM Heads of Government, held October 4 – 5
2007, was critical to resolve internal issues including those related to the formulation of the
CARIFORUM market access and services offers. Additionally, as the official Communiqué reveals,
the convening of the Meetings of CARIFORUM Heads of State/Government with EU
Commissioners Mandelson and Louis Michel, also held during that time, provided an
unprecedented opportunity for CARIFORUM Heads and EC Commissioners to resolve issues and
to narrow differences in negotiating positions.

Specifically the Meeting resulted in the following:

1. Reiteration of the priority given to development throughout the Agreement especially in

relation to the provisions for technical assistance, capacity and institutional building;
regulatory reform; continuous work on the designing of support programmes and project to
facilitate implementation of the EPA
2. Noted emphasis on significant increase in European Development Fund allocations to
support programmes and the allocation of additional resources emanating from the EU Aid
for Trade Strategy, the details of which were articulated in a Memorandum on
Development Cooperation by the European Commission.
3. The provision of guidance to both CARIFORUM and EU negotiators to facilitate the
finalization of negotiations on more challenging outstanding issues including market
access for goods, services and investment
4. The tabling of CARIFORUM proposals on securing increased and assured market access
aimed at securing the viability of CARIFORUM’s sugar industry.
 5. The representation of CARIFORUM interests in attaining specific development assistance
to aid the continued adjustment and transformation of the Region’s vulnerable banana
industry.

The progress made at this level, will be significantly instrumental in assisting negotiators to resolve
outstanding issues in the negotiations.

THE NEGOTIATION OF RULES OF ORIGIN

In international trade, rules of origin (ROO) are designed to help define the country origin of exports
in order to determine the treatment of these exports, in terms of the application of duties or other
restrictions, upon entry into the export market. The determination of an export’s origin is based
upon the final location where ‘substantial transformation’ occurs. Gauging ‘substantial
transformation’ can be established by three methodologies. One method determines origin by the
‘change in tariff heading’ test. If alteration of a product within a country is substantial enough that it
leads to the classification of the final product under a different tariff heading, then the final product
would be deemed as originating from that country where the change occured. The ‘ad valorem’ or
‘value added’ test determines that substantial transformation to have occurred where the last
production process adds a certain percentage of value to the product. Alternatively, under this
method, origin may be conferred to a product once a ceiling percentage of value of imported parts
or materials is not exceeded. Finally, origin may be determined by manufacturing criterion. This is
known as the Technical test.

The determination of origin is particularly significant for developing countries like CARIFORUM
(CF), which have production sectors that tend to be import dependent. Therefore, it is often difficult
for such countries to meet the ‘substantial transformation’ requirement of ROO. This influence on
exports often gives ROO the capacity to act as de facto barriers to the trade of developing
countries’ exports. The requirement of the EPA, as a development tool, to feature liberal and
flexible Rules of Origin (ROO) is therefore essential. Appropriate ROO are critical to facilitate
export development and economic growth of ACP States.

However, up to this stage of the negotiations, there was no consensus between CF and the EC on
the framework of ROO. Though some issues are still to be finalized in upcoming negotiations, it
was a fundamental achievement that the 11th Technical Negotiating Group and the 8th Principal
Negotiators Meetings resulted in a mutual understanding between Parties on the structure and
substance of Rules of Origin. However, attaining this level of progress in the EPA negotiations was
not without challenges.

While it was desirable to attain flexible rules of origin in the EPA, there were a number of issues
that had to be considered. In 2006, the ACP Council determined it appropriate for the ACP to
negotiate one set of ROO rather than to pursue different arrangements for each of the six sub-
regions. However they also determined that regional structures for ROO would facilitate
negotiations of the EPA under the prescribed negotiating schedule. It was further decided
therefore, to use a common template or format for these rules to avoid fundamental divergences.
Fundamental regional differences in ROO within the EPA would undermine cumulation, which is
the principle of treating a group of states as a single entity for the purposes of determining eligibility
for market access. Compromised cumulation would therefore act as a barrier to the facilitation of
inter-regional and intra- regional trade, as well as impede the expansion and deepening of regional
integration initiatives. Fragmented ROO would therefore undermine one of the principal goals of
the EPA and the Cotonou which is to facilitate greater inter and intra ACP trade and the building of
ACP regional integration initiatives.

There was also the issue of determining which test would be used to establish ‘substantial
transformation. In a fifth meeting of the ACP Experts on the Rules of Origin held in Brussels 25 - 26
January 2007 it was decided that across the board the Change of Tariff Heading methodology
would be used but that the ‘value added’ test could be used as an alternative. The European Union
(EU) on the other hand, has proposed changes to the ROO based on the ‘value added’ test only.

The Change of Tariff Heading test is the most widely used and is preferred by the ACP States as it
is considered as a transparent, predictable and objective means of determining the origin eligibility
of goods. The value added approach however, can be complicated. The value of an export is
based on the cost of manufacturing the good and the price of exporting it. The value of material
constituting the good could be established from commercial records or documents. As a result the
conferring of origin may be prejudiced by fluctuations in factors that affect the manufacturing or
export costs of a product, such as exchange rates or labour costs.

Regardless of the approaches used, the new ROO have to be structured in a manner to prevent
third states from opportunistically benefiting from the market access under the EPA through the
transfer and diverting of exports wholly produced by third states through the ACP states. Such
trade deflection undermines the development of productive sectors, export capacity development
and economic growth of ACP states.

Furthermore, notwithstanding the requirement to accommodate cumulation, for CF the general

priority has been to negotiate ROO that are beneficial and relevant to CF market access needs.
Furthermore, as is consistent with the philosophical underpinnings of the CF (and ACP) approach
to trade liberalization within the EPA, the CF position is that market access must be based on the
principle of asymmetry that defines the differences in the level of development between the CF
States and the EU.

WTO UPDATE

In general the pace of progress in the WTO negotiations has been slow. While the summer break
has given countries time to review the proposal of the Agriculture and NAMA Chairs, little progress
has been attained since the resumption in negotiations.
Agriculture

Since resumption after the August break, although there has been tow open-ended sessions held
the 14th and 21st of September, negotiations on Agriculture have mainly been based on restricted
consultations known as the ‘room “E” ‘process. The primary focus during these consultations was
market access which included areas of interest to developing countries such as Special Products
(SPs) and Special Safeguard Mechanism (SSM). Developing country groups African Caribbean
and Pacific (ACP), the G-33 and the Small and Vulnerable Economies (SVEs) have also convened
to formulate their positions on the Chairman Falconer’s proposal on Agriculture, including the
issues of SPs and SSM. In regard to SPs, the G-33 has expressed some concerns about the
Chair’s proposal. However, SVEs have indicated that they are satisfied with the Chair’s proposal.

In regard to domestic support in agriculture, the Chairs text, in its proposal to limit US domestic
support roughly between US$13 -16 billion, does present a starting point to bridge compromise,
theoretically. However, political will is required. Recently, the US has indicated a willingness to
negotiate on the basis of the Chair’s proposal but qualifies its cooperation by insisting that the EU
improve market access by cutting agricultural tariffs significantly.

NAMA

In Non-Agriculture Market Access negotiations a trichotomous division has emerged amongst the
Members with regard to the issue of ambition as proposed by the NAMA Chair. In his proposal, the
Chair recommends two levels of coefficients: 8-9 for developed countries and 19-23 for developing
countries. The developed countries regard this level of ambition in relation to improving market
access as too low and instead desire a reduced coefficient for developing countries. The NAMA -
11 Group (Argentina, Venezuela, Brazil, Egypt, India, Indonesia, Namibia, Philippines, South Africa
and Tunisia) have indicated that the suggested tariff cuts were far too demanding and are strongly
opposed to it. The ‘Friends of the Chair’ (a group of developing countries that include Chile,
Mexico, Costa Rica and Signapore) however support the proposal of the Chair.

Given this current gridlock, the Chairman Stephenson in recent weeks has focused discussions on
less controversial issues related to the NAMA negotiations. This included discussion on a proposal
on legal text for a new facilitation mechanism for rapidly mediating bilateral disagreements over
non-tariff barriers that affect trade in goods. The underlying premise of the proposal is that trade
opportunities attained through tariff reduction can be undermined by non-tariff barriers. The
expeditious resolution of disputes that arise because of non-tariff barriers would better facilitate
international trade. The proposal recommends a staged process for the mediation of disputes
which includes the option of the appointment of a facilitator. While the process is designed to help
resolve disagreements in a timely fashion it does not prejudice a Member’s right to formal dispute
settlement. The proposal, backed by a wide range of WTO Membership (including developed and
developing countries) has actually served to achieve some consensus in the NAMA negotiations.

Services

The impasse on agriculture and NAMA negotiations has constricted progress in the services
negotiations. Therefore, in services negotiations, there is a view that the crafting of a new text on
services may help engender consensus and improve progress in this negotiation forum. In contrast
to Agriculture and NAMA negotiations, a draft text would not indicate liberalisation commitments in
services negotiations because such commitments can only be determined through pluri-lateral or
bilateral exchange of offers and requests. This notwithstanding, Chairman Ambassador Fernando
de Mateo is hopeful that a new text could include a deadline for the submission of revised market
access offer.

Developed countries, especially the US, appear to strongly support a text based focus to
encouraging progress in services negotiations. Developing countries with robust services
economies like India and Mexico also appreciated this approach. On the other hand, other
developing countries have qualified their support of this approach by insisting that the new text
should not only reflect issues related to market access but should also reflect developments in
rules negotiations, as well as special and differential treatment provisions. Under rules
negotiations, the proposals on rules related to subsidies, government procurement and services
safeguard mechanism presented to the Working Party on GATS Rules (WPGR) are of particular
interest to developing countries, including the Caribbean.

It is unlikely that progress in services, irrespective of the successful drafting of a text, will be
attained without significant progress in Agriculture and NAMA. Brazil and Argentina for example,
expect substantial movement in agriculture before moving in services. The ‘fireside chats’, the
‘NAMA caucuses’ and the ‘enchilada talks’ may have to be heavily depended upon to raise the
political engagement necessary to conclude the negotiations. However, if progress is not soon
achieved, the Doha round may remain incomplete indeterminately.

ANTIGUA MAKES FIRST SUBMISSION TO WTO ARBITRATION PANEL

Antigua and Barbuda has presented its first submission to the WTO Arbitration Panel in
accordance with Article 22.6 of the WTO Dispute Settlement Understanding (DSU). This Article
indicates the DSB

“shall grant authorization to suspend concessions or other obligations within 30 days of the expiry
of the reasonable period of time unless the DSB decides by consensus to reject the request.
However, if the Member concerned objects to the level of suspension proposed, or claims that the
principles and procedures set forth in paragraph 3 have not been followed where a complaining
party has requested authorization to suspend concessions or other obligations pursuant to
paragraph 3(b) or (c), the matter shall be referred to arbitration. Such arbitration shall be carried
out by the original panel, if members are available, or by an arbitrator appointed by the Director-
General and shall be completed within 60 days after the date of expiry of the reasonable period of
time. Concessions or other obligations shall not be suspended during the course of the arbitration."

This process of arbitration is therefore separate and distinct from the arbitration process provided
under GATS Article XXI: Modification of Schedules. It should be recalled that rather than complying
with the original ruling of the Panel, the US announced its decision to withdraw its gaming services
commitments under the GATS, through activation of GATS Article XXI. Since then, the US has
sought to offer a compensation package to the countries – namely Japan, the European Union,
Antigua, Costa Rica, India, Australia, Macao and Canada – that have filed for compensation. The
deadline for completion of compensation negotiations was September 22, 2007.

Until the Modification of Schedule is resolved or until the ruling of the original panel is complied
with, Antigua has a right to suspend concessions or other obligations in accordance with the
provisions of Article 22.6 of the DSU. However, because of US objections to the level of Antigua’s
suspension of concessions, arbitration has now become necessary for Antigua attain the
authorization to suspend concessions or other obligations with respect to the United States in the
aggregate annual amount of US $3.443 billion.

In its submission Antigua asserts, inter alia, that the level of frustration experienced by Antigua
caused by US failure to cooperate both in the context of this dispute and in relation to desisting the
US actions that threaten the viability of Antigua’s gaming industry. Antigua further asserts, in
contrast to the contradictions of the US Government, that their decline in market share is
completely attributable to the actions of the US government.

It is interesting to note that Antigua, while valiantly implementing all rightful options of recourse
under law, has recognized that the implementation of sanctions, even under the TRIPS, may have
little effect on US policy. As indicated in the Submission,

“It is quite possible that Antigua may never be able to suspend concessions or other obligations at
a level approximating the level of nullification and impairment suffered as a result of the failure of
the United States to comply with the DSB Rulings. And Antigua is not unmindful of the difficulties it
will face in achieving a satisfactory outcome under the TRIPS. But what Antigua is convinced of is
that it has no chance of pressurizing the United States to comply with the DSB Rulings by
suspending concessions or other obligations under the GATS. In a familiar vernacular, the TRIPS
might be a long shot for Antigua, but it is the only shot Antigua has.”

Indeed, Antigua implies that it is well appraised of the challenges that may arise as a result of this
course of action. One such challenge that Antigua may face is the risk of US retaliation exercised
within bilateral or pluri-lateral diplomatic and trade relations between Antigua and the US. This
includes the possibility of the suspension of CBI benefits.

Invariably, Antigua will have to continue a process of weighing and balancing of options.
NEWS BRIEFS

Regional News

Costa Rica says Yes to CAFTA

The Costa Rica people by a narrow margin have voted in favor of the CAFTA in a referendum.
Sources indicate that according to the partial official results issued on Sunday September 7, 2007,
out of 73 percent of votes counted, just over 50 percent of voters said yes to the agreement against
47.5 percent who voted no. Turnout was around 60 percent.

President Minister Rodrigo Arias sent a letter yesterday to the group in hopes of bridging the gap
between the anti-CAFTA group and the new CAFTA ways. They have agreed to meet to discuss
how government plans to implement the trade deal and the new laws.

The Continuation of the EPA Negotiations - the 12th CARIFORUM-EC EPA Technical Negotiating
Groups and the 9th CARIFORUM-EC Principal Negotiators

In light of the conclusion of the Special Meeting CARIFORUM Heads of Governments and EC
Commissioners for Trade and for Development the CARIFORUM –EC EPA negotiations will
continue in Barbados but with the benefit of new guidance from the political directorate that
emanated from the Special Meeting. The negotiations schedule is as follows:

• Technical Working Group (TWG) on Market Access, October 8 and 9;

• TWG on Services and Investment, October 8 and 9;
• TWG on Trade Related Issues, October 8;
• TWG on Legal and Institutional Issues, October 9;
• 12th CARIFORUM-EC EPA Technical Negotiating Groups (TNGs), October 10-13;
• 9th CARIFORUM-EC Principal Negotiators, October 15.

Guyana has threatened to block Jamaica's bid to import rice from the United States

A row erupted last week between Jamaica and Guyana after Jamaica announced it was forced to
look outside the region for the staple because of a shortage in Guyana, its main supplier. It has
been reported that Guyana's Agriculture Minister Robert Persaud charges that his country can
meet most of Jamaica's annual demand of 80,000 tons of rice. Insisting that buying from the
subsidized US market would result in unfair competition, Minister Persuad has indicated that all
efforts will be made to dissuade Jamaica from buying from US farmers.
International News

WTO Director-General pleads for Civil Society’s help in Shaping the Global Trade Agenda

WTO Director-General Pascal Lamy, in his keynote address to the WTO Public Forum on 4
October 2007, indicated that the WTO is looking for the contribution of civil society in shaping the
trade agenda. He therefore urged civil society to give serious consideration to the “magnitude of
the “package” that is now on the WTO's negotiating table”.

UPCOMING EVENTS

October

• 6th TWG on Trade-related Issues, Barbados

• 08-09 TWG on Market Access Issues, Barbados
• 08-09 TWG on Services, Barbados
• 09 TWG on Legal and Institutional Issues, Barbados
• 08-09am Meeting of Officials Preparatory to the Twenty-Third Special Meeting of the Council for
Trade and Economic Development, Jamaica
• 10 Technical Negotiating Group on Trade-Related Issues (Innovation and Intellectual Property),
Brussels
• 10pm-11 Twenty-Third Special Meeting of the Council for Trade and Economic Development
(Agriculture), Jamaica
• 09-10 WTO GENERAL COUNCIL, Geneva
• 09-10 ACP Secretariat, Meeting of ACP Legal Experts (part of preparations for meeting of ACP
Ministers on 22-26 October), Brussels
• 10-11 Fourth Meeting of the Assembly of Caribbean Community Parliamentarians, St. Kitts & Nevis
• 10-12 Sixteenth Meeting of the Council for Human and Social Development: Culture and Youth,
Georgetown
• 10-13 12th Meeting of CARIFORUM-EC Technical Negotiating Groups, Barbados
• 12am 9th Meeting of the CARIFORUM-EC Regional Preparatory Task Force, Barbados
• 12pm Joint RPTF/Donor Meeting, Barbados
• Meeting of Principal Negotiators, Barbados
• 15 Meeting of CARIFORUM Officials, Non-State Actors and Regional Agencies on 10th EDF
Programming, Port-au-Prince
• 16-17 Preparatory Meeting of CARIFORUM Officials, Port-au-Prince
• 18-19 Meeting of the CARIFORUM Council of Ministers, Port-au-Prince
Recipients of RNM UPDATE are authorised to forward this newsletter to other addresses. We
welcome suggestions for additions to our mailing list. If, on the other hand, you wish to be removed
from the list, kindly inform us.

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