OTN Special Update (Capitalizing On Advantage - EU-Central American Agreement With The CF-EU Economic Partnership Agreement)

SPECIAL
OFFICE OF TRADE NEGOTIATIONS
… for trade matters

OTN Update
May 26, 2011
Cap italizing on Adva nta ge:

A co mp ariso n of t h e EU - C ent ral A merican A sso ciat io n A greem en t
with t h e C arif o ru m- EU Eco n o m ic Part n ersh i p A g reem en t ( EPA )
On March 22, 2011, just shy of one year after to its competitiveness of the Central American economies
completion, the European Union (EU)-Central America through trade.
Association Agreement (AA) was initialled by the EU and
participating Central American countries, namely Costa Rica, For the participating Central American countries, the
El Salvador, Guatemala, Honduras, Nicaragua, and Panama. Agreement makes available improved market access to a
wider range of products than what is available at the
The Agreement gives legal expression to a new framework multilateral level or under the EU’s Generalized System of
that will guide the context of economic, social and political Preferences (GSP). This improved access has been
dialogue and cooperation between the EU and Central extended to agricultural products of particular significance
America.1 In this regard, the Agreement is arranged in three to their economies such as bananas, the market access of
primary sections addressing specific components of the EU- which several Central American countries have gone to
Central America relationship, namely Political Dialogue, considerable lengths to expand at the multilateral level. 2
Cooperation and Trade.
With respect to the Trade pillar of the AA, the provisions are
aimed at establishing an advanced FTA that facilitates
reciprocal albeit gradual liberalisation of trade in goods and
services, investment, public procurement, the protection of
intellectual property rights, cooperation regarding competition
and trade defence instruments, trade facilitation and a dispute
settlement mechanism. At the same time, the provisions take
into account the asymmetry in development between the two
The negotiations for an European Union (EU)-Central American
regions and therefore include EU support measures to Association Agreement (AA) was concluded on May 18, 2010.
promote changes in the productive sectors and the
OTN UPDATE is the flagship electronic trade newsletter of the Office of Trade Negotiations (OTN), formerly the Caribbean Regional Negotiating Machinery
(CRNM). Published in English, it is a rich source of probing research on and detailed analyses of international trade policy issues and developments
germane to the Caribbean. Prepared by the Information Unit of the OTN, the newsletter focuses on the OTN, trade negotiation issues within its mandate
and related activities. Its intention is to provide impetus for feedback by and awareness amongst a variety of stakeholders, as regards trade policy
developments of currency and importance to the Caribbean.
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2
As far as the architecture and objectives are concerned, with The EPA vs. The AA
emphases on asymmetry, support mechanisms and built in
flexibilities, the AA is not that different from the CARIFORUM- Illustratively, in the case of goods trade liberalization, rather
EU Economic Partnership Agreement (EPA) in general terms. than providing immediate duty-free-quota-free market
To improve their market access and competitiveness within the access for all goods as is the case for CARIFORUM goods
EU markets and wider international market, these agreements under the EPA, the AA liberalizes 91% of EU tariff lines,
can be of strategic utility to the respective developing regions, equivalent to 87% of Central American exports to the EU.
which share characteristics and circumstances that constrain Provision has however been made for a gradual reduction
their growth and development. of the remaining tariffs. For Central America’s part, at the
point of implementation, there will be a requirement for the
immediate full liberalization of 48% of tariff lines for
Both regions still struggle to varying degrees with low products from the EU, equivalent to 67% of total trade.
standards of living, comprising low incomes, high inequality, Within 10 years, 92% of tariff lines will be removed, equal to
poor health and inadequate education; low levels of 95% of trade.3
productivity; high and rising levels of unemployment and
underemployment; and significant dependence on agricultural In contrast, the EPA has more flexible CARIFORUM
production and primary product exports. However, the contexts phasing requirements for the liberalization of goods.
within which the two regions deal with such development Furthermore, quite a number of tariff lines have been
challenges are very different and affect their interface within excluded from liberalization. In this regard, the asymmetry
the global economy. between CARIFORUM and the EU is more deeply
accommodated than under the AA. While the EPA required
Central America’s relatively larger size presents complexities a 52.8% reduction of tariffs on goods imported from the EU
to it as a region but, at the same time, offers the benefits of from January 1, 2009, the removal of these tariffs had
relatively large markets, a wide range of resources, and the negligible impact on revenue as most of the related
potential for self-sufficiency and economic diversity. In products faced applied rates of 0% or close to 0% prior to
contrast, for the developing island states of CARIFORUM, the the conclusion of the EPA. However, in 10 years tariffs will
inverse applies. While smallness can present certain be removed from only 61.1% of goods imported from
advantages, it also advances specific and arguably unique Europe. CARIFORUM also has been given up to 25 years
vulnerabilities associated with relatively limited markets, to eliminate tariffs that will take the total level of
shortages of skills, scarce physical resources, weaker liberalization to 86.9%.
bargaining power and influence within the global stage, and
limited prospects for economic diversification. Both the AA and the EPA also feature provisions on
Cooperation. Under the AA, the provisions on cooperation
The full architecture of the EPA, supported by the background between the Parties address a range of development
of the region’s historical relationship with the EU, especially issues within the scope of the agreement, including human
within the context of the Cotonou Agreement, is designed to rights and democracy, social cohesion, and the
take account of and help to ameliorate the region’s unique preservation of justice and freedom. The EPA centres
complement of trade-related development challenges. With its development cooperation on trade related development
marked emphasis on (i) the infusion of development issues alone because the EPA is but the trade component
cooperation, the scope of which is far reaching and addresses of the Cotonou, which addresses the full ambit of
supply side constraints as well as capacity constraints which cooperation under the ACP-EU bilateral relationship. The
impede the region’s trade competitiveness and potential for agreements’ provisions on development cooperation with
economic growth through trade; along with (ii) its liberal market respect to trade are albeit similar. However, there are
access in services as well as in goods to the EU market; and important differences. These differences can be seen, by
(iii) the inclusion of asymmetrical reciprocal liberalization way of example, in the way that cultural cooperation has
CARIFORUM obligations, the EPA, relative to the trade been addressed under the two agreements.
chapter of the AA, goes much further.
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3
Differences in Approach to Cultural Cooperation way of example, in addressing the Parties’ commitments to
collaborate in order to improve the conditions governing
Cultural and creative industries are of interest to developed their exchanges of cultural activities, goods, services and
and developing countries alike. Importantly, these are also address imbalances which exist, the EPA, in contrast to the
productive areas in which many developing countries may AA, applies a stricter requirement. That requirement
have comparative and competitive advantage, the value of obligates the Parties to collaborate rather than to
which is underscored within the context of the emerging endeavour to collaborate. In that regard, the distinction is a
knowledge economy cum creative economy. subtle albeit important conveying of the emphasis and
depth of the ambition of the Parties.
For this reason, securing effective market access and other
related trade support to facilitate the development and With respect to the level of ambition regarding sectoral
advancement of cultural and related industries is an important cooperation, there is also an important difference between
component of the Caribbean region’s external trade policy. In the Protocols. Regarding audiovisual sectoral cooperation,
the EPA, CARIFORUM pursued and secured market access, the EPA Protocol speaks to the facilitation of co-produced
for example, for its contractual services suppliers (CSSs) audiovisual works. CARIFORUM secured provision for co-
under entertainment services other than audiovisual services, produced audiovisual works to access the EU market
that was superior to the access afforded by the EU under its through the EU’s preferential scheme concerning the
GATS commitments. Access for CSSs in Chef de Cuisine provision of audiovisual media services within the single EU
services and Fashion model services has also been secured.4 market as outlined under the Audiovisual Media Services
However, CARIFORUM has also been a demandeur of the Directive (Directive 89/552/EEC).6 When similar
inclusion of cooperation commitments as have been outlined preferential schemes are established within CARIFORUM, it
within the Protocol on Cultural Cooperation under the EPA. is expected that CARIFORUM will also extend the
Such commitments were considered important to buttress associated preferential market benefits to co-produced
CARIFORUM’s market access commitments for services and audiovisual works.
goods related to the cultural and creative industries, and to
strengthen sustainable creative industries and cultural While the Protocol on Cultural Cooperation of the AA
development. commits the Parties to facilitating access of co-productions,
it does not explicitly afford such access through EU or
Given the importance of culture and creative industries to the Central American preferential schemes. CARIFORUM
EU as well, the inclusion of provisions on cultural cooperation states have a distinct advantage relative to the Central
has been consistent with its approach to integrating culture in American countries regarding the way market access of co-
its external relations, including its bilateral trade relations. It is production audiovisual works will be treated within the EU.
therefore not surprising that the EU has agreed to trade It should be noted that this type of treatment under the EPA
instruments such as the EPA and the AA, which feature cultural Protocol has been subsequently criticized by the
provisions on cultural cooperation.5 The themes addressed French Government as facilitating a de facto reintroduction
under the provisions are similar and include provisions on of audiovisual services into trade negotiations.7
cultural exchanges and dialogue, technical assistance, the Appreciating that the audiovisual sector is regarded as
facilitation of entry and temporary stay of cultural sensitive by the EU and, for this reason, has been excluded
professionals and practitioners, and cooperation on specific from liberalization, the significance of this gain for
cultural and creative sectors including audiovisual, performing CARIFORUM under the EPA therefore looms large.
arts and publications. However, important differences in the
nuancing of the provisions distinguish the EPA Protocol from Another area of difference relates to the way in which
the AA Protocol specifically. problems associated with the Protocol regarding for
example, its interpretation or implementation will be
Both Protocols in large measure utilize ‘best endeavour’ resolved. As reflected in Article 250 of the EPA, all the
language to convey the extent of the ambition of the components of the EPA, including the Annexes and
commitments of the Parties. To be sure, best endeavour Protocols are to be regarded holistically. The dispute
language does not nullify the obligation of Parties to operate settlement provisions which address the EPA are therefore
in good faith and to try to honour commitments. However, by
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4
extended to the Protocol on Cultural Cooperation. Both the EU Convention and to cooperate within a framework that builds
and CARIFORUM can rely on and defer to a transparent and upon the principles of the Convention. Taking these factors
predictable mechanism to resolve disputes which may arise under consideration, the rationale for the attachment of
relating to the implementation and or interpretation of the conditionality in the context of the AA but not within the EPA
Protocol. Furthermore, there is an institutional framework context therefore seems curious.
provided under the Agreement to address implementation
matters, including those related to the Protocol. The rationale may stem from the criticisms of the EU cultural
cooperation model articulated by the French Government
The AA, on the other hand, explicitly exempts its Protocol on following the conclusion of the EPA as alluded to previously.
culture from the scope of the dispute settlement provisions of The French Government recommended a list of guiding
that Agreement. Inferring from the preamble of the Protocol, principles for the negotiation of Protocols on cultural
with respect to the management of the Protocol’s cooperation. That list included a recommendation to secure
implementation, it appears that reliance has been placed upon commitments within such Protocols that would emphasize the
the functioning of the Agreement’s Institutional Framework. centrality of the UNESCO convention. Such commitments
Under that framework, for the purposes of addressing the included the attachment of conditionalities on the application
implementation of the Protocol, provision has been made for of the Protocol.12 It is not surprising that the approach adopted
the establishment of a Co-operation Sub-committee that with respect to the AA Protocol reflects the recommendation
should comprise officials with competence in cultural matters of the French government.
and practices. However, regarding the resolution of disputes
specifically, it is not clear what mechanism will be used or the Making the application of the Protocol contingent on the entry
extent to which such mechanism will be transparent or into force of the AA may have been linked to the preservation
predictable. of other EU interests. The objective may have been to ensure
that the facilitation of the application of the Protocol did not
The EPA also does not attach any conditionalities to the deter the Central American countries from fulfilling their
application of its Cultural Protocol. The application of the obligations to effect entry into force of the rest of the AA. Entry
Protocol is considered to be effected by the provisional into force of the AA would facilitate cooperation on other
application of the Agreement.8 However, the AA requires matters that would be of particular interest to the EU such as
under its Protocol that the application of the Protocol between cooperation on the prevention of financing of terrorism and
the EU and each Central American Party must be preceded by money laundering.
the ratification of the UNESCO Convention on the Protection
and Promotion of the Diversity of Cultural Expressions by the The fundamental point is that the exclusion of conditionality
Central America Party. Furthermore, if the deposit of regarding the application of the Cultural Protocol under the
instruments of ratification of the Convention is completed by all EPA has facilitated an unfettered opportunity for cultural
the Central American countries prior to the completion of practitioners within CARIFORUM to benefit from the
requirements to facilitate the entry into force of the Agreement, provisions. In contrast, recognizing the time lag that may pass
the provisions of the Protocol will apply from the date of entry between the initialling of the Association Agreement, the
into force of the Agreement . ratification of the UNESCO Convention by each Central
American country, and the entry into force of the Agreement,
At the time of the completion of the AA, the ratification of the it is difficult to discern when cultural practitioners from the
UNESCO Convention was not complete amongst the Central Central American states will be able to access the benefits of
American countries and the conditionality seems to have been the Protocol.
directed at ameliorating this.9 Furthermore, it would appear
that for the EU, facilitating the centrality of the UNESCO
Convention is regarded as hallmark objective of the
establishment of Protocols on cultural cooperation.10
However, only eight of the CARIFORUM countries have
ratified the UNESCO Convention.11 At the same time, the
preambular text of both Protocols refers specifically to the
recognition of the Parties’ intent to implement the UNESCO
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5
Appreciating the value of advantage Indication (GI) protection for its bananas.14 While the
resources, time and investment utilized to realize this may
As seen in the above illustrations, with more favourable have been considerable for a developing country like Costa
preferential treatment accorded to CARIFORUM under the Rica, by effectively developing and exploiting the value of the
EPA than Central America has been able to attain under the GI, Costa Rica will improve its chances of more successfully
AA, CARIFORUM can have an advantage over its Central quality differentiating, branding and marketing its bananas,
American competitors in dealing with the development of its thereby expanding its revenue and total market share within
trade competitiveness. As alluded to, the advantage was also the EU market and beyond.
facilitated by the early provisional application of the EPA which
has allowed the CARIFORUM region to exploit the preferential This action by Costa Rica looms large for CARIFORUM
access to the EU market prior to the entry into force of the countries as an example of appropriate adaptation and
EPA. In the case of EU-Central American Relationship under response to global competition. CARIFORUM should
the AA, while the agreement has been initialled, it is not clear therefore not only exploit its preferential market advantages
when it will be signed by the Parties or when it will enter into but should also continue to pursue, with alacrity, the
force. Furthermore, although the Agreement provides exploration and use of a myriad of other adaptation tools to
arrangements for provisional application of the section on improve its own global competitiveness.
Trade prior to entry into force of the AA, it is not clear when the
legal procedures necessary for this purpose will be
completed.13
******************
CARIFORUM, relative to Central America, will therefore
continue to have an advantage but only for a time. The value
of the advantage will only be realized through capitalization.
Furthermore, the overall value of its preferential regime with
the EU will progressively change and diminish over time as the
EU pursues and completes additional free trade agreements
with other countries and regions from across the developing
and developed world. Additionally, progressive liberalization at
the multilateral level will also erode the value of bilateral
preferences.
However, the key to economic growth and development

through external trade in part resides in entrepreneurial
expansion and increased development in export interest and
readiness amongst the private sector. Without these, it will be
difficult to capitalize upon any advantages facilitated through
preferential trade agreements.
It should also be noted that Central American countries, such

as Costa Rica have shown signs of exploiting available tools
and initiatives which are not conditional to the establishment or
implementation of a trade agreement, but that can be used to
improve their competitiveness in export markets, including the
EU market.
For example, with respect to the banana industry, a sector of

importance to CARICOM countries and some Central
American countries, Costa Rica has secured Geographical
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6
CARIFORUM States (taken together) shall not be less than 20 per

ENDNOTES cent and not more than 80 per cent of the total production cost.
___________________________________________
1
The Association Agreement replaces the 2003 EU-Central 7
See “For a new European Union external cultural strategy –
America Political Dialogue and Cooperation Agreement Communication by France”. The Document is available at:
2
http://www.coalitionfrancaise.org/eng/wpcontent/uploads/2009/1
In 1996, the U.S. and a group of Latin American banana 2/comm_fr_strat_culturelle_ext_eng.pdf
producing countries, including the Central American republics of
Ecuador, Guatemala, and The Honduras, pursued legal action at 8
Provisional Application of the EPA was effected on 29 December
the WTO against the EU preferential regime for the importation 2008. Provisional application would be relevant to the provisions of
of bananas. The ensuing bananas trade war persisted for over a the entire Agreement with the exception of those that may be
decade and is thought to have been brought to an end through contingent on entry into force of the EPA.
the 2009 conclusion of a deal between the EU and these
9
countries, known as the Tropical Products proponents. This deal However, since the completion of the AA, Costa Rica ratified the
known as the Geneva Agreement on Trade in Bananas UNESCO Convention on the Protection and Promotion of the
established a schedule for the reduction of EU multilateral tariffs Diversity of Cultural Expressions on March 2011, joining The
on its banana imports. The net effect of the deal has sealed the Honduras, Guatemala, Nicaragua and Panama.
decline of the preferential margin of the Caribbean region’s 10
Communication by France, op cit. p. 4.
bananas. Under the Association Agreement, bananas have been
accorded special treatment the details of which are outlined 11
The eight countries that have ratified the UNESCO Convention on
under Appendix 3 of the Agreement. the Protection and Promotion of Biodiversity of Cultural
3
Expressions adopted in Paris on 20 October 2005 and which came
See Newsletter on the relations between the EU and Central into force on 18 March 2007 are as follows: Barbados (7/10/2008);
America, No. 23 July 2010, APRODEV. Available at Dominican Republic (24/09/2009); Grenada (15/01/2009); Guyana
http://www.aprodev.eu/files/EU_CA_News/hojadepica23july201 (8/2/2010);Haiti (8/2/2010); Jamaica (4/5/2007); St. Vincent and the
0eng.pdf Grenadines (25/9/2009); and Trinidad and Tobago (25/7/2010)
4 12
Most EU member states commitments under Entertainment Communication by France, op cit. , p. 8
services other than audiovisual services are unbound. Under the
13
EPA, access to most EU countries has been bound, though Refer to Article 353 para. 4 of Part V (General and Final
Economic Needs Test (ENT) and qualifications may be required. Provisions) of the EU-Central America Association Agreement
Whereas under the WTO, Chef de cuisine and Fashion model 14
services are new sectors in which the EU has not made an offer Agritrade, “Latin American producers manoeuvre to secure
on CSS, under the EPA, the EU has bound commitments for Chef price advantages”, The Technical Centre for Agricultural and Rural
Cooperation (CTA) http://agritrade.cta.int/en/Commodities/Banana-
de cuisine services and Fashion model services for the first time
sector/News/Latin-American-producers-manoeuvre-to-secure-price-
within a trade agreement.
advantages
5
The inclusion of a Protocol on Cultural Cooperation also
features under the EU-Central America Association Agreement as
well as the EC-Korea Free Trade Agreement, which was signed in
October 2010
6
Under Article 5 para. 2 of the EPA Cultural Protocol, access to
the preferential treatment is predicated upon the following
conditionalities (i) the co-produced audiovisual works are
realized between undertakings which are owned and continue to
be owned, whether directly or by majority participation, by a
Member State of the European Union or a Signatory CARIFORUM
State and/or by nationals of a Member State of the European
Union or nationals of a Signatory CARIFORUM State; (ii) the
representative director(s) or manager(s) of the co-producing
undertakings have the nationality of a Member State of the
European Union and/or of a Signatory CARIFORUM State; (iii)
both (a) the total financial contributions of one or several
producers of the EC Party (taken together), and (b) the total
financial contributions of one or several producers of Signatory
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7
8
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SPECIAL

OFFICE OF TRADE NEGOTIATIONS

… for trade matters

Cap italizing on Adva nta ge:

However, the key to economic growth and development

It should also be noted that Central American countries, such

For example, with respect to the banana industry, a sector of

CARIFORUM States (taken together) shall not be less than 20 per

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