7. Adaptation and Comparative Advantage of EU Instruments in the Post-Lomé FTA Transitional Arrangements for the Region

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7. Adaptation and Comparative Advantage of EU Instruments in the Post-Lomé FTA Transitional Arrangements for the Region

Transition to FTA should begin similarly to the proposed transitional NAFTA parity with the extension of preferences to the Caribbean in return for reciprocity on a phased or relative basis. With a target of FTA by the year 2005 and FTA parity extended to Caribbean countries beginning at the end of the year 2000, Caribbean countries, on the basis of various established readiness and graduation criteria, could begin to offer degrees of reciprocity in line with arrangements in the NAFTA/FTAA process. If differences in treatment are not too large to impact negatively on regional integration, this approach could be viable. Caricom countries are already proposing reciprocity for the Caricom MDCs (More Developed Countries) and non-reciprocity for the LDCs (Less Developed Countries) so that the principle of special and deferential treatment is already accepted in Caricom. It is thus possible to envisage a two-tier Caribbean similar to a two-tier ACP as discussed below.

The concept of parity will not be the same as in NAFTA, that is, measured by what has been given to Mexico. Parity in this sense must be seen in terms of EU FTAs, which offer more preferential rules of origin, norms and standards, dispute settlement and market access conditions for services. The EEA will obviously be the outer boundary, but certainly the model could be somewhere between that and FTA with South Africa. It would also have to be specific in terms of the regional needs.

It is not yet clear where Community development assistance (aid and trade) should be focused alongside other major donors such as the World Bank, IDB and UNDP in this period of transition. In several areas targeted to improve competitiveness, these institutions are heavily involved. In the future it would appear that EU assistance would have an advantage in restructuring traditional sectors dependent on EU protection such as sugar and bananas as well as strengthening support for the regional dimensions of building competitiveness – an area where the EU has valuable experience. On the latter score, the regional allocation should take on added importance, and regional projects that could best spread the long-term benefits of aid should be given priority.

It is clear that given the limitations and even the expected relative reduction in EU as well as other aid in the future, greater reliance has to be placed on accessing international capital markets. At present the financing needs of future infrastructure requirements go beyond the capacity of governments. The private sector must now play a role in mobilizing additional financing locally and internationally. In most countries the private sector is small in relation to the huge lump sum investments needed for some infrastuctural projects. A regional private sector approach offers a solution. This question could be examined in the context of how the Caribbean Development Bank (CDB) can be transformed to rely more on the private sector and international financial markets in a world of evaporating aid.

Another project which should be regional in scope and serve to strengthen national efforts as well as the locational advantages of the region should be in information technology and communication.

In the area of trade, the measures that would be needed to take account of smallness and levels of development would be as follows:

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• Longer phase-in periods, similar to those in NAFTA, for sensitive sectors and even the possibility of switch-back in the event of excessive market disruption in these sectors;

• More flexible rules of origin targeted at the potential sector of diversification and geared toward stimulating EU/Caribbean production-sharing investment. Garments would be an obvious candidate;

• The continuation and refinement of the trade adjustment measures recently adopted;

• Agreement on standards and norms;

• Agreement on dispute settlement.

Concretely, given the importance of the service sector to the Caribbean, the following could be envisaged:

• Greater market access commitments that deal with changing regulations that act as barriers to trade in services. A good example is the limitation on the movement of native persons and business services from the Caribbean. The EU can grant visas, work permits, accreditation, recognition of qualifications and licenses in a more flexible way –comparable to what is enjoyed by OECD countries in regional arrangements relating to the supply of services and service regulations;

• EU tourists returning from the Caribbean could also be accorded larger duty-free allowances. Tax credits for particular Conventions held in the Caribbean (similar to what the US introduced) as well as for some other tourism activities would also act as an incentive.

At the same time, enhancing locational competitiveness by reducing the costs of telecommunications and transport could be addressed through a regional cooperation fund and with links to the DOMs and OCTs. Traffic rights could be enlarged for airlines from the region on a preferential basis. Lower costs access to computer reservation systems, cargo handling facilities and check-in counters could also be considered.

While an FTA will provide more secure market access since it is based on reciprocity and may be more attractive for DFI (Direct Foreign Investment), double taxation arrangements that provide tax relief for EU investments on the income saved from tax holidays and other incentives given in the Caribbean could act as an incentive. For some targeted sectors such as hotels, where massive investment is required in the region to refurbish plant and equipment in order to stay competitive, this could be a priority.

In the area of financial assistance, the following could be considered:

• Additional financial assistance for restructuring of bananas and sugar similar to the existing supplementary banana facility.

• A relatively larger regional fund geared to promote regional aspects of competitiveness as well as deeper and wider regional integration and cooperation (for instance, an integration project involving CARIFORUM PLUS CUBA as well as an ACS project).

• Special Packages for Haiti and Guyana.