RNM UPDATE 0709

June 29, 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 Conference of the Caribbean in Perspective

- Supporting CARICOM Cultural Industries Development

- The Disintegration at Potsdam

- NEWS BRIEF

- UPCOMING EVENTS

The Conference of the Caribbean in Perspective

The Joint Statement emanating from the Conference of the Caribbean reflects a mutual
determination to expand economic opportunities and to provide the benefits of democracy,
recognizing that these objectives can best be served if the societies of CARICOM and the US both
have prosperous economies.

In as far as structured trade relations may engender success in this regard, and in light of
increasing global trends of trade preference erosion, CARICOM has been examining the question
of what should constitute a modern trade relationship between it and its closest and largest trading
partner.

The principal mechanism that has governed trade relations has been the Caribbean Basin
Initiative. Not only has this mechanism been explicitly limited in scope and therefore limited in the
extent to which it provides tangible benefits to participating Member States, but the continuity of the
benefits was conditioned by the expiration date set for the year 2008.

The current state of play of US-CARICOM trade relations is also set against the backdrop of US
negotiation of trade arrangements with other hemispheric trading partners, allowing these countries
to bring certainty to their trade benefits, the scope of which exceed those currently available to
CARICOM under existing arrangements.

Given these considerations, CARICOM Member States have recognized that modern relations with
the US must include a mechanism that includes services, investment and specific mechanisms that
engender cooperation and development. Indeed these ideas were eloquently expressed during the
Conference of the Caribbean by CARICOM Heads of Government.
CARICOM and the US came to an agreement to strengthen existing trade arrangements, which
includes an upgrade and extension of CBI. On the face of it, the agreement to extend the CBI gives
the impression that CARICOM Member States, did go to Washington “to hanker after a nostalgic
past”, in contrast to the reassurances to the contrary emanating from the CARICOM Member
States during the Conference.

However a closer, more sober inspection engenders a conclusion that the extension of the CBI is a
conservative but appropriate achievement for the Region at this juncture.

While the Region has long recognized that a broader and deeper trade mechanism is required, the
achievement of such is an immense undertaking. The extension of the CBI, gives the CARICOM
Member States a period of grace which can be used to further refine their vision and plan for the
future of their trade relations with the US.

It is critical to recall that the Trade Promotion Authority, which is necessary to advance negotiations
to achieve a different trade arrangement between CARICOM and the US, expires at the end of
June 2007. Furthermore, given that the recent collapse of the G4 meeting has setback progress in
the Doha Round, it is unlikely that ‘fast track’ authority will be renewed or extended. Therefore, it is
inopportune at this juncture to initiate negotiations to establish a new trade arrangement.

The extension of CBI is a positive turn in the state of play as it contributes to the signaling to the
international business community that CARICOM jurisdictions are predictable and stable locales to
invest and conduct business.

Supporting CARICOM Cultural Industries Development

The importance of production of cultural products and services within the global economy has
intensified significantly. These products and services which stem from the creativity, skill and talent
of human capital across the world, have presented great potential for the generation of wealth for
both developed and developing countries.

Not only has the production and sale of these goods been increasing every year but the creative
cultural industrial sector has surpassed even the more traditional sectors of global productivity to
become the fastest growing sector of the global economy.

The closing of global spatial barriers, the expansion of markets and increasing interconnectivity of
the international political economy have created new and fertile environments for the development
and exploitation of these industries’ potential.

Globalization is the paradigm which contextualizes all global development. Culture and
development therefore are inextricably linked. Culture, the embodiment of the social organization of
modes of living, thought and action within society is in essence the very foundation upon which
development is built. Neither culture nor development is static. Instead they are constantly evolving
within a rapidly changing global environment.
Culture, which informs development and is influenced in turn by development, is a ubiquitous
exploitable resource that all societies have. As the domain of cultural industries converges with
mainstream economic, political and commercial spheres through inter-sectoral, inter-professional
and trans-governmental linkages, culture amasses significant economic and commercial potential.

Despite the difficulties in assessing precisely the actual size of the trade in cultural products and
services, the United Nations Conference on Trade and Development (UNCTAD) has determined
that the current global market value of cultural industries was estimated in 2005 at US$1.3 trillion
as compared to its 2000 value of US$831 billion.

The current scenario within CARICOM reveals that the Jamaican music industry employs 15,000
people and accounts for 15 -20 per cent of the US300 million in reggae music sales globally. The
music industries in Barbados and the Eastern Caribbean, earn approximately US$15 million and
US$20 million, respectively. Additionally carnival and festivals commercially contribute significantly
to domestic economies of CARICOM States.

Notwithstanding the richness and diversity of the cultural component of human capital within
developing countries, current statistics indicate that the immediate beneficiaries of this new and
exciting niche within the global economy have been the developed countries.

Countries that have successfully benefited from the competitive global marketing of their cultural
goods and services, have dedicated strategic policy approach to the development of their cultural
sectors which has included establishing appropriate infrastructural and systemic support networks.

To this point, the appropriate entrepreneurial environment, trade and investment policy framework
for commercially successful cultural industries have not been adequately laid out in developing
countries. This has been the case in particular for the CARICOM region.

The development challenge for the CARICOM region is surmounting the obstacles that inhibit the
maximization of the potential of creative cultural industries. To do this CARICOM must first
reconcile conceptual and practical issues in order to develop and implement appropriate measures
to ensure that it is prepared and equipped to exploit the potential of this particular element of its
human capital.

A major disadvantage to most cultural industries is the allocation of high tariffs and other duties and
charges to cultural industry inputs, which increases the costs of these inputs and contributes to the
supply constraints facing the sector. This phenomenon is linked to the classification of many
cultural sector inputs as luxury items. High costs therefore are inhibitive to the effective
transitioning of CARICOM micro and small cultural enterprises into globally competitive enterprises
that meet international standards.

Furthermore several of the development facilitators and incentives, such as tax exemptions offered
to manufacturing sectors, are not in kind offered to the cultural sectors. For example the border
taxes applied on cut paper for printing in some CARICOM states amounts to 20 per cent. However
there is a zero tariff on printed books imported into the region. This has effectively influenced the
migration of the publishing industry to other locations.
The implementation of a free movement regime under the CARICOM Single Market and Economy
(CSME) has facilitated the movement of cultural skills throughout the region in as far as the regime
legally protects the rights of economic citizens to conduct their business within the regional
domestic space.

However, customs procedures and other border requirements have acted as impediments to free
movement of cultural skills because these administrative protocols have not been appropriately
simplified. Hence, efficient customs clearance systems of equipment of skilled persons that would
facilitate intra regional cultural trade, for example, have not evolved.

Simplified, transparent and standardized procedures must evolve amongst Member States to
ensure that these are commensurate with the implementation of the free movement regime and the
spirit of the Revised Treaty of Chaguaramas but at the same time satisfy border security
requirements of Member States.

Growth and development of this sector is critical to the sustainable development of CARICOM
economies. It is therefore critical that deficiencies in the support frameworks for these sectors are
addressed to ensure that the appropriate infrastructure is accessible to practitioners within the
sector.

The Disintegration at Potsdam

The collapse of the G4 meeting on June 21 has set-back the Doha Round even further. Reports
imply that the talks disintegrated into an impasse between developed country and developing
interests. Despite some indicators of flexibility on positions, the G4 could not resolve the primary
issues related to Non-Agricultural Market Access (NAMA) and Agriculture.

With regard to Agricultural subsidies, the US did agree to cut domestic support to $17 billion which
is well below what their previous position of a $22 billion cap. However this was still significantly
short of the cut that was being proposed by the G20 which insists on a reduction to $12 billion, and
the European proposal of $15 billion. Brazil and India rejected the US offer as they were desirous
of a reduction of domestic support below $15 billion. The legitimate argument of developing
countries is that domestic support practiced by rich economies is a primary distorter of international
trade in agricultural products which continuously perpetuates growing disparities between
developed and developing economies.

In contrast, the view of the United States is that agricultural tariffs are in critical need of address.
The EC appeared to show some signs of flexibility where they were willing to reduce tariffs in the
upper tier by 70 per cent as opposed to the earlier position of 60 per cent. However this still is not
in line with the G20 proposal of a reduction to 70 per cent cut in that tier neither is it commensurate
with the US insistence of 83 per cent cut in the upper tier. The US has viewed any proposal for
lower cuts in agricultural tariffs as insufficient to compensate them for any domestic subsidy
reductions that it may be asked to concede.
With regard to NAMA, Brazil and India did not agree with the proposal form the EU and the US to
accommodate a 10 per cent cut in industrial tariffs by developed countries in return for a cap on
developing countries industrial tariffs at 15 per cent and 18 per cent cap for least developed
countries. Brazil and India however maintained that if the US wanted to contain their domestic
support to levels no lower than $17 million, and that the EU were not going to improve their
agricultural tariffs cuts, then the industrial tariff ceiling must be at least 30 per cent.

India and Brazil have argued about the injustice of requiring developing countries to grant
concessions in relation to agriculture and industrial market access, in exchange for US and EU
agreement to desist trade distorting practices related to the agricultural sector. This is particularly
relevant given that much progress still has not been made regarding the treatment of Special
Products, which is particularly integral to the development agenda of the Doha Round.

However, the US has maintained that reforms in advanced developing countries like China, Brazil
and India related to agriculture and reducing manufacturing tariffs were just as critical to the
success of the Doha Round as reforms undertaken by the US and the EU.

Certainly the tension between the EU and the US as seen in other failed talks was not presented at
Postdam. Instead a strategic ‘alliance’ seemed to be drawn between the two developed countries
to shift focus to India and Brazil (Brazil in particular) over industrial market access.

In the final analysis, any compromise from developing countries in NAMA will have to be
proportionate to any offer made by the EU and the US in agriculture.

In the aftermath of the failed talks, WTO Director-General Pascal Lamy is still hopeful that “the
negotiations can and will be finished successfully”. The G4 meeting was to provide much needed
convergence on the issues which was to be used to guide the preparation of new papers on
agriculture and NAMA. While failed talks may not impede the production of these papers, the
failure at Potsdam now places much pressure on the Chairs of the negotiating groups for
Agriculture and NAMA to resolve a compromise.

Furthermore the broader multilateral process amongst the wider membership of the WTO will be
resorted to heavily in the upcoming weeks. On June 25th, Chile, China, Peru, Mexico, Singapore,
Thailand, Hong Kong, Costa Rica and Columbia jointly proposed some elements towards a
possible middle ground solution to NAMA. The proposal states clearly that the elements outlined
therein do not represent the preferred outcomes but have been put forward because of a
recognition that ‘the losses and missed gains associated with a failure or freezing of the DDA far
outweigh the costs of a less-than–perfect agreement”.

While flexibility may be required by developed as well as developing countries, developing

countries, particularly the small and the vulnerable, must ensure that the 'compromise' is not
realized in exchange for the negation of critical components of the development agenda of the
Round.

Indeed the indefinite breakdown in the multilateral level will engender new thrust in engagement in
bilateral and regional trade arrangements. For the small island developing countries of the
Caribbean, the lack of progress at the WTO level emphasizes the necessity of the EPA and a
broader trade agreement with the US so that beneficial access to these large principal trading
partners can be secured by the Caribbean.

NEWS BRIEFS

Regional News

Antigua and Barbuda seek remedies against the US

Antigua and Barbuda announced that it has moved under Article 22 of the Dispute Settlement
Understanding (DSU) of the WTO to seek the imposition of trade sanctions against the US for
having failed to comply with a WTO ruling on the subject of cross-border gambling and betting
services.

Antigua and Barbuda intends to seek concessions with an annual value of US$3.443 billion
through the suspension of obligations under the TRIPS including copyrights, trademarks, industrial
designs and patents.

The sanctions requested by Antigua will come into effect shortly, unless the US refers the issue to
Arbitration. In the event of this, an arbitration panel will decide on the final level and scope of the
sanctions that may be imposed by Antigua and Barbuda.

New CARICOM Rice Dispute

Guyana's rice producers are threatening legal action against Montserrat and St Vincent and the
Grenadines for allegedly buying subsidized rice from outside CARICOM without levying import
taxes.

The dispute follows claims that Montserrat and St Vincent and the Grenadines regularly import rice
from the United States and several Asian countries without applying import duties.

EU approves aid for French Antilles

The European Union has approved 67 million US dollars in French aid that's expected to benefit
the French Antilles.

The aid will take the form of reduced excise duty on rum produced in France's overseas territories
including Guadeloupe, Martinique, and French Guiana.

Developing countries express concern about exclusion from G4 talks

Ambassador Gail Mathurin of Jamaica, who chairs the African Caribbean and Pacific (ACP) group
at the WTO, has said that "the majority of members have little or no knowledge of the progress and
content of the G4 process…Although two of the G4 are developing countries, they cannot be
expected to carry the responsibility of representing the views of all developing countries”. This
concern was expressed after the collapse of the G4 meeting at Postdam.

International News

Peru signs on to new obligations in US FTA

Peru’s Trade Minister Mercedes Araoz has signed a 34-page set of amendments tied to the free
trade pact earlier negotiated with the US. It is expected that the Peruvain legislature will accede the
changes to the FTA legal text.

Minister Kamal Nath hopeful to Resolve trade talks differences with the US

India and the United States should be able to bridge their differences in world trade talks but must
take care not to damage developing-country economies, Indian Commerce Minister Kamal Nath
said.

"There has to be a convergence of respecting each other's sensitivities," Nath said in a speech to
the U.S.-India Business Council. "And I want to assure you from here, that Susan and I will find that
convergence," Nath said, referring to U.S. Trade Representative Susan Schwab who was with him
on the panel.

US looks to APEC trade deal if WTO Fails

The United States will pursue free trade agreements in the Asia-Pacific region if talks on a global
trade deal fail, US trade envoy Susan Schwab said in an interview published Friday.

Speaking ahead of an APEC trade ministers' meeting in Australia next week, US Trade
Representative Schwab said there was scope for bilateral and regional deals if the WTO's troubled
Doha Round of negotiations finally collapsed.

Schwab told The Australian newspaper that Washington was hopeful the Doha talks could be
successfully completed but made it clear other options were being considered in the event they
failed

US Blocks Probe into their Farm Subsidies

The United States has moved to block a World Trade Organization investigation that stems from a
Canadian complaint that the U.S. government exceeds its limits on allowable farm subsidies.
Under the WTO's rules, the formation of a panel can be blocked once.

Canada took its complaint to the Geneva-based WTO earlier in June. Canada’s complaint argues
that the US exceeded their subsides cap of US$19.1 billion in annual subsidies from 1999 to 2002
and from 2004 to 2005. Canada said most of these subsidies emanate from legislated U.S.
programs and are provided on corn, wheat, soybeans, pulses (peas, lentils, beans and chickpeas)
and sugar and other products.

UPCOMING EVENTS

July

• 01-04 Twenty-Eighth Meeting of the Conference of Heads of Government of the Caribbean Community,
Barbados
• 03-06 WTO-IDB/INTAL-CRNM, Training Programme for the Caribbean Region on NAMA for Caribbean
Countries, Barbados
• 04 CTA/EC/EU Presidency/ACP et al, Brussels Development Briefings - Briefing session No 1:
Challenges posed to rural development in ACP Countries, Brussels
• 05-06 CTA and EC, International High-Level Conference on Biofuels, Brussels
• 09-10 13th Meeting of the OECS Trade Negotiations Group, St. Lucia
• 11 Meeting of OECS Ministers of Trade, St. Lucia
• 12 USAID-sponsored COTS (Caribbean Open Trade Support) Seminar, St. Lucia
• 09-13 WTO/IDB-INTAL/CARICOM, Regional Workshop for Caribbean Countries on the WTO Trade
Facilitation Negotiations: Identification of Needs and Priorities, Port-of-Spain
• 10 OAS Workshop on Labour Dimension of FTAs and Regional Integration Processes, Port-of-Spain
• 10-12 Fifth Meeting of the Technical Follow-up Group On EPA Negotiations, Brussels
• Second Preparatory Meeting of the XV IACML, Port-of-Spain
• UNDP, in collaboration with UNCTAD and ACP, Regional Workshop for Sub-Saharan African Countries
on the “Economic Partnership Agreements: Investment, Competition and Public Procurement”, Brussels
• 16-17 TWG on EPA Services and Investment, Grenada
• 17 TWG on EPA Legal and Institutional Issues, Grenada
• 16-19 TWG on EPA Market Access Issues, Grenada
• 17-18 TWG on EPA Trade-related Issues, Grenada
• 18 RNM Workshop on Labour Movement Issues in the OECS, Grenada
• 18-19 The Sixth Annual Africa Growth and Opportunity Act Forum, Ghana

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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