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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