RNM UPDATE 0705

March 31, 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.

- WTO BEGINS INVESTIGATION OF EU BANANA TARIFFS

- CONSENSUS ON ECONOMIC PARTNERSHIP AGREEMENTS BETWEEN THE EU AND ACP

COUNTRIES

- UPDATE ON WTO THE LIBERALIZATION OF TRADE IN ENVIRONMENTAL GOODS AND SERVICES

- AFRICAN AND CARIBBEAN DEVELOPMENT POTENTIAL IN THE BIO-FUEL SECTOR

- NEWS BRIEF

- UPCOMING EVENTS

WTO BEGINS INVESTIGATION OF EU BANANA TARIFFS

Despite successfully delaying the WTO panel compliance investigation related to the EU tariff
scheme for bananas for African and Caribbean producers, under WTO rules the EU will be unable
to block the review requested by Ecuador for a second time.

Despite the EU’s argument that adjustment made to the banana tariff to 176 euros per ton has
aligned the tariff levels with WTO rules, Ecuador claims that the new EU tariff schemes continue to
hurt the Ecuadorian banana industry, where the tariff has cost Ecuador 98 million Euros. Ecuador’s
trade negotiator, Juan Holguin, said Ecuador has lost 3 to 4 percent of its EU market share since
last year, while ACP exports to Europe have increased by 20 percent.

The EU has indicated that Ecuador’s action seeks to target preferential treatment at the expense of
some of the most vulnerable countries in the global trading system. The banana industry has a
significant economic and social impact on the producers of ACP States. It serves as a generator of
employment especially within rural constituencies and is of import to the revenue earnings of the
economy. Indeed the outcome of the Panel’s investigation is critical especially for smaller
Caribbean banana producers who are already under considerable strain from the reduction to
current tariff levels.

While African and Caribbean countries like Cameroon, Jamaica and the Dominican Republic have
backed the EU as third parties, Ecuador is strongly supported by Latin and Central American
countries like Panama, Colombia, Costa Rica, Guatemala.

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However an Associated Press news report indicates that the United States, which would have had
complaint against the EU’s banana tariff in the past, has been ambiguous in their response on this
matter. The US has not offered to support Ecuador as a third party in this case but as an
InsideTrade report indicates, the US has renewed its call for the EU to come under a tariff-only
banana regime.

CONSENSUS ON ECONOMIC PARTNERSHIP AGREEMENTS BETWEEN THE EU AND ACP

COUNTRIES

The EU and the ACP reached agreement during a recent informal dialogue on the pro-
development agenda of the EPA. The meeting involved trade ministers from 30 ACP countries and
the EU development Ministers from 27 EU Member States. During a concluding press conference
led by the co-chairs of the dialogue, German Minister for Economic Cooperation and Development,
Heidemarie Wieczorek-Zeul and the Trade Minister of Samoa, Hans Joachim Keil, it was confirmed
that both Parties had reached consensus that the common objective of the EPA was to fight
poverty, promote sustainable development in the ACP and to foster greater meaningful
participation of ACP States in the global economy.

Specifically it was agreed that appropriate development provisions must be incorporated in the text
of the EPAs. Furthermore it was agreed that the implementation phase of the EPA should be
monitored to assess the development impact of the EPA and that to this end, appropriate
monitoring mechanisms should be developed.

The EU also promised to improve market acess to ACP exports. However from a CARIFORUM
perspective, the structuring of market access is yet to be finalized. Indeed despite this general note
of convergence indicated during the Press Conference, discord still obtains between CARIFORUM
and the EU in the EPA negotiations related to the approach to trade liberalization, the binding
commitments on EC development cooperation, the modalities fro services negotiations and good
governance in taxation.

Addressing these areas of divergence is absolutely critical to the finalization of the negotiation
process and meeting the completion deadline of December 2007. As the deadline approaches,
CARIFORUM expects that the development agenda will be appropriately incorporated in the EPA
during the months ahead.

UPDATE ON WTO THE LIBERALIZATION OF TRADE IN ENVIRONMENTAL GOODS AND

SERVICES

Informal talks were continued during the meeting of the special negotiating session of the WTO
Committee on Trade and the Environment held at the beginning of March 2007.

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While developed countries have proposed that trade liberalization should be focused on an agreed
‘list’ of specific environmental goods, developing countries have reservations that this list would
only feature the export interests of developed countries.

Another criticism of this approach is that it focuses on goods with an environmental end-use only,
and does not include goods produced in an environmentally sound manner. Developing countries
would also want to ensure that special considerations be accommodated in the list approach that
would make provisions for lower levels of commitment to liberalization.

Alternatively there is a ‘project’ approach being proposed by India. This approach proposes that
environmental goods would be defined on a case by case basis where the definition would be
based on the goods’ inclusion in a given environmental project. These projects would be
designated ‘environmental’ status for a set period of time during which tariffs and non-tariff barriers
would be reduced on designated goods for use in the project. The advantage here is that this
approach is flexible and dynamic and appropriately accommodates the rapidity of environmental
technological change.

One report on the informal session indicates that the session was constructive and that there is
apparent softening of attitudes on this matter. It is expected that the next informal meeting will be
held on March 30, 2007.

AFRICAN AND CARIBBEAN DEVELOPMENT POTENTIAL IN THE BIO-FUEL SECTOR

Introduction

The volatility of world oil prices is one factor that has contributed to finding and increasing the use
of alternative energy sources. Dependence on oil imports for energy can have destabilizing effect
on economies, especially developing countries. Alternative energy is also considered cleaner and
ecologically superior to energy derived from oil. Therefore development of alternative energy
sources is becoming more attractive as the global community is becoming increasingly
environmentally aware.

One such alternative is bio-fuel. These fuels, consisting of two types namely bio-ethanol and bio-
diesel, are made from organic matter or bio-mass. Bio-diesel is usually manufactured from
processing vegetable oils such as those derived from soybean, palm and castor to name a few.
Ethanol on the other hand is processed from starch based crops such as cassava, or from sugar
based crops like sugar cane and sugar beet.

The International Energy Agency has projected Africa’s potential for the production of bio-energy
as one of the highest in the world. For this reason bio-fuel projects have been implemented in
different countries across the Continent including Senegal, Mali and South Africa.

It is interesting to observe that a 2004 study done by Smeets and Lewandowski has also included
Latin America and the Caribbean as one of the Regions with the greatest potential for bio-fuel

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production. Bleviss, Yeager and Buckner have cited the Bahamas, Guyana, Haiti, Suriname,
Barbados, Belize, and Jamaica as countries with potential as bio- ethanol producers while the
Dominican Republic has been indicated as having potential in both bio-ethanol and bio-diesel.
Such potential particularly in bio-ethanol production is also useful in the restructuring of sugar cane
industries towards higher value-added productive activity. Barbados has recognized the benefit of
to energy security and has independently embarked on plans to diversify into ethanol production.

Challenges

However there are many considerations that must be contemplated before this potential can be
transformed into real industry development. These include the following:

• Capitalization on development potential in this industry for both regions is undermined by

paralleling volatility that has characterized international oil prices. When oil prices are high,
the international focus on developing alternative energy sources and correlating demand
also increase. When price of oil decreases, the interest in and demand for bio-fuel also
decreases.
• Another pressing challenge confronting both developing regions is that financing required
may be prohibitive. To illustrate African capital requirements for a bio-ethanol distillery
estimates between US$50 to US$80 million.
• Additionally, particularly for the Caribbean, with its small agricultural production capacity,
there is the limitation of scale. The Caribbean must be able to generate either a level of
domestic demand or export demand for regionally produced bio-fuel that is high enough to
ensure that the costs of production are justified.
• The Caribbean and African regions confront the issue of ‘catching up’ to major players like
Brazil and the United States especially in the area of Research and Technological
development.

The Mitigation of Challenges

There is some hope that these challenges may be mitigated by the following:

• Financing may be addressed through the attraction of the requisite level of investment to
make this emerging sector attractive for these regions and any developments within this
sector sustainable.
• Investment related to this sector should be used not only in the development of industrial
plant infrastructure but also in developing research capacities. Research and Development
(R&D) within this sector could be directed at developing new generations of bio-fuels and
new generations of traditional and modern biomass materials. In this way Caribbean and
African producers could begin to carve a niche as leaders in the industry, not in relation to
production of bio-fuel per se, but in the generation of research and innovation related to
the industry. Emphasis could be directed towards harnessing the revenue potential based
on exploiting the intellectual property derived from R&D productive activity related to the
bio-energy industry.
• Caribbean sustainable development in this emerging industry and the associated energy
savings could be significantly enhanced by contextualizing its development within the

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 framework of ‘production integration’. Within this context, limitations of scale may be
addressed. Regional production could be efficiently and cost-effectively executed by
mobilizing the resources and capabilities of the Region related to bio-fuel production within
an integrated framework in order to development complementary structures of production
and demand.
• Cost effectiveness could also be enhanced by aligning production capacity with the
primary aim of satisfying intra-regional supply of bio-fuel in the interests of attaining
regional energy security rather than extra regional supply. Domestic demand can be
engendered through the implementation of schemes to introduce mandatory blending of
ethanol into gasoline and bio-diesel into diesel at the levels that will not require changes to
vehicles already in use in the Caribbean. Such strategies are also part of the Barbados
plan of action in ethanol production.
• Bio-fuel production for the purposes of attaining energy security does not preclude the
development of Caribbean extra-regional export potential. While other countries may
engage in production and use of bio-fuel to meet domestic demand, they may be unable to
generate adequate supplies and the shortfall may have to be sourced from imports. These
smaller export markets may be sufficient for the generation and sustaining of Caribbean
export demand.

The International Environment

International trade rules may present specific challenges to development in the sector. As Dufey
has noted bio-fuel is subjected to the general rules of international trade because there is no
comprehensive trade regime specifically for bio-fuel. While feedstock is covered under the WTO
Agreement on Agriculture, there is no decision at the multilateral level on the classification of bio-
fuel as an industrial good like oil, or as an agricultural good.

The Agreement on Technical Barriers to Trade (TBT) is designed to ensure that standards and
certification procedures do not impede trade arbitrarily. The TBT permits standards based on
legitimate objectives such as those related to environmental concerns. However the TBT does not
govern non-governmental voluntary standards and standard initiatives set by the private sector.
Albeit production in bio-fuel could have negative impacts on the environment (deforestation and
ecosystem degradation) and these should be guarded against. It is essential that industry
standards, especially those outside the scope of WTO, do not serve as protectionist mechanisms
against developing countries like the Caribbean and Africa.

Bio-fuel may qualify as an environmental good in the WTO Doha Round of negotiations. Improved
reduction of tariff and non-tariff barriers to trade under this classification may help the development
of Caribbean and African exports and simultaneously address the environment conservation
objectives.

Conclusion

While there are considerable challenges to development that will need to be addressed by both the
Caribbean and Africa, the potential to diversify into this emerging market still exists. The
participation of Barbados in this industry is supporting evidence that even for small island

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developing states of the Caribbean, tapping this potential presents long term benefit for these
economies. This sector also presents options in attaining Regional energy security, restructuring of
flagging established agricultural primary industries and environment conservation.

NEWS BRIEFS

Regional News

WTO says U.S. Rules on Offshore Internet Gambling Sites Illegal

Associated Press - The United States has failed to comply with a ruling that it illegally restricts
Internet gambling sites based overseas, the World Trade Organization said Friday, opening the
door to possible commercial sanctions unless Washington changes its rules governing online
betting.

In a 215-page decision, a three-member WTO compliance panel sided with Antigua and Barbuda
in ruling that Washington had failed to change legislation that unfairly targets offshore casinos. The
Geneva-based trade referee has said Washington can maintain restrictions on online gambling, as
long as its laws are equally applied to American operators offering remote betting on horse racing.

Europe has Forgotten Commitment to ACP countries - President Jagdeo

Georgetown (GINA) - New trading agreements between the Caribbean and Europe are yet to be
decided on with the negotiations on the Economic Partnership Agreement (EPA) because of
unreasonable terms of trade being demanded by Europe, militating against past commitment given
to poor countries under the Lome Convention.

“The negotiations are stopped now and we are called upon to make a lot of concession but many
people think that we seek charity in these markets or we unreasonably ask them to open markets.
It has its origin in a historical trade pact and not charity on the part of Europe,” Head of State
President Bharrat Jagdeo told those present at the Guyana Defense Force’s annual Officers’
Conference.

President Jagdeo affirmed that the current trade dispensation under the Sugar Protocol has
a historical origin.

“Today Europe emphasizes the fact that they paying us close to 30cents per pound for sugar
…they forget that in the 70s when there was a shortage of sugar in Europe they came out here
when the world market price was very high and we (African Caribbean and Pacific countries) sold
sugar to them way below the world market price in exchange for an agreement of infinite duration,”
the Head of State revealed.

This aspect of the agreement would never be publicly emphasized by leaders of Europe, rather
Europe is seeing to change its commitments made to the countries of the ACP, the President said.

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“We see this as a way of Europe changing some its commitment made under the successive Lome
agreement and Europe fighting for greater reciprocity and removing some of the preference we’ve
enjoyed into their markets.”

International News

US Duty-free/Quota-free Market Access Program Overdue

Geneva - The United States has yet to implement a duty-free/quota-free market access program
for least developed countries that was supposed to have come into force at the beginning of last
year (WTD, 3/6/07). Trade ministers agreed on the program during the 2005 Hong Kong ministerial
meeting.

At a Doha Development Agenda special negotiating session yesterday, a US trade official admitted
that the US Trade Representative’s office lost all the public comments submitted to it on the
program - and will reissue a call for comments.

During the special meeting focusing on trade flexibilities, several developing-country members
pressed industrial nations on a proposal submitted last year that calls for help to promote
progressive development of economies in the early stages, deal with provisions in the Sanitary and
Phytosanitary Agreement, time-limited exceptions and import licensing procedures.

Altogether there are 16 agreement-specific proposals on the table. Members have agreed to refine
language in six of them, which Trade and Development Council chair Burhan Gafoor suggested
was a step forward in the negotiation

New Study Indicates Caribbean Stands to Lose if WTO Round Succeeds

Washington (Dow Jones) - Most developing countries stand to gain from successful completion of
the World Trade Organization's protracted Doha negotiations, but a few would likely lose export-
market advantages, according to a new study.

Developing countries that now have preferential access to the U.S. or European markets would
have less product access in these markets under various potential versions of a WTO Doha
agreement on multilateral trade liberalization, according to a working paper released this week by
the National Bureau of Economic Research.

Mexico, countries in sub-Saharan Africa and some Caribbean countries are among the minority
that would likely see net loss of market access in the U.S. or Europe if the WTO talks succeed, the
authors found.

Sub-Saharan Africa could lose U.S. demand because of current tariff preferences for its exports of
oil and other minerals. Mexico could give up some relative advantage from the North American
Free Trade Agreement. Haiti could lose demand for its clothing exports, while Dominica and St.
Lucia could lose European demand for their bananas.

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But on net, all countries - developing and developed - are likely to see an increase in market
access of about 2% in the combined U.S. and European markets, under several possible scenarios
for successful WTO negotiations, the study shows.

Doha talks can Continue without US Fast-track - WTO

Reuters – The World Trade Organization's troubled Doha round of free-trade talks will go ahead
even if the White House's fast-track trade negotiation powers are not renewed, WTO chief Pascal
Lamy said on Friday.

"We know that the president of the United States has asked for an extension of this," he said. "We
know by experience there might be some discrepancy in the process and the TPA might lapse,
although negotiations would continue."

Speaking in Mexico City, Lamy also said the United States needed to make a new offer on
reducing trade-distorting agriculture subsidies if the Doha talks were to progress.

"We need new numbers from the U.S. on what they are ready to do to reduce their trade distorting
agricultural subsidies," Lamy said.

On a recent trip to Latin America, U.S. President George W. Bush said Washington was prepared
to reduce farm subsidies but wanted to ensure market access for its goods.

Other nations of the 150-state WTO are growing restless as the so-called G4 -- the EU, the United
States, Brazil and India -- seek common ground in bilateral meetings.

Lamy said those talks are at an "absolutely crucial" point as time runs out on the TPA. He said the
TPA makes the negotiation process easier, though it is not required for talks to continue. "We know
that later on this year... the environment will be much less favorable" for negotiations, he said.

Developing Nations Oppose Lamy’s Idea

Financial Express – WTO director-general, Pascal Lamy’s game of engaging few select countries
to break the current deadlock in the WTO negotiations has not been viewed well by the majority of
the developing countries. It has at last turned out to be counterproductive.

The ministerial conference of 40 odd group of developing and least developed countries which
concluded last week in the Indonesian capital, Jakarta clearly said in a communiqué: “The
ministers noted that, while small groups, plurilateral, as well as bilateral, discussions may be useful
to help the multilateral process of negotiations, these must be accompanied by an open and
inclusive process with the full involvement of all WTO members. This is essential to ensure
transparency and equity in the process as well as the legitimacy of the results of these
negotiations”.

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This is a clear reference to the meeting of G-4 ( EU , US , Brazil and India ) in London and several
other “fireside” chats and green room discussions in Geneva . The G-33 has now substantially
made clear that such engagements create an atmosphere of distrust, because of the inherent
nature of lack of transparency and equity in the process. The developing and the least developed
countries (LDCs) and the small and vulnerable economies (SVEs), which have a large section of
small and marginal farmers cannot afford to have a bad deal at the behest of a select few.

“Developing countries stand ready to engage in negotiations based on meaningful proposals taking
fully and effectively into account the principle of overall proportionality in tariff reduction
commitment and special and differential treatment in all aspects of negotiations,” the G-33
ministerial communiqué said.

The G-33, which usually takes a defensive position in agriculture by way of proposing designation
of Special Products (SPs) for lower tariff cuts and special safeguard mechanism (SSM), has this
time become equally aggressive in demanding market access in the developed world. It has called
for drastic reduction in farm subsidies and high tariff barriers in the developed countries.

The G-33 also “reviewed and approved a revision of the list of indicators for selection of SPs in a
manner so as to ensure transparency, while enabling all developing countries to appropriately self-
designate an appropriate number of products based on the mandated criteria.” G-33 also
emphasized that “SSM should be available to all agricultural products and that the import price and
import volume triggers applied separately should alone determine which product needs invocation
of the SSM at any given time.”

They reiterated that to uphold the integrity of special and differential treatment the terms and
conditions of the mechanism should be more favorable than the existing provisions of Article 5 of
the WTO Agreement on Agriculture.

UPCOMING EVENTS

APRIL

03-05: OECS/’Hubs and Spokes’ Project, Seminar on Rules of Origin, venue to be determined

11: OECS Market Access Experts Meeting, St. Kitts (postponed)

12-13: 13th Meeting of the Trade Negotiations Group, St. Kitts (postponed)

12: Preparatory Meeting of CARIFORUM Senior Officials, Kingston

13am: Meeting between WTO DG Lamy and CARIFORUM Trade Ministers, Kingston

13pm-14am: Second Meeting of CARIFORUM Council of Ministers – External Trade Negotiations

12-14: Inter-American Council, 2007 Inter-American Economic Forum, Cartagena, Colombia

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16pm: Caucus of CARIFORUM Negotiators and Senior Officials

17-20: CARIFORUM-EC Technical Negotiating Group, Caribbean Venue

21: Meeting of EPA College of Negotiators

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For More Information Contact:

Nand C. Bardouille
Caribbean Regional Negotiating Machinery
3rd Floor, The Mutual Building, Hastings Main Road, Hastings, Christ Church, Barbados
Tel: (246) 430-1678
FAX: (246) 228-9528

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