Canada-CARICOM trade talks shrouded in doubt

Negotiations on a trade agreement between Canada and Caribbean Community (CARICOM) countries have limped along for over five years. Unless political will and energy is now put into the process, the negotiations could fizzle out by the end of June – a ‘drop-dead’ date now accepted by both sides.

Abandonment of these negotiations would not be good for Canada and certainly not for CARICOM countries. For, while the negotiations focus on trade and investment and rules that guide them, the relationship between Canada and CARICOM goes far beyond these considerations.

In Canada’s case, although its merchandise trade with all CARICOM countries is less than 1 per cent of its total trade in goods, successive governments have enjoyed close relations with 12 of the Commonwealth Caribbean countries that are part of the 14 independent countries of CARICOM. Until recently, Canadian governments have been able to rely on Commonwealth Caribbean governments for support on hemispheric and international issues reflecting their shared values and common interests.

That there has been a rupture in that long-term support is the fault of both sides and is in the interest of neither. In recent years, both the Canadian and CARICOM governments have failed to maintain constructive and mutually beneficial engagement at high-levels, notwithstanding official visits to Canada by Prime Ministers Portia Simpson-Miller of Jamaica (October 2012) and Kamla Persad-Bissessar of Trinidad and Tobago (April 2013).

From a CARICOM viewpoint, Canada should remain a crucially important hemispheric, Commonwealth and international partner. Canada is the third largest market for exports of goods from CARICOM after the United States (over 50 per cent) and the European Union (about 12 per cent).

And, although Canada represents only 4 per cent of CARICOM’s market for the export of goods, it is the only developed country with which CARICOM enjoys a trade surplus. Additionally, Canada is home to a significant number of CARICOM’s diaspora; it is a major source of tourists to the region; and Canadian private sector investment in the region in a variety of industries, including banking, tourism and mining, is huge – direct investment is in excess of US$75 billion, and trade in services is roughly US$3 billion annually. Additionally, Canada is a significant aid contributor to CARICOM countries. In 2007, Prime Minister Stephen Harper pledged US$600 million to CARICOM countries (except Haiti which attracts specific funding), about two-thirds of which has been allocated over the last six years.

To be fair to Canada, successive Liberal and Conservative governments tried for years to engage CARICOM in settling a Free Trade Agreement (FTA), but it was not until 2008 that the Caribbean governments agreed to engage Canada and then only when the CARIB-CAN agreement (established in 1986) was approaching its scheduled expiration in 2011. Under the CARIB-CAN arrangement, CARICOM goods, with a few exceptions, entered the Canadian market duty-free with no reciprocal benefits for Canadian exports to CARICOM. The dilatory pace of the negotiations saw the CARIBCAN Agreement run out and Canada had to apply to the World Trade Organisation (WTO) to extend it until 2013 in the interest of CARICOM states. That extension has now expired and the WTO is unlikely to further extend it even if Canada were minded to seek another extension. In this connection, access to the Canadian market for CARICOM goods (with the possible exception of rum which is governed by a separate Protocol) is now endangered.

In the meantime, the Canadian government has issued a list of countries which reflects its priorities for FTAs – no Caribbean country is among them. Canada is looking to dynamic markets in Asia. It is to those markets that the government now wishes to devote its resources. In this context, prolonging negotiations on a FTA with CARICOM that shows no sense of urgency, is a distraction for Canada. Further, in September 2013, the Canadian government issued an Order withdrawing General Preferential Tariffs (GPT) treatment from 72 higher-income and trade-competitive countries – 11 CARICOM countries are among them; only Belize, Guyana and Haiti, because of their low-income, are not affected.

In their present economic circumstances, CARICOM countries need a continuing and structured relationship with Canada that governs trade and investment. They also need an improved relationship with Canada all round. This is why the political leadership of CARICOM should provide their negotiators with a more flexible mandate than they now have. For example, CARICOM countries are said to be resisting co-operation agreements that Canada is seeking on labour and environmental standards, but these are the same standards to which CARICOM countries have already signed on with the EU in their Economic Partnership Agreement (EPA). Since the standards will have to be met anyway, the reason for the resistance is difficult to fathom.

Canada also wants a chapter in the FTA to govern investment. This is a two-way street. Investment promotion and protection agreements are in the interest of CARICOM countries as they provide a high level of comfort for foreign investment that the region critically needs. Further, Barbados and Trinidad and Tobago already have investment treaties with Canada so that such treaties are nothing out of the ordinary. In Guyana’s case, where Canadian firms have responded to invitations to invest in the mining sector that is giving the country considerable dividends, an investment chapter in the FTA could only help.

Negotiations on services are reportedly still a problem area for CARICOM governments, but there has been a history of co-operation between Canada and CARICOM countries in services particularly banking and tourism. If flexibility is given to negotiators on both sides, there is every reason to be optimistic about a successful conclusion. Some CARICOM governments would also now be troubled over removing tariffs on Canadian goods entering their countries. The governments are already facing difficulties implementing the tariff cuts to which they signed-up with the EU under the EPA, and they are tormented about how to replace the direct revenues they will lose. However, the tariff cuts with the EU are spread out over a period of years; Canada should agree to a similar arrangement particularly for agriculture.

There are only two negotiating sessions scheduled before June 30 when a FTA between Canada and CARICOM will be effectively dead. Political will and direction are needed on both sides to conclude a realistic and beneficial arrangement. Our leaders should provide it, and so should the leadership of Canada. The Canada-Commonwealth Caribbean relationship has long been ‘special’ to the benefit of both. Allowing the current FTA negotiations to fail could herald the erosion of that ‘specialness’- to the detriment of both, but more proximately of CARICOM.

And, the big question is: if CARICOM cannot settle a FTA with Canada, what will happen with the US (their biggest market) when the present Caribbean-US arrangement ends?

(Sir Ronald Sanders is a Consultant, Senior Research Fellow at London University and former Caribbean diplomat. Responses and previous commentaries: www.sirronaldsanders.com)