Trade in Services in Tourism, the Blind Spot of the CARIFORUM-EU Economic Partnership Agreement

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Trade
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Topic: 
Globalization - Trade

The CARIFOUM-EU partnership agreement has proven ineffective in further developing the tourism sector within the Caribbean region. Yet, an analysis of the problems of implementing the agreement shows that there is some hope for the agreement to help foster tourism and other services sectors if some changes were made. 

What comes to your mind when you think of the Caribbean? Sun, sea and sand? Paradisiac beaches, enticing climate and relaxing stays in an all-inclusive resort? Maybe even the friendliness of the people and a chance to engage in cultural activities. Whatever the image, the Caribbean is one of the most attractive tourist destinations globally. With growth rates of 104% in tourist arrivals between 2014 and 2015 on some Caribbean islands, [1] it is no wonder that the tourism industry represents an important source of income and a genuine alternative to the declining agricultural and manufactured good sectors for the region. In an attempt to find substitutes to address its declining trade problem, the region is now looking towards its infant service sector. As such, the  Caribbean Forum (CARIFORUM) ensured that the tourism service sector was included in the Economic Partnership Agreement (EPA) that was signed in 2008 between the 14 members of the CARIFORUM and the European Union (EU).

So what exactly is this EPA? The EPA represents a developmental agreement between the EU and CARIFORUM and has its roots in the Cotonou Agreement. Its explicit goal was to replace preferential trade agreements by a single comprehensive free trade agreement allowing for close economic as well as developmental cooperation with the EU. [2] Yet, the EPA has remained far beyond its ambitious goals, especially with respect to the tourism service sector.  According to its Five Year Review “the modalities related to cultural industries and the tourism sector have not been implemented” [3]. Considering these shortfalls, why are the CARIFORUM members still going through with the implementation of the EPA? Are CARIFORUM members unwilling to stand in solidarity? Or are they too ‘small’ in these negotiations to make any sort of impact? To understand this apparent paradox, we first need to appreciate why it is in the best interest of CARIFORUM members to have included the tourism trade in services negotiations; then we can identify why the EPA has failed to realize its ambitions and develop some recommendations for improvement.

The premise for including the tourism industry into trade in services negotiations

Traditionally, trade policies focused on the manufacturing and agricultural sector as well as the export of raw materials but since the early 2000’s; the service sector presented a new niche for the region, especially in tourism. In the early 2000s the caribbean tourist industry grew strongly [4], but with the global financial crisis in 2008 the industry has somewhat stagnated. Therefore, it was beneficial to include the tourist industry, just like any other service industry, into free trade negotiations. The benefits were supposed to encourage competition and increase growth as well as higher efficiency. In theory, the greater the number of competitors, the higher the odds to attract the cheapest and most efficient service providers. This should result in important welfare gains (lower prices, better service, more efficient use of resources etc.). [5] However, in the case of the Caribbean, foreign competitors often drive local service providers out of business. The Small Island Voice Global Forum (SIVGF) pointed out that most of the hotel chains in the Dominican Republic are foreign owned, meaning that most of their revenue is repatriated outside the Caribbean. [6] Additionally, the number of competitors is often quite limited, meaning we can often observe a mere transfer of ownership from a state-owned monopoly to a private owned-one.

Having these specificities of the tourism industry in mind, it is even more important to integrate tourism into free trade negotiations in order to break North American and British hold with respect to foreign direct investment in the sector. In St. Kitts & Nevis or the Grenadines for example, North American and British investment represented more than 50% of total foreign direct investment in the early 2000s. [7] By opening the market to other European investors, CARIFORUM should increase competition and gain access to a larger market. Secondly, a comprehensive free trade agreement should encourage best international practices within the tourism industry, i.e. with respect to international labor standards, investment into the development of human capital and respect of environmental protocols. The last point is relatively new and important because one of the main attractions of the Caribbean is its unique landscapes and diving paradises. Yet, if these assets are not conserved, Caribbean tourism will lose its attractiveness and the industry will suffer as a whole as it was seen in Negril, Jamaica. Formerly a diving paradise, too much waste water from surrounding beach resorts were poured into the ocean which severely damaged the reefs and curtailed the numbers of visitors. [8]

So in order to encourage the development of the tourism sector, the CARIFORUM–EU EPA included for the first time a Trade in Services section (Article II) as well as a Tourism Services section. This EPA should have allowed the EU to provide technical and developmental support in collaboration with the CARIFORUM governments and representatives of the tourism industry to help developing tourism services through technology transfer, support for small and medium-sized enterprises (SMEs) in the tourism sector, mutual recognition of industry qualifications and support for tourism-specific environmental as well as quality standards. [9] But what went wrong?

The CARIFORUM-EU EPA: Issues and possible solutions

Unlike the finance or communication industry, the tourism industry relies heavily on human capital – it provides thousands of jobs to the Caribbean people. It is CARIFORUM’s second largest employer and foreign exchange earner; and generates significant external tax revenues. However, boosting the tourism services sector in accordance with the EPA has been disappointing. One critic, working for the Caribbean Council, states that with respect to the implementation of the EPA “virtually none of what the tourism sector hoped for has happened” [10]. But why? While CARIFORUM did negotiate as a common bloc and hand in hand with its private sector counterparts on tourism issues, they appeared not to negotiate certain key aspects such as profit sharing agreements. CARIFORUM members should have insisted on the importance of a common tax on foreign companies’ profit as well as the percentage of ‘local’ staff that needed to be employed in joint Caribbean-EU ventures. This way, they could have made sure to collect a least part of foreign companies’ profit and avoid that all benefits will leak to the EU in the end. Another suggestion to counteract this is to allow local Caribbean service providers in the tourism sector to develop clusters. Clustering allows service providers within the tourism industry to come together in a particular location and provide different specialized services. This in turn will encourage entrepreneurship as well as the opening of smaller but cheaper accommodations for tourists, thus increasing competition and boosting the local economy.

Another reason for the failure of the EPA model is the uneven integration among countries. [11] The model has failed to work in tandem with the region’s own integration scheme – CARICOM Single Market and Economy (CMSE) - because of wide differences in development levels and differences in the scope as well as the sequencing of common policies. [12] Furthermore, unlike the EU, the vast majority of CARIFORUM countries neither have the competitiveness nor the capacity to export services to EU countries. [13] This problem could have possibly been avoided had the CSME policies been implemented prior to the EPA entering into force. Since it is already in effect, the best option may be to renegotiate certain aspects of the EPA allowing for cooperation between the two frameworks rather than competition. In this sense, key performance indicators on development cooperation and development outcomes should be determined prior to the next review. [14]

Finally, the movement of natural persons through professional services in tourism has not materialized any benefits so far. [15] This is mainly due to the lack of Mutual Recognition Agreements (MRAs) in the tourism sector. MRAs are standards of accreditation where countries recognize their partners as being on equal footing. The MRAs that will allow CARIFORUM’s independent services providers into the EU market are still not finalized. To date, the only professional area where discussions for negotiations have started is architecture. Furthermore, the MRA’s under negotiations do not include persons without tertiary education or specialized skills, i.e. unskilled workers, as part of the agreement. [16] A regional accreditation body, which ensures that the CARIFORUM’s qualifications are on par with the EU so that service providers can take advantage of the EPA, could be a solution. Training programs and incentives should also be offered to unskilled workers, providing them with accredited skills certificates, which puts CARIFORUM members in a more advantageous position vis à vis the EU.

Room for Improvement

Ideally, the EPA would materialize mutual gains for CARIFORUM and the EU, but to date the EPA has not been successful. CARIFORUM needs to re-evaluate its position and decide whether this agreement is in its best interest at this point, as it does not seem ready for maximizing the benefits of such an agreement. First, CARIFORUM states should encourage clustering in the tourism service sector and also continue to negotiate as a common bloc to face the EU on certain key issues such as profit sharing agreements. Second, it is in the best interest of CARIFORUM states to develop their CSME mechanism and encourage intraregional tourism service trade. Third, to fully profit from the EPA agreement, the regional accreditation body should hasten its implementation to facilitate the movement of both skilled and unskilled workers, of which the latter should be included in the agreement and provided with adequate as well as accredited training. Last but not least, constant review and collaboration is needed to fully grasp the potential of the tourism industry within the EPA.


​The association „Young Initiative on Foreign Affairs and International Relations“ (IFAIR) initiates LACalytics  a project that brings together young experts from Latin America &the Caribbean (LAC) and the European Union (EU). Together they write analyses to current topics on Politics, Economics, Civil Society, Environment as well as about the EU-LAC relationship. Three selected articles of LACalytics will appear in the Blog of VOXLACEA 


BIBLIOGRAPHY

BREWSTER, Havelock R. "The Anti-Development Dimension of the European Community’s Economic Partnership Agreement for the Caribbean." The Anti-Development Dimension of the EPA, Havelock Brewster:. March 06, 2000. Accessed March 28, 2016. http://www.normangirvan.info/the-anti-development-dimension-of-the-european-communitys-economic-partnership-agreement-for-caribbean-havelock-brewster .

CARIBBEAN TOURIST ORGANIZATION; Latest Statistics 2015 (http://www.onecaribbean.org/wp-content/uploads/Lattab15_FINAL.pdf 30.03.2016).

CARICOM; Foreign Direct Investment Flows of CARICOM Member States 20002 – 2013; March 2014; http://www.caricomstats.org/Files/Publications/FDI/FDIReport2013.pdf 30.03.2016).

CARIFORUM- EU EPA; Five Year Review of The Cariforum EU Economic Partnership Agreement; 14 July 2015 (http://trade.ec.europa.eu/doclib/docs/2016/january/tradoc_154165.pdf 30.03.2016).

COURTNEY Lindsay; Caribbean Journal of International Relations & Diplomacy Vol. 1, No. 3, September 2013.

ECONOMIC PARTNERSHIP AGREEMENT between the CARIFORUM States, of the One Part, and the European Community and Its Member States." Official Journal of the European Union, August 30, 2008, 40-41. Accessed March 25, 2016. Http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2008:289:0003:1955:EN:PDF .

EUROPEAN COMMISSION; The ACP – Contonou Agreement: http://ec.europa.eu/europeaid/where/acp/overview/cotonou-agreement/index_en.htm 30.03.2016.

JESSOP David; "Should Tourism Give up on the EPA? - The Caribbean Council", The Caribbean Council Should Tourism Give up on the EPA Comments. March 25, 2014, Accessed March 27, 2016. http://www.caribbean-council.org/tourism-give-epa/ .

NORMAN Girvan, "EPAS and Asymmetrical Integration: Caribbean Tale", Address, Workshop on Alternative Trade, St Mary’s University, Halifax, N.S.

PALMER, Randsford W.; The Caribbean Economy in the Age of Globalization; Palgrave MacMillan; 2009.

WORLD BANK; Africa’s Trade in Services and Economic Partnership Agreements; July 2010.


1. CARIBBEAN TOURIST ORGANIZATION; Latest Statistics 2015; p.5 (http://www.onecaribbean.org/wp-content/uploads/Lattab15_FINAL.pdf 30.03.2016).

2.  http://ec.europa.eu/europeaid/where/acp/overview/cotonou-agreement/index_en.htm 30.03.2016.

3.  CARIFORUM- EU EPA; Five Year Review of The Cariforum EU Economic Partnership Agreement; 14 July 2015; p.8 (http://trade.ec.europa.eu/doclib/docs/2016/january/tradoc_154165.pdf 30.03.2016).

4.  WORLD TRAVEL & TOURISM COUNCIL; Travel & Tourism Economic Impact 2015 Caribbean, p.5, http://www.wttc.org//media/files/reports/economic%20impact%20research/regional%202015/caribbean2015.pdf

5.  WORLD BANK; Africa’s Trade in Services and Economic Partnership Agreements; July 2010; p.35.

6.  PALMER, Randsford W.; The Caribbean Economy in the Age of Globalization; Palgrave MacMillan; 2009; p.45.

7.  CARICOM; Foreign Direct Investment Flows of CARICOM Member States  20002 – 2013; March 2014; http://www.caricomstats.org/Files/Publications/FDI/FDIReport2013.pdf 30.03.2016).

8. PALMER Ransford; Caribbean Economy in the Age of Globalization; Palgrave Macmillan; 2009; p.43.

9. JESSPO David; "Should Tourism Give up on the EPA? - The Caribbean Council", The Caribbean Council Should Tourism Give up on the EPA Comments. March 25, 2014, Accessed March 27, 2016. http://www.caribbean-council.org/tourism-give-epa/.

10. Ibid. David Jessop, "Should Tourism Give up on the EPA? - The Caribbean Council", The Caribbean Council Should Tourism Give up on the EPA Comments. March 25, 2014, Accessed March 27, 2016. http://www.caribbean-council.org/tourism-give-epa/.

11. NORMAN Girvan, "EPAS and Asymmetrical Integration: Caribbean Tale", Address, Workshop on Alternative Trade, St Mary’s University, Halifax, N.S.

12. Ibid. Norman Girvan, "EPAS and Asymmetrical Integration: Caribbean Tale", Address, Workshop on Alternative Trade, St Mary’s University, Halifax, N.S.

13. BREWSTER, Havelock R. "The Anti-Development Dimension of the European Community’s Economic Partnership Agreement for the Caribbean." The Anti-Development Dimension of the EPA, Havelock Brewster:. March 06, 2000. Accessed March 28, 2016. http://www.normangirvan.info/the-anti-development-dimension-of-the-european-communitys-economic-partnership-agreement-for-caribbean-havelock-brewster

14. Ibid. http://www.normangirvan.info/category/epa-text-and-commentaries/

15. COURTNEY Lindsay; Caribbean Journal of International Relations & Diplomacy Vol. 1, No. 3, September 2013: pp.5-29

16. COURTNEY Lindsay; Caribbean Journal of International Relations & Diplomacy Vol. 1, No. 3, September 2013: pp.5-29

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