EPA: Moral Hazard and the Betrayal of the Public’s Interest

Perspective
Put in a proper analytical frame two crucial considerations have emerged out of my column last Sunday, which continued the analysis of the Guyana Consultation on the CARIFORUM/EC, EPA and its aftermath.

First, I have argued the proposition that the sheer length, technicality and complexity of the Agreement undermine its efficacy as a subject for broad-based democratic discourse and dialogue in a population not trained in its areas of specialization. It is impossible to have informed exchanges when vital details about the subject being discussed are not in the possession of those who are not engaged in the exchanges. It is for this reason I have advanced the claim that when matters are overly technical and complex this subverts the democratic process.

If readers think about it carefully they will come to realize that this is indeed a self-evident proposition. It is being played out right now in the present – the US-led worldwide financial crisis and the unprecedented “bail-out” efforts of several governments around the world which this has caused. This will be pursued in later columns as the financial crisis is the subject of my next series of Sunday Stabroek columns.

The second consideration from last week’s column is that the length, technicality and complexity of the Agreement compel a critic like me to continuously walk a fine line between providing information and details of the Agreement in a manner that is accessible to the public while also providing a critique of it. It is for this reason that I spent time last week explaining what is meant when experts draw a distinction between the “full implementation impact of the EPA” and its immediate impact.

Dismantling CARICOM
Thus the details that I provided last week on the schedule for liberalizing tariff rates over the next 25 years were intended to show the progression from the immediate effect of the EPA on CARICOM’s merchandise trade to that when the Agreement is fully implemented.

As readers would recall the information revealed that each CARICOM country had its own separate schedule for liberalizing external tariffs with the European Union. This has created two problematic outcomes one is it reveals that, while on average for all CARICOM countries, agreements are reached, at the same time each individual country has its own commitments to the European Commission. In other words CARICOM as a group is a Party to the Agreement through the individual membership of the Member States of CARICOM.

The second outcome is that the agreed areas in the EPA are bound to undermine both prior and prospective areas of agreement within CARICOM! Let us look at an example. The Common External Tariff that CARICOM has already negotiated among its members has been effectively undermined and dissolved because each CARICOM Member State now has a new and different schedule for liberalizing trade with the European Union and so indirectly with each other.. In similar vein any prospective agreement, (let us say services) must conform to the already decided EPA modalities.

This means that we have forfeited the important policy space of using CARICOM as a platform for international engagement in these areas. We have in effect reversed the process. We have made bilateral engagement with the European Commission pre-configure the options we can now take in CARICOM…

Moral Hazard
Because there is a time gap between signing the EPA and its full impact, political leaders can take the soft (some would say disgusting) option of practising “moral hazard”

This can occur because decisions they take now will have consequences many years later when they may not be around or certainly not in power.

If the costs of today’s bad decisions will be borne by future generations,” why worry “! This sort of moral hazard is very common in CARICOM and shows up in all manner of decisions. In particular those related to the environment and national disasters. When a disaster is imminent and its likely costs to the society and economy are immediately obvious they are prepared to act.

But then they hesitate on taking out insurance and to use resources to anticipate what is not immediately apparent. In such situations they think they are saving on expenses now by not taking the correct action. But given the definite cycles of nature the disaster will occur and bring immense costs to the country…

Changing Position
and not Explaining Why
Governments are not only practising moral hazard, some are doing worse. As Robert Buddan reminds us in a column in the online Jamaica Gleaner of July 13 2008, captioned Mendicancy Revisited, the Jamaican Government when it came to power in late 2007 took the opposite position to the one it is now taking on the EPA. In his maiden speech, which Minister Kenneth Baugh gave at the United Nations, he lustily condemned the European Union’s approach in the final stages of the EPA negotiations.

He expressed support for the principle of Special and Differential Treatment for CARICOM –type economies then being advocated in the DOHA Development round of the WTO. He labeled the European Union’s approach to the negotiations as inequitable and in violation of the principle of global   partnership.

At about the same time Prime Minister Golding in a speech in Jamaica is reported by Robert Buddan as making statements similar to Baugh’s and specifically bemoaning the pace and pre-set deadlines put out by the European Union in the EPA negotiations. Additionally he had highlighted the threat to the Region posed by the European Union’s enormous subsidies.

We shall continue this analysis of the Guyana Consultation next week.