Monthly Archives: January 2016

Cuba and North Korea Sign Trade and Technology Agreements

Alicia Nicholls

Cuba and the Democratic People’s Republic of Korea (North Korea) have added two additional protocols to a growing list of cooperation deals between the two countries.

Prensa Latina reports that two protocols, one on trade and the other on science and technological development, were signed by the Cuban Minister of Foreign Trade and Foreign Investment, Rodrigo Malmierca and North Korean Ambassador to Cuba, Pak Chang Yul at the Ministry of Foreign Trade and Foreign Investment in Havana, Cuba this week.

The trade protocol is an interesting one as it will be based on bartering, that is, payment for goods and services via other goods and services, as opposed to cash. The exchange of goods is expected to help Cuba obtain inputs for its sugar industry and railway system.

Cuba and North Korea have enjoyed strong relations since 1960 (the height of the Cold War) and both countries are subject to heavy US economic sanctions. According to Diario de Cuba, Cuba and North Korea already have cooperation agreements in a number of sectors, including education, oil, agriculture and trade.



For further information, please see the full news report from Prensa Latina (In Spanish).

Alicia Nicholls, B.Sc., M.Sc., LL.B. is a trade and development consultant with a keen interest in sustainable development, international law and trade. The Author is not affiliated with the World Bank, the Caribbean Association of Banks or any bank. You can read more of her commentaries and follow her on Twitter @LicyLaw.


Caribbean Region Most Affected by Loss in Correspondent Banking Relationships, according to World Bank Survey

Alicia Nicholls

The withdrawal by international banks of correspondent banking relationships with Caribbean-based banks and money transfer businesses has once again been making headlines in the Caribbean. This week Antigua & Barbuda’s Prime Minister raised the issue at the Fourth Summit of the Community of Latin American and Caribbean States (CELAC), terming it a “clear and present danger”. Last year mere weeks after Prime Minister Barrow of Belize raised the issue in his address at the Summit of the Americas in Panama, the Bank of America severed ties with Belize Bank, the largest bank in Belize.

Correspondent banking relationships are Caribbean countries’ umbilical cord to the international financial system. They allow for the conduct of international trade and investment by facilitating crossborder payments, as well as the receipt and sending of remittances through international wire transfers. At the microlevel these relationships help local exporters to receive payments for their goods and services, local businesses to pay for imports, and poor families to receive remittances for their day to day survival. As I mentioned in an earlier article, the loss of correspondent banking relationships could spell disaster for the small, open economies of the region which are highly dependent on trade and investment flows, with implications for poverty reduction and eradication.

World Bank Survey

The Caribbean’s fears are not unfounded. According to the findings of a survey published by the World Bank in its report “Withdrawal from Correspondent Baking: Where, Why, and What to do About it” in November last year, the World Bank found that “small jurisdictions with significant offshore banking activities are particularly affected by the decline of CBRs”. More ominously, according to the Report, the Caribbean Region seems to be the most affected by a decline in correspondent banking relationships.

It also noted that United States banks have been most frequently identified as withdrawing their correspondent banking services. According to the Report, the services which respondents mentioned as being the most affected by the loss of correspondent banking are “cheque clearing and settlement, cash management services, international wire transfers”, while banking authorities and local/regional banks identified trade finance.

While the report noted that the majority of respondent banks have been able to find alternative banking relationships, in some cases the time and cost of finding new relationships are significant and not always on comparable terms and conditions as with the previous correspondent bank.

The survey highlighted several reasons identified by international banks for withdrawing their correspondent banking services and noted that for large international banks, the main reasons were AML/CFT (anti-money laundering and counter-terrorism financing) and CDD/KYC (customer due diligence and know your customer) related concerns.

In concluding, the Report provided a number of recommendations for both respondent banks and correspondent banks. One of the recommendations was for correspondent banks to consider the respondent bank’s business when making their decision to end a relationship, including by outlining the reasons for withdrawal, considering giving longer notice periods and considering the use of restrictions as opposed to outright termination.

Caribbean seen as “Risky business”

For the Caribbean, the loss of correspondent banking relationships, mainly as a result of banks’ de-risking practices, is intertwined with the fight against the arbitrary blacklists the region’s offshore financial jurisdictions are constantly called on to defend themselves against. Last year, both the EU and the District of Columbia (US) published blacklists which included Caribbean countries, causing regional governments to spend consider time advocating for their removal. Either way, the net result of these arbitrary actions would appear to do little to mitigate international banks’ perception of the Caribbean as literally a “risky” place to do business. The Financial Action Task Force (FATF) has reiterated the risk-based approach to AMT/CTF on a case-by-case basis as opposed to the wholesale de-risking which many banks are doing.

The way forward

The World Bank’s report is welcomed as it has provided some empirical evidence to support the concerns of Caribbean countries and in so doing helps to place a global spotlight on this issue. The Financial Stability Board (FSB) Report to the G-20 on actions taken to assess and address the decline in correspondent banking referenced the World Bank Report. The FSB has partnered with several organisations, including the World Bank, IMF among others, to address this issue through a four-point action plan which it has articulated in its report to the G-20.

The E15 Initiative Report entitled “Strengthening the Global Trade and Investment System in the 21st Century” which was launched at World Economic Forum’s Annual Meeting at Davos this year noted that while data was scarce it would appear that developing countries are most affected by limited correspondent banking relationships and has offered some very timely proposals.

Given the potential threat this issue poses to the region’s economies, it is incumbent on Caribbean banks to continue to observe the highest regulatory standards, including on AML/CTF and CDD/KYC. The Caribbean Association of Banks (CAB) has commendably been at the forefront of advocacy in regards to the issue of correspondent banking and their continued advocacy will be important.

Former Prime Minister of Barbados and economist, Owen Arthur, at a Roundtable discussion on Correspondent Banking held in Kingston, Jamaica earlier this month has called on regional leaders to adopt coordinated regional measures to address the issue. Caribbean leaders must continue to raise the issue at the diplomatic and multilateral levels at every opportunity, and join forces with other similarly affected countries in advocating for an immediate global solution to the problem, including action on some of the proposals highlighted in the World Bank’s and E15 Initiative’s reports.

Alicia Nicholls, B.Sc., M.Sc., LL.B. is a trade and development consultant with a keen interest in sustainable development, international law and trade. The Author is not affiliated with the World Bank, the Caribbean Association of Banks or any bank. You can read more of her commentaries and follow her on Twitter @LicyLaw.

Cuba: US eases restrictions on trade financing

Alicia Nicholls

The United States’ Office of Foreign Assets Control (OFAC) and the Department of Commerce have announced today several further amendments to the Cuban Assets Control Regulations (CACR) and Export Administration Regulations (EAR). These amendments further implement the new direction toward Cuba that President Obama outlined in December 2014.

Key among these amendments is that US banks will now be allowed to provide financing for most types of exports and re-exports to Cuba, with agriculture commodities and items being the major exception.

Summary of amendments 

In summary, the amendments include:

  • Removing financing restrictions for most types of authorized exports and re-exports to Cuba.
  • Additional amendments to increase support for the Cuban people and facilitate authorized exports e.g: news gathering, telecommunications, agriculture
  • Additional amendment to facilitate carrier service by air and with Cuban airlines.
  • Expanding authorizations within existing travel categories to facilitate travel to Cuba for additional purposes e.g: information and informational materials, professional meetings and public performances

For more information, please see this press release from the Department of Commerce.

Alicia Nicholls, B.Sc., M.Sc., LL.B. is a trade and development consultant with a keen interest in sustainable development, international law and trade. You can read more of her commentaries and follow her on Twitter @LicyLaw.

Davos 2016: Proposals for Strengthening the Global Trade and Investment System

Alicia Nicholls

A new report by the E15 Initiative entitled “Strengthening the Global Trade and Investment System in the 21st Century” was launched at the World Economic Forum’s Annual Meeting 2016 held January 20-23 in Davos, Switzerland. The new report proposes a set of reforms with the aim of strengthening the global trade and investment system in the 21st century. Small vulnerable economies (SVEs) like those in the Caribbean stand to benefit from many of the proposals if endorsed by the international community.

According to details on the website of the E15 Initiative, the E15 Initiative report is a product of the E15 Initiative  jointly undertaken by the International Centre for Trade and Sustainable Development (ICTSD) and the World Economic Forum, in conjunction with 16 partnering institutions and 375 international experts over the past two years.

The E15 Initiative report is timely as it comes at a time of slowing global trade. Global trade is now growing at less than the rate of global GDP, which is not the norm, and last year the WTO revised downward its global trade growth projections for this year. The report also comes on the heels of the failure of WTO members at the 10th WTO Ministerial Conference in Nairobi, Kenya in December to agree on the continuation of the Doha Development Agenda, as well as in the midst of an ever-growing “spaghetti bowl” of regional trade agreements, which includes the recently concluded Trans-Pacific Partnership (TPP) and several other mega-regional trade agreements currently under negotiation.

The E15 Initiative report has 16 chapters of practical recommendations organised in thematic groups. The reforms proposed are not limited to the WTO’s architecture but include proposals on wider global trade and investment cooperation. As an example, in light of the concerns about fragmentation, one of the proposals is for the establishment of a Regional Trade Agreement Exchange. The report is accompanied by a Synthesis Report which “summarizes and interprets the significance of the proposals for progress on many of the international community’s most important shared imperatives”.

Proposals of Interest to the Caribbean SVEs

The report’s recommendations touch on several issues which are of particular concern to SVEs, including the availability of correspondent-banking relationships. The loss of correspondent banking due to de-risking practices by banks in metropolitan countries is an issue of significant import to Caribbean SVEs as it has implications for remittances sending/receiving and the transaction of business with the rest of the world.

Another recommendation which benefits services-based economies of the region is the proposed development of a comprehensive WTO Framework for Trade Facilitation in Services, while the proposed establishment of an Agreement on Access to Basic Science and Technology is also noteworthy. Other proposals touch on food security, fisheries subsidies and illegal unreported and unregulated (IUU) fishing, trade solutions to climate change, proposals on ensuring trade rules are equitable and predictable and on modernising the coherence of the investment agreements framework.

For further information on the report, please see the website of the E15 Initiative. The full E15 Initiative report may be accessed here.

Alicia Nicholls, B.Sc., M.Sc., LL.B. is a trade and development consultant with a keen interest in sustainable development, international law and trade. The Author is in no way affiliated with the ICTSD, WEF, the E15 Initiative or the report mentioned. You can read more of her commentaries and follow her on Twitter @LicyLaw.

WTO Director General Visits Barbados

Alicia Nicholls

Director General of the World Trade Organisation, Roberto Azevedo, paid an official visit to Barbados this week. The Director General’s visit to Barbados comes as part of his official visit to the Caribbean. Earlier this week the Director General visited Jamaica where he met with Prime Minister Portia Simpson Miller and other senior government representatives, and gave a speech at the University of the West Indies’ Mona Campus.

According to Barbados’ Government Information Service, Mr. Azevedo met with Barbados’ Prime Minister, the Rt. Hon Freundel Stuart and Minister of Foreign Affairs and Foreign Trade, the Hon Senator Maxine McClean.

Barbados has been a strong and vocal supporter of the multilateral trade process. Barbados was a founding member of the WTO and has been a party to the GATT since 1967. The chairperson’s statement on Barbados’ trade policy review in January last year noted, inter alia, that members “praised Barbados’ strong support for the multilateral trading system and the role it has played in the DDA negotiations” and its open and liberal investment and trade regime.  Barbados has played a leading role in advocating for the interests of Small Vulnerable Economies (SVEs) and currently chairs the Africa, Caribbean & Pacific (ACP) group  in the WTO.

According to a report by Barbados’ Nation News, Minister McClean and Director General Azevedo held a joint press conference at the headquarters of her ministry. During this press conference, Minister McClean is reported to have emphasised the challenges faced by small states like Barbados in the multilateral trading system and reiterated the need for a successful conclusion of the Doha Development Round.

The future of the Doha Round has been left undecided at the WTO’s 10th Ministerial Conference in Nairobi, Kenya last December. In the Nairobi Declaration, WTO members unprecedentedly stated their disagreement on whether Doha should be ended or continued.

Details on Director General Azevedo’s official visit to Barbados may be obtained from the official website of the Barbados Government Information Service here.

Alicia Nicholls, B.Sc., M.Sc., LL.B. is a trade and development consultant with a keen interest in sustainable development, international law and trade. You can also read more of her commentaries and follow her on Twitter @LicyLaw.


Petrocaribe: Triad of Issues Puts Future of Existing Arrangement in Doubt

Alicia Nicholls

On June 29th 2005, fourteen of the Caribbean countries which met with the late President Hugo Chavez Frias in the beautiful northern Venezuelan port city of Puerto La Cruz signed an energy cooperation agreement which would seek to be a beacon of south-south cooperation and solidarity. Nearly eleven years after the ink has dried on the Agreement, a triad of developments has added fuel to the growing fire of concerns about the sustainability and viability of the Petrocaribe Agreement which provides beneficiary countries in the Caribbean and Central America with Venezuelan oil on very generous terms.

First, oil prices this month have continued their months-long slide, dropping to twelve year lows. In light of current geopolitical realities, a recovery in prices is unlikely any time soon. Secondly, in December last year the United Socialist Party of Venezuela (PSUV), the party of the late President Chavez and his successor President Nicolas Maduro, lost its majority in the Venezuelan National Assembly. The newly elected Opposition majority is calling for a review of Venezuela’s oil agreements. Thirdly, Venezuela’s continued economic turmoils have prompted President Nicolas Maduro to decree a 60-day economic state of emergency. This decree is currently being debated by the National Assembly, Venezuela’s unicameral legislature.

This article argues that despite Petrocaribe’s popularity in the region and President Maduro’s pledge of continued support for the initiative, the triad of developments above will eventually force a revision of the terms of the arrangement. Beneficiary countries in the Caribbean should prepare themselves for this eventuality.

“Petrocaribe, towards a new Order in our America”

This was the title of President Chavez’s speech at the opening session of the Fourth Petrocaribe Heads of Government Meeting in Cuba in 2007 and sums up the philosophic underpinning of the arrangement. The Petrocaribe Energy Cooperation Agreement was the brainchild of President Chavez as part of his thrust towards creating an alternative, development-friendly model of integration based on the principles of solidarity and development as opposed to exploitation and neo-imperialism.

The stated goals of the Petrocaribe Initiative are to guarantee energy security, promote social and economic development and promote the integration of Caribbean countries “through the sovereign use of energy resources, sustained by the guiding principles of the Bolivarian Alternative for the Americas (ALBA)”, which President Chavez offered as an alternative to the US-initiated and now shelved Free Trade Area of the Americas (FTAA). Petrocaribe has been continued under his successor, President Nicolas Maduro, after President Chavez’s death from cancer in March 2013.

Petrocaribe has largely benefited the Region

Seventeen countries of the Caribbean and Central America, plus Venezuela, are signatories to Petrocaribe. This includes Cuba and the Dominican Republic and all countries of the Caribbean Community (CARICOM), except for Barbados and oil-exporter Trinidad & Tobago. Barbados and Trinidad & Tobago had declined to join, stating it would prejudice their other arrangements.

Venezuela’s state-owned oil company Petroleos de Venezuela (PDVSA) provides Petrocaribe beneficiary countries with oil on extremely generous terms in keeping with Petrocaribe’s aim of facilitating development and not profit. Beneficiary countries pay only a percentage of the price of the oil up front (within 30-90 days) and are given grace periods of between one-two years, and up to twenty-five years to repay the remainder of the loan at interest rates of one percent if oil prices are above $US40 per barrel and two percent if they are below. The higher the price of oil per barrel the higher the percentage of the loan which may be repaid long term. The loan may be repaid in cash or in services and goods. Cuba has used medical and educational services as a way of repaying its loan, while until recently Guyana had a rice for oil arrangement with Venezuela.

These generous terms have made Petrocaribe extremely attractive, particularly to the small island developing States of the Caribbean which are highly dependent on imported fossil fuels (with the exception of Trinidad & Tobago). Fuel imports comprise a large portion of Caribbean countries’ import bills and high electricity costs have an impact on business competitiveness. Petrocaribe’s financing terms make oil much cheaper.

In a context where Caribbean countries are finding it increasingly difficult to access concessional financing, Petrocaribe has been an alternative source of financing. In the countries of the Organisation of Eastern Caribbean States (OECS), Venezuelan support under ALBA has provided investments in social programmes, including the provision of eye care treatment services by Cuban and Venezuelan doctors under Mission Miracle. In Jamaica, the Government established the  Petrocaribe Development Fund which uses inflows accruing to Jamaica under Petrocaribe to finance critical development projects.

However, while the Petrocaribe arrangement allows cash-trapped governments more leeway to spend money on social and development programmes, the accumulation of Petrocaribe debt has added to beneficiary countries’ already high debt burdens. Critics also argue that despite its stated goal of improving Caribbean countries’ energy security, the cheap oil provided by Petrocaribe has arguably lessened Caribbean islands’ impetus towards transitioning to alternative energy sources.

…But Petrocaribe makes little financial sense to Venezuela

While largely economically beneficial to the Caribbean and rooted in a development-oriented philosophy, Petrocaribe’s generous terms have made little financial sense for Venezuela. The main benefit of the Agreement to Caracas is the diplomatic support it has been able to secure from Caribbean countries on hemispheric and international issues. The CARICOM bloc is an important voting bloc in the Organisation of American States and Caracas has benefited from CARICOM countries’ support. Petrocaribe has also expanded Venezuela’s sphere of influence in a region historically regarded as the United States’ backyard.

Although Venezuela has the largest proven reserves of crude oil in the world and oil accounts for about 95% of its exports, economic stresses have plagued the country for some time now and have only deteriorated as oil prices continue their plunge. At the time of Petrocaribe’s signature in 2005, oil prices hovered around $50 a barrel. As at the time of writing this article, the price of brent crude oil is $28 a barrel. In its October 2015 forecast, the IMF forecasted Venezuela’s economy to contract in 2015 and 2016 by 10% and 6% respectively.

Venezuela’s oil exports and international reserves are down and the country has been reliant on loans from China. According to El Universal, President Maduro has called for an emergency meeting of OPEC before the next meeting scheduled for June this year and has decreed a state of economic emergency.

Petrocaribe’s Terms will likely be revised

Petrocaribe’s generous terms were steeped in Chavez’s philosophy for an alternative integration model which was based on development and solidarity as opposed to profit and exploitation. Without doubt Petrocaribe has brought social and economic benefits to beneficiary countries, a fact recognised by Caribbean leaders who continue to speak  favourably of the Agreement and by President Maduro who has sought to reassure Caribbean countries of Venezuela’s continued support for Petrocaribe. In the midst of an escalation of Venezuela’s border dispute with Guyana, President Maduro undertook a Petrocaribe tour in October last year where he reiterated Venezuela’s commitment to the region.

However, as economic pressures continue to mount in Venezuela so has the internal opposition to the generous terms of the Petrocaribe deal. Back in 2013 Opposition Leader Alfonso Marquina had called on the Venezuelan Government to modify the terms of the Petrocaribe agreement as it was “seriously hurting Venezuela”. More recently in December last year, the newly elected Opposition majority in the Venezuelan National Assembly  announced its intention to  review Venezuela’s oil agreements, including Petrocaribe.

In light of the diplomatic and geostrategic importance of the Caribbean to Venezuela, it is likely the Petrocaribe Agreement will not be discontinued but modified in the short term. Modification of the Agreement’s terms could take various forms, including increasing the percentage of the loan which must be paid in the short term, raising the interest rate, reducing the repayment term, among mechanisms.

To some extent Petrocaribe’s numbered days have been recognised by some beneficiaries. Last year the Dominican Republic used money raised on bond markets to redeem a large portion of its outstanding debt to Venezuela under Petrocaribe, while Jamaica did a debt buy-back. Caribbean countries must also place renewed importance on reducing their dependence on fossil fuels and developing renewable energy options. Low oil prices at the moment should not be a reason for complacency. The plan by St. Vincent & the Grenadines for a geothermal plant by early 2018 is therefore encouraging.

Petrocaribe beneficiaries will have to brace themselves for the inevitability of its revision and for the eventual loss of this concessional financing.

Alicia Nicholls, B.Sc., M.Sc., LL.B. is a trade and development consultant with a keen interest in sustainable development, international law and trade. You can also read more of her commentaries and follow her on Twitter @LicyLaw.

Jamaica ratifies Trade Facilitation Agreement; WTO DG Visits Jamaica

Alicia Nicholls

Jamaica has become the  67th member country of the World Trade Organisation (WTO) to ratify the Trade Facilitation Agreement (TFA) on January 19th this year. Jamaica is the sixth country of the Caribbean Community (CARICOM) to have ratified the TFA. The other CARICOM countries which have already ratified are Trinidad & Tobago, Belize, Guyana, St. Lucia and Grenada.

The TFA was concluded at the Bali Ministerial in 2013 and seeks to cut the red tape and reduce the transaction costs and delays in the movement, release and clearance of goods across borders through the harmonisation, simplification and acceleration of customs procedures.  The TFA, which the WTO predicts to increase global merchandise exports by up to 1 trillion by per year, will come into force once two-thirds of the WTO’s membership ratifies the Agreement. Earlier this month Seychelles became the 66th WTO member to ratify, while Mali this week became the 68th member and 10th African country to do so, bringing the total number of ratifications to 68.

The announcement of Jamaica’s ratification comes on the heels of the WTO Director General, Roberto Azevedo’s official visit to Jamaica this week. Jamaica is currently the chair of the CARICOM Group in the WTO and has been very active in the WTO negotiations. In his speech at the University of the West Indies’ Mona Campus in Jamaica, Director General Azevedo lauded Jamaica’s leadership and participation in the multilateral trade process from as early as the days of GATT, particularly in light of the country’s relatively small size. The Director General will also be visiting other CARICOM countries.

The ratification by Jamaica is a welcomed development and it is hoped more CARICOM states will follow suit. My article on the benefits of the TFA for small island developing states can be accessed here.

The full text of the Director General’s speech in Jamaica may be accessed here.

Alicia Nicholls, B.Sc., M.Sc., LL.B. is a trade and development consultant with a keen interest in sustainable development, international law and trade.  You can also read more of her commentaries and follow her on Twitter @LicyLaw.


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