Monthly Archives: August 2016

FHA TAX ALERT – Barbados 2016 Budget

A review of the Barbados Budget Proposals 2016 by FRANHENDY Attorneys

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Can Sports help Caribbean Countries’ Export Diversification Efforts?

Alicia Nicholls

The Brazil-hosted XXXI Summer Olympiad has come to an end with all of the panache one would expect from “a cidade maravilhosa” (the marvelous city) of Rio de Janeiro. I would be the first to admit that unlike most persons, I was not glued to the Games. However, seeing the success of Caribbean athletes, particularly the Jamaican team which can boast of having the fastest man and woman in the world for the third Olympiad in a row, made me ponder on the possibilities sports could have for Caribbean export diversification. Much of the discourse on sport as an export diversification strategy is often limited to sports tourism. However, I believe that the opportunities for sports trade go beyond simply sports tourism to encompass a wider array of sporting services which will be the focus of this article.

No longer viewed as simply pastimes and sources of entertainment and recreation, the global sports industry is a lucrative and growing one.  A study by AT Kearney found that this industry is worth $480-620 billion dollars. For an appreciation of the sheer economic scale of the recently concluded Rio Olympic Games, this article by the BBC shows there were “more than 10,000 athletes, representing 207 nations, [competing] in 31 sports in Brazil.” It is therefore little surprise why an increasing number of developing countries are exploring the ways in which the commercialisation of their sporting industries can contribute to their economic diversification efforts.

If we turn to the medal count statistics in the Rio Olympics, we see that Jamaica, a Caribbean small island developing state with a population shy of 3 million, won 11 goals (6 gold, 3 silver and 2 bronze), while Jamaican sprinting legend Usain Bolt won a historic three consecutive goals in the 100m, 200m and 4x100m relay further engraving his legacy on history’s page as the fastest man on earth. Caribbean countries’ sporting prowess is not limited to athletics. The West Indies Cricket Team dominated the cricketing world for many years. Here in Barbados we can boast of Sir Garfield Sobers who is regarded internationally as “the greatest cricketer the world has ever seen”, and of being the inventors of road tennis. The raw sporting talent is obviously there so how can we convert our sports talent into economic and export opportunities?

Sports as Export Services

The  commercialisation of sporting services has been internationally recognised in trade classifications. Under the World Trade Organisation (WTO) services classification, “sporting and other recreational services” is one of the sub-sectors of Recreational, Cultural and Sporting Services (other than audiovisual services). The sub-classes of sporting services are quite limited as they only capture a narrow range of the activities currently engaged in by sporting services suppliers, namely,  sports event promotion services; sports event organisation services; sports facility operation services and other sporting services. The UNESCO Framework for Cultural Statistics considers sports as part of the cultural industries.

Caribbean countries’ existing market access and national treatment commitments in “recreational, cultural and sporting services (other than audiovisual services)” in their GATS schedules of specific commitments have been modest. This is not surprising as sporting services have not been a sector most countries have traditionally sought to liberalise. Only Cuba, Dominica, Grenada, St. Kitts & Nevis, St. Lucia, Trinidad & Tobago have made market access and national treatment commitments in sporting and other recreational services (CPC 964) in their GATS schedules.

Sports Tourism

When we speak of sports commercialisation in the region, our discussion tends to be limited primarily to sports tourism which involves travel to another destination for participation or observation of sporting events, sports conferences and meetings. This would be considered a services export under Mode 2 (consumption abroad). Countries around the world joust with each other to host major sporting events from the Olympics to World Cup Football. The Caribbean has had a piece of the action by successfully hosting the ICC Cricket World Cup in 2007, while also hosting several other smaller hemispheric and regional sporting events such as the Commonwealth Youth Games which the Bahamas will host in 2017.The rationale for hosting these events is not just for the immediate inflows of tourist arrivals and expenditure, but also the marketing and promotional opportunities which such intense media attention could bring.

Non-Tourism Sporting Services

Besides sports tourism, there are other possibilities for sporting services exports as the schematic below shows utilising the four modes of supply under the General Agreement on Trade in Services (GATS):

  • Mode 1 (Cross border supply)  – from the territory of one Member into the territory of any other Member e.g: sports consultancy firm providing consulting services to clients in another country online
  • Mode 2 (Consumption Abroad) -in the territory of one Member to the service consumer of any other Member e.g : an athlete of one country attending a training facility in another country
  • Mode 3 (Commercial presence) – by a service supplier of one Member, through commercial presence, in the territory of any other Member e.g: an investor establishing a sports academy  in another country
  • Mode 4 (Movement  of Natural Persons) – by a service supplier of one Member, through the presence of natural persons of a Member in the territory of any other Member e.g: coaches providing training in another country

If we take Jamaica as a case study of sporting services exports, the country already conducts sporting services exports under Mode 4 as Jamaican coaches coach at overseas universities and training facilities. It also exports under Mode 2 as it hosts international sporting events (sports tourism) and its IAAF-funded High Performance Training Centre provides training for both Jamaican and international athletes. Unfortunately, the value of these services to the Jamaican economy is difficult to measure.

In 2013 the then Government under Prime Minister, Portia Simpson-Miller introduced the Jamaica National Sports Policy which provides a framework for the development of sport in Jamaica includes upgrades to sports infrastructure, improvements in schools’ physical sport infrastructure and tax relief for contributions to amateur sport under the Charitable Organizations (Tax Harmonization) Act 2013 and the Charities Act 2013. Jamaica is known as the Sprint Capital of the World for its prowess in athletics, adding to the strength of Brand Jamaica. This is already reaping benefits and sports is one of the sectors in which Jamaica promotes foreign investment. Besides athletics, Jamaica has also enjoyed international success in cricket, football, netball and bobsled.

Some sports-related investment already exists in the Caribbean such as in the Caribbean (Cricket) Premier League. Sports services trade through mode 3 (commercial presence) is possible through  foreign direct investment in the form of sports academies, colleges and other sports facilities which can generate foreign exchange and direct and indirect employment. However, strong regulatory and monitoring frameworks need to be in place to ensure these meet world anti-doping standards and anti-money laundering laws.

Linkages with other sectors

Sporting services can have strong linkages with, and spill-over benefits for other sectors, such as in manufacturing, health & wellness, education, research & development, and audiovisual services. According to this article in the India Times, Usain Bolt requires brands wishing to feature him in advertising campaigns to film in his home country of Jamaica to allow his country to benefit.

Conclusions

Caribbean countries have produced world-class sporting talent which far exceeds their small physical and economic sizes. There are opportunities to leverage that talent into sports services export opportunities which go beyond simply sports tourism. The current contribution of sporting services trade, such as sports festivals, to Caribbean countries’ GDPs is not being captured and remains undertapped.

One of the reasons for the paucity of data on sporting services internationally is that there is the need for the broadening and refining of the CPC classification of sporting services beyond the four currently recognised sub-classes. Better classification and measurement is needed in order to assess the current value, impact and contribution of sports trade to Caribbean countries. This data would assist in the formulation of evidence-based policies and interventions to promote the development of sports as an export diversification strategy.

The level of development of the sports industry and the policy frameworks and support structures for the development of sport varies by country across the region. Sportpersons benefit under the free movement of skilled labour under the CSME but there is no regional policy for the development of sport as an export. Sports are still not seen as a legitimate career option for many young people due to limited financing opportunities and lack of world-class training facilities in many Caribbean countries.

Alas, however, there has also been progress in the right direction. There has been the introduction of sports degrees at the University of the West Indies campuses which could also attract international students. Several Caribbean countries have introduced national sports policies and have invested in upgrading their sports infrastructure. Some have made sports tourism part of their marketing plan e.g: Barbados hosted the 2014 Top Gear Festival at its newly redeveloped Bushy Park Circuit.

If Caribbean countries are serious about commercialising their sports sectors, it is perhaps time that those countries which had not made any commitments in “sporting and other services” in their GATS schedules of specific commitments to consider taking commitments, while those which have already done so to consider  modifying the quality and number of their existing commitments. There is also the need to explore how Caribbean sports services suppliers can benefit from existing trade agreements like the CARIFORUM-EC Economic Partnership Agreement and from cooperation and funding under bilateral cooperation agreements with third states.

An evidence-based approach would allow the region to determine what incentives and public/private sector support are needed to develop sporting services trade, the human resource, infrastructure and financing constraints  being faced and what additional public and private sector support can be given to regional sportspersons and sporting bodies. In the five Caribbean countries where citizenship by investment is offered, these countries can consider the feasibility of making an investment in sport one of the options of a qualifying investment.

The good news is that while I was conducting my research for this article I stumbled across this document for a consultancy to conduct an assessment of the economic contribution of the sporting sector, especially sports tourism to the CARICOM Single Market and Economy (CSME) and the development of a Draft Regional Strategy for Sporting Services. This is a step in the right direction.

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.

Antigua, Are you ready to Gamble?

Javier Spencer, Guest Contributor 

Javier

Did you know that in 2000, the Antigua and Barbuda’s Online Gaming Industry accounted for 61% of the Global Online Industry?(Global Betting and Gambling Consultants, 2007) This figure declined in 2001 onwards as the United States introduced statutes that limited Antigua’s supply of online gambling services in the US.

The clock has been ticking and the Government of Antigua and Barbuda (Antigua) has now decided to take the necessary actions to retaliate against the United States (US) in its long-simmering case at the World Trade Organization (WTO) (See US Gambling DS285). The US Gambling case is the first case of its kind brought to the WTO in respect of interpreting and applying member states’ commitments under the General Agreement on Trade in Services (GATS). The GATS is a WTO Agreement that emanated from the Uruguay Round of negotiations in January 1995 and much like the General Agreement on Tariffs and Trade (GATT), the GATS’ remit is to substantially reduce barriers to trade within the services sector based on principles of Most Favoured Nation (MFN) and National Treatment (NT).

Background & WTO Findings

Antigua in 2003 filed a complaint to the WTO to challenge domestic legislation in the US that have significantly restricted the ability for service providers of Gambling and betting services in Antigua, to offer their services to customers in the US. The statutes brought into question were: ‘The Wire Act’, ‘The Travel Act’, and the ‘Illegal Gambling Business Act’; all of which Antigua claimed were de facto discriminatory and therefore in breach of the US’ market access commitments (Article XVI (I) GATS). In response, however, the US claimed that it had never made specific GATS commitments on the cross border supply of gambling services and further iterated that the statutes were passed with the main objective of protecting public morals and maintaining public order (Article XIV (a)).

 Much to the surprise of the US, a WTO panel ruled in favour of Antigua in 2004. This ruling was upheld by the Appellate Body in 2005 on the US’ appeal. The ruling found that regardless of the US’ intent to “protect public morals or to maintain public order” the US indeed made specific GATS commitment in respect of the supply of gambling services. Against the backdrop of the chapeau of Article XIV, the US failed to demonstrate that the pieces of legislation did not constitute “arbitrary and unjustifiable discrimination” in respect of the supply of online gaming.

 The US was given the deadline of until April 2006 to amend its legislation to be consistent with WTO law (DSU Article 21.5). Years later, the US has failed to comply with the ruling which prompted Antigua to file an enforcement case at the WTO. Fast forward to 2016 and the U.S. has still failed to comply with the WTO ruling. Therefore the Government of Antigua has recently announced its intention to implement remedies authorised by the WTO.

  The Remedy – Cross Retaliation

In light of the US’ failure to bring its laws in compliance with WTO law, Antigua requested permission to retaliate against the US by suspending obligations under the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). The TRIPS Agreement is another result of the Uruguay Round of negotiations which seeks to “promote effective and adequate protection of intellectual property rights”. Ultimately, of course, the agreement regulates intellectual property rights (IPRs) in a manner that eliminates or reduces any barriers to trade.

Further to Antigua’s request, the WTO granted Antigua (as a compensatory measure) the authorization to retaliate in January 2013. This means that Antigua could withdraw US $21 million worth of concessions in IPRs held by US firms, per annum. This cross retaliation strategy has proven to be the best strategy in getting a developed country to comply with WTO rulings. As a precedent, the WTO granted Ecuador the rights to suspend IPR concession against the European Communities (EC) in EC- Bananas III (See DS27). In the final analysis, Ecuador never suspended its TRIPS obligations, but used it as leverage to quickly negotiate with the EC on a mutually agreed solution. This case signals that suspending IPRs as a retaliatory measure gives developing countries a strengthened negotiating position that will serve as an impetus for the developed country to comply or to quickly negotiate a mutually agreeable settlement.

For Antigua, the cross-retaliation remedy could redound to the greater good of its citizens. For example, pharmaceuticals could be legally produced and distributed in Antigua to fight diseases without paying the remunerations otherwise required under TRIPS.

However, a closer look at the suspension of TRIPS obligations yearns a pertinent question. Does Antigua possess the clout and capacity to retaliate using this method? In order for this remedy to secure a great impact on the U.S., firms in Antigua ought to demonstrate that they have technological capacity for (large scale) domestic production of copies of IPR goods from the U.S. This example is further exacerbated if Antigua’s import of IP goods and services from the U.S. is insignificant.

The suspension of IPRs held by US firms is confined to the borders of Antigua and Barbuda which means that goods that would have been created under the TRIPS suspension regime cannot be exported out of Antigua to any other WTO country. At this juncture, a careful examination of the ‘first sale doctrine’ or ‘international exhaustion’ should be applied.

Additionally, Antigua ought to guard against the risk associated with the authorization to retaliate. For instance, suspending TRIPS obligations may cause Antigua to violate its obligations under the Berne Convention and the Paris Convention. Secondly, the authorisation to suspend TRIPS obligations is only temporary in nature (Article 22.8 DSU), although the authorization set out by the DSB has no time limit to implement. However the broader picture portends that Antigua could only suspend TRIPS obligations until the US has removed or amend laws to become WTO consistent. In this regard, Antigua ought to be mindful of new industries that could emanate from this suspension as it would be highly susceptible to a quick change in US laws. Furthermore, Antigua’s preferences under the Caribbean Basin Economic Recovery Act (CBERA) could be negatively affected as one of the criteria is respect for IPRs.

Conclusion

The US Gambling case is a peculiar case where a WTO ruling has been in favour of the developing country’s complaint against the developed country. In such cases, the authorization of TRIPS obligations as a strategy for a developed country to comply could be highly flawed and wreaks greater havoc for the developing country.  Antigua’s retaliation, as case in point, could be ineffective whereas in comparison to the effect that the US statutes had on the Antiguan economy. There are many risks involved in respect of being in breach of other international treaties. Ultimately, however, the measure is meaningless if developing countries do not have the capacity to implement such an authorization.

After a keen assessment of the economic and political risks associated, what other cards are left for Antigua to play? Perhaps Antigua could consider transferring its rights to suspend its TRIPS obligations to another WTO Member State who has the capacity and the clout to successfully implement such a regime. The uncertainty of the outcome is high as there is no precedent of a developing country who has successfully cross-retaliated through a suspension of their TRIPS obligations. This is truly a gamble and Antigua, are you ready?

Javier Spencer, B.Sc., M.Sc., is an International Business & Trade Professional with a B.Sc. in International Business and a M.Sc. in International Trade Policy. His professional interests include Regional Integration, International Business, Global Diplomacy and International Trade & Development. He may be contacted at javier.spencer at gmail.com.

Anti-trade Populism and its Implications for Developing Countries

Alicia Nicholls

Trade, it seems, is a dirty word these days. It does not take much more than a cursory scan of newspaper headlines to observe the growing prevalence of anti-trade, anti-immigration, anti-globalisation rhetoric which has infused the US Presidential Campaign and which was one of the factors which led 52% of Britons to vote for the UK to withdraw from the European Union.  Coupled with a continued slowdown in global trade growth, the World Trade Organisation (WTO) has recently warned about the “worrying rise in the rate of new trade-restrictive measures” initiated by its members in the review period compared to the previous period. These developments beg the question – what does this growing anti-trade, anti-globalisation populism mean for developing countries, particularly small states in the Caribbean which rely so heavily on trade with major countries to sustain their small open economies?

Why the Anti-trade/Anti-globalisation turn?

Neoliberalism, the philosophic orientation of developed countries which extolled the orthodoxy of the free market and free trade, has dominated mainstream development discourse since the 1980s. During the early 1990s developing countries which underwent structural adjustment programmes under the International Monetary Fund (IMF)  and the World Bank (WB) were forced to adopt market reforms, including trade liberalisation, privatisation and deregulation which were seen as the necessary medicine for an ailing economy. These policy prescriptions came to be known as the “Washington Consensus”.

Neoliberal ideology pushed for the removal of restrictions on not just the flow of goods and services, but also on the flow of people and capital across borders, facilitating greater integration and interdependence among states. Not everyone bought into the ideology. Most Latin American countries resisted for as long as they could. But by the time of the fall of Soviet Union and of the competing communist ideology, it seemed that in the words of Margaret Thatcher “There is no Alternative” to the free market.

To be sure, populist hostility to trade and globalisation in some segments of the developed world is not a novelty. The reader may recall the 1999 anti-globalisation protests at a WTO meeting in Seattle, Washington (US) as an example. However, anti-trade and anti-globalisation populism has attracted support in policy circles in the post-2008 era for several reasons. Some of it is linked, of course, to the usual suspects of xenophobia, nativism and other phobia – the fear that the homeland is being taken over and ruined by foreign products and foreign people, as well as concerns over terrorism. But this only tells part of the story.

The other part is disenchantment with the premise of neoclassical economics that removing the hand of the state in the economy will improve the welfare of consumers, promote efficient allocation of resources and create economic growth. Many no longer view this to be true. First, there is greater public concern in OECD countries over levels of income inequality, wage stagnation and unemployment in spite of liberal economic policies. There is the increasing opinion that the free market and free trade are not working for everyone, with gains being confined to the wealthy and multinational companies.

There is the belief, not entirely justified, that free trade is costing domestic jobs and industry. Across the pond in the UK for instance, a major plank of the Leave platform was based on stopping immigration from poorer European countries which has been blamed for taking UK jobs and threatening the traditional British way of life. In regards to free trade agreements, much of the concern is over what is seen as provisions which restrict governments’ regulatory space in areas such as public health and the environment.  The net result is a strong populist backlash which has reinvigorated the rise of right wing, nationalist parties which advocate closing off borders and erecting barriers and renegotiating free trade agreements, while mainstream parties have also sought to pander to this populist fervour.

To varying extents both major candidates in the US presidential campaign have sought to piggy back on this anti-trade populism by making trade a central part of their campaigns in a way that has not been seen in a US presidential election for a long time. Both candidates have aimed their darts directly at free trade agreements such as the North American Free Trade Agreement (NAFTA) and mega-regional trade agreements (MRTAs) like the Trans-Pacific Partnership Agreement. Both candidates have voiced their desire to renegotiate these agreements. Mr Trump has gone further by promising to impose tariffs on Chinese goods and taxes on American companies which relocate to lower cost jurisdictions, to ban the immigration of Muslims and build a purported Mexico-funded wall along the entire border between the US and Mexico. True to his “Make America Great Again” slogan, Mr. Trump has not only hailed the Brexit vote in the UK as the British people taking back their economy but has noted that it is time for America to do the same.

Implications for Developing Countries

So what does this growing anti-trade/anti-globalisation populism have to do with developing countries like those of the Caribbean? After all, Caribbean countries remain on the periphery of global trade and trade policy discourse. Perhaps, thankfully, the Caribbean has not been mentioned in any of the primary debates or on any of the party platforms.  But while Caribbean countries have not been the centre of the trade world since the days of the slave trade, foreign trade remains central to Caribbean countries’ economic livelihood.

Caribbean countries are largely import-dependent, relying significantly on imported goods, services and capital (especially foreign direct investment). They are also reliant on a narrow range of exports and export markets, rendering them susceptible to any protectionist measures which affect the competitiveness or ease of access of their exports in their major markets. A prime example is the rum issue where US subsidising of rum producers in Puerto Rico and the US Virgin Islands has negatively affected the competitiveness of Caribbean rum in the US market. Many Caribbean countries also benefit from unilateral preferences to the US market under the Caribbean Basin Initiative and the more general, Generalised System of Preferences.  In light of the Republican candidate’s zero-sum approach to trade, buffeted by his assertion that America must win the global competition at all costs, what will be the future of these preferential arrangements, far less, any other trade initiatives which benefit developing countries? Furthermore, any adverse changes in the immigration policies of major western countries will have consequences for the Caribbean diaspora living in those countries.

In this recent television interview, the US Republican Presidential Candidate has also suggested that he might “renegotiate or pull out” the US from the WTO in the event that any WTO member brings a challenge against his trade policy plans. The prospect of the world’s third largest economy (after China and the EU) pulling out of the WTO has frightening implications not just for the future of global trade rule-making but also for the amicable settlement of trade disputes. There are concerns about the effectiveness of the WTO dispute settlement mechanism for safeguarding the rights of small states, particularly in light of the US-Antigua & Barbuda Gambling case where that small island developing states is still awaiting US compensation. Despite this flaw, the current WTO dispute settlement system facilitates predictability and security in the global trade system by allowing states to hold each other accountable for breaches of WTO rules in a manner that is peaceful and with limited disruption to global trade. If the US and other any other states follow suit by withdrawing from the WTO, this will make it even more difficult for developing countries and undermine the rules-based trading system.

On a more global level, countries tend to turn inward during periods of crisis, using a wide range of trade policy tools to protect their markets. In 1930 the US government passed 19 U.S.C. ch. 4, otherwise known as the Tariff Act of 1930 or the Smoot Hawley Tariff Act which imposed prohibitive tariffs which some economists blamed for exacerbating the severity of the Great Depression on the US. The global economy is already underperforming and trade growth remains sluggish, which are not welcomed prospects for countries in the Caribbean whose macroeconomic health depend on that of their major trading partners. Christine Lagarde, Managing Director of the IMF, has warned in an interview with the Financial Times that the imposition of new trade barriers could negatively affect the global economy, echoing the WTO’s position that “Members must individually and collectively resist protectionist pressures”.

Is there a silver lining?

There is another side to this coin. I believe trade, once well managed, is a powerful tool for development as it allows for cheaper sourcing of inputs, provides opportunities for the sharing of ideas, technology and best practices and promotes competition which benefits consumers. However, the free market orthodoxy, which postulated that open markets at all costs were good, and that the lesser regulation the better, is flawed. I am, therefore, heartened that these precepts are under scrutiny in the public discourse in a way that they have not been in a long time. The longstanding orthodoxy was that neoliberalism was the only way to promote development.

Many of the arguments now being made in policy circles are arguments which developing countries, in particular small states, have been making about the folly of unmitigated free trade and instead arguing for fair trade. For instance, developing countries have long argued that the comparative advantage argument has been used as justification to keep them as exporters of primary goods, while denying them the trade policy tools which wealthy industrialised countries used to protect their manufacturing industries in the early stages.

While developed countries were pushing bilateral investment treaties containing provisions which were extraordinarily generous to investors while ripping away governments’ regulatory rights to protect against abuses, developing countries were arguing for greater policy space. Developing countries have also long protested developed countries’ demands to open their markets while developed countries continue to heavily subsidise their own agricultural industries.

I read with much interest the article by former US Treasury Secretary, Lawrence Summers, in the Financial Times calling for a responsible nationalism. He poignantly argues that “international agreements would be judged not by how much is harmonised or by how many barriers are torn down but whether citizens are empowered”. Perhaps I am cynical but my main fear is that while this rhetoric may be music to our ears, it is not clear whether this new enlightenment has a development ethos or whether it is done mainly as a cloak for nationalist and protectionist purposes by developed countries to the prejudice of developing countries. Judging by the rhetoric on the US election trail, the latter sadly seems more to be the case.

However, I will try to end on a positive note as I recall again the immortalised words of Margaret Thatcher. It would appear the learned late Prime Minister was wrong and that there is indeed an alternative. In the post-Great Recession era the green shoots of a new theory of how the global economy should operate appears to be taking shape. This new thinking creates space for developing countries to further challenge the neoliberal orthodoxy which developed countries championed for so long in a way that has hitherto been taboo. Developing countries should resist any form of protectionism which seeks to undermine their development gains, while also continue to add their voices to the debate on how trade can be used not as an end in itself but as a conduit for sustainable development which benefits all countries and all peoples and not just a select few.

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.