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Linking Puerto Rico’s Debt Crisis to the US and the WTO

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Namit Bafna & Shamy Ravishankar (Guest Contributors)

Puerto Rico, an island the US acquired in 1898 after the Spanish-American War, has lived in legal ambiguity with respect to its relationship with America and its statehood. It was recently declared bankrupt and has demanded that the US bail it out. This article explores if such a demand is well–founded, both in logic and in law.

A general reading of Puerto Rico’s history makes such a demand appear to be a prudent call. However, would this be desirable from the WTO law making perspective? Are bailouts allowed under WTO rules? We explore Puerto Rico’s dilemma through international relations and WTO law.

Understanding Puerto Rico’s Debt

Puerto Rico’s debt is a complex one with multiple types of debts; making it harder to negotiate agreements with various investors. Michael Williams, the Attorney who was handling Puerto Rico’s case states that its $123 billion debt is a consequence of years of economic stagnation and bad policy according to writers like Thomas Heath of the Washington Post. There is a serious need for debt restructuring, with investments needed for upgrading the island’s infrastructure (water works, waste management, and electric supply) as well as in boosting the economy.

Investors bought bonds from one of the eighteen authorised Governmental Agencies under the belief that the mainland Government would do everything necessary to prevent such an awful bailout situation from happening. However, the authorised agencies missed payments to the investors. Its cumulative bond debt is $74 billion. Even with an Oversight Board and PROMESA (Puerto Rico Oversight & Economic Sustainability Act of 2015-2016), it remains unclear how a wholescale economic turnaround can be initiated, with not only settling claims with investors (who will undoubtedly require fees for the Government’s defaulting on payments), but also improving the economy. Puerto Rico also requires funding for its pension commitments ($40 billion debt) and for MEDICAID, so that its social security obligations can also be carried out.

The Island has had a terrible recession since 2006, which has only been worsened by questionable policies of its previous Governments by borrowing more and thereby putting the island into greater debt. In addition to this, the current Government’s negotiation attempts with the aforementioned investors have not helped the situation by producing any concessions in the repayment of money owed to these creditors.

At this juncture, it is unfortunate to note that Puerto Rico has been knocking on Washington’s doors for over two years now, requesting more involvement from the mainland. It has been involved in Congressional Committee hearings and submissions before the United States Supreme Court. This invites the question: If any, what is the extent of Washington’s obligations to Puerto Rico, and in particular to this debt crisis? To ascertain this, we must go back in time and establish the exact nature of their relationship.

The US & Puerto Rico’s Relationship

The United States of America (US) has several categories of land holdings that it acquired over time, none of which are considered “Federal States”. These categories include territories (Guam, American Samoa, and US Virgin Islands), Possessions (which includes Baker, Howland, Midway, Wake, Palmyra, Kingman Reef, Jarvis and Johnston, that are all islands), and finally land holdings that are a Commonwealth (Northern Mariana Islands and Puerto Rico). It is to be noted that the Commonwealth category of land holdings are “insular political communities” that have affiliations with the mainland Government of the US. They are above territories in prestige and status but below the level of states. The Possessions and Territories have low levels of political and legal power on account of their fluctuating populations and not desiring self-determination. An another interesting nuance is the fact that the Commonwealth category of nations works with the US Congress and has an established political system that works for both the Congress and the Commonwealth land holding. However where the territories are concerned, the US Congress as more power to impose measures and in effect rule over the populations on the given territory. Citizens of the territories also cannot vote for the members of the Congress.

Over time the offshore territory policy of the US has varied and has even come before the US Supreme Court. In one case (Puerto Rico v. Sanchez) which went into the question of whether or not double jeopardy was applicable to Puerto Rico, the Judges of the Supreme Court had some interesting ideas of what Puerto Rico really was. If it was considered a Federal State then double jeopardy would not apply because federal proceedings could not disallow a state government to try a person for the same crime. If it wasn’t a Federal State then double jeopardy would disallow the person from being tried twice for the same crime (once by the US and once by Puerto Rico). This is because double jeopardy in the US does not apply where the person is being tried by “separate sovereigns” which in this case would be the State Court and the Federal Court. The counsellor for Puerto Rico suggested that it be given “Semi-sovereign status” so as to avoid the political implications of calling it a sovereign and thereby the 51st Federal State of the US, while also ensuring that Puerto Rico would also be able to prosecute Sanchez. Justice Kennedy then sought clarification on whether this would be an “interim sovereignty”? In the end, however, the Supreme Court held that the sources of power for itself and for the Court in Puerto Rico were the US Constitution because Puerto Rico was not a State and therefore the double jeopardy principle did not apply. This meant that the Court in Puerto Rico could not also prosecute Sanchez.

This reasoning is the strongest for the US Congress to allow the bailing out of Puerto Rico. It has had many occasions to either grant freedom to Puerto Rico or to make it the 51st federal state, as the US Constitution empowers the Congress to deal with matters of allowing a new state to be a part of the federation [Article IV. Section 3. Clause 1]. Given the fact that the US has both promised the United Nations to respect Puerto Rico’s sovereignty in 1953 (after allowing Puerto Rico’s Constitution to come into force in 1952), but also never fully allowed it to be a free independent nation, it would suggest that the US wants continued association with Puerto Rico. The fact that on several occasions, the US Government has rejected even the commonwealth status of Puerto Rico, deeming it as merely a territory, also points towards the same conclusion. The US wants these “land holdings” because it clearly benefits from the culture, natural resources and of course the population, who have served in the US military forces. That being said, the US Government does not want to give it full power that a State has. Regarding the bankruptcy bailout, the current US Administration has said it would not extend a helping hand, to what is undoubtedly (based on facts and legal precedent), a US problem.

The US policy on its offshore holdings seems to be one of granting those populations a “second class citizenship” status. It must be noted that when the US conceived the idea of a commonwealth, it was used to mean that the path to self-determination was automatic. This, however, has not taken place for Puerto Rico. Could this be a new twist to an already floundering and ever changing US policy on its offshore land holdings? Could this be the impetus necessary for the Puerto Ricans to demand freedom over their own affairs and formation of a new country that is divorced from the US?

The WTO perspective!

May be yes! But an underlying problem with bailouts would be that it may not be allowed under the WTO norms. Though bailouts are not anything new and the 2008 financial crisis triggered a few bailouts, every forthcoming bankruptcy should push for a clearer stance of the WTO on whether such bailouts would be considered as a subsidy and thus prohibited under SCM? Is it trade distortive under GATS? Is it time to introduce special WTO rules to deal with economic crises; making state actions non-vulnerable from WTO consequences?

The WTO has a well drafted subsidy discipline under the SCM Agreement. Any financial contribution which provides some benefits to an enterprise or an industry would result in a subsidy. Bailouts being sponsored from public money may attract provisions of GATS as they may provide benefit to the bank and its dependent (read “whole economy” of a major bank). As financing of banks would ultimately assist manufacturers, exporters and other players; they may affect other trading partners by creating artificial competitive processes.

However, as banks provide services, a bigger case forms under the GATS; for affecting competition in banking & financial services and making market competitive artificially. This may violate GATS’ obligation of National Treatment, Most Favoured Nation and Anti–Competitive provisions.

Despite its widespread use as a tool for economic reconstruction, no member state of the WTO has challenged bailouts at the WTO. But even if one appears in future, would it be desirable? As financial crises are unavoidable and it is practically impossible to pin down fault to any one entity, group of entities or even a state – bailouts are inevitable. They are required not just to save the bank but the whole economy. Thus, desirability of an “economic crisis exception” in the SCM and/or GATS should be put on table for member states and WTO expert committees before we witness another Puerto Rico-like situation in some other part of the world.

Conclusion

It is unfortunate that today, much after colonialism and colonialist tendencies have lost international relevance, that Puerto Rico’s relationship with the US is still not well-defined in law. However, for the purpose of alleviating this crisis, this article firmly backs considering Puerto Rico to be an integral part of the US; although it may not be necessary to use the terminology of “federal state”. Puerto Rico must be treated for all intents and purposes as a federal state, that entitles them to federal support and involvement, as was granted when Detroit required an $18 million debt restructuring in 2013. This is because, the US still claims Puerto Rico as a land holding, and the US Congress is still empowered under the US Constitution to manage the same. It may have given Puerto Rico some degree of sovereignty but the fact is that the US still has not granted it independence. By the very fact of this lack of independence from US policies and control, Puerto Rico has a right to seek and get aid from the Federal government.

Even if Bankruptcy is declared and the Federal Government pumps money into the Commonwealth, the question of its legality from WTO perspective still remains unresolved. Nevertheless, the bigger question is would bailouts even be challenged at the WTO? As bailouts are used by every member state to safeguard its economy from financial crisis, it is unlikely that it they will be challenged at the WTO, much like the fossil fuel subsidies.

Namit Bafna is a Corporate Lawyer working in Bangalore. His area of interest includes derivatives & trade law. 

Shamy Ravishankar is a 2015 Felix Scholar, now working as a Human Rights Lawyer. Her areas of interest include environmental law, public international law and of course Human Rights Law. Follow her on twitter: @shamy27 or on her blog: https://theworldweknowsite.wordpress.com/

References:

  1. Mark Joseph Stern, Second-Class Sovereignty, Slate (14 Jan., 2016), available at: http://www.slate.com/articles/news_and_politics/supreme_court_dispatches/2016/01/the_supreme_court_considers_puerto_rico_s_sovereignty_in_sanchez_valle.html
  2. Puerto Rico v. Sanchez, https://www.oyez.org/cases/2015/15-108
  3. Puerto Rico Report, The Relationship Between Puerto Rico and the U.S. (27 Feb 2016), available at: http://www.puertoricoreport.com/relationship-puerto-rico-u-s/#.WSAl_uuGPcd
  4. Thomas Heath & Tory Newmyer, Puerto Rico, with $73 billion in debt, forced toward bankruptcy, The Washington Post (3 May 2017), available at: https://www.washingtonpost.com/business/economy/puerto-rico-with-73-billion-in-debt-forced-toward-bankruptcy/2017/05/03/92e39d76-3020-11e7-9534
  5. Jaemin Lee, Beneath the Tip of the Iceberg – Global Financial Crisis, Bank Bailouts and the SCM Agreement, 10 Asian Journal of WTO & International Health Law and Policy (2015)
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Belize undergoes third WTO Trade Policy Review

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Photo credit: Alicia Nicholls 2016

Alicia Nicholls

Belize underwent its third World Trade Organisation (WTO) mandated Trade Policy Review over the period April 24th and 26th, 2017. Trade Policy Reviews are a mandatory exercise under the WTO’s Trade Policy Review Mechanism. Each WTO member country’s national trade and other trade-related policies are peer-reviewed by the Trade Policy Review Body (the WTO General Council acting under special rules and procedures).

The frequency of the reviews depends on the country’s share of world trade. The purpose of the trade policy reviews is to help to ensure transparency of member countries’ trade policies. Belize has previously undergone reviews in 2010 and 2004.

Some key findings from Belize’s 2017 review

These findings were taken from the WTO Secretariat Report and the Chairman’s concluding remarks.

The Report noted that several issues had affected Belize’s economy during the review period, including the decline in oil prices, disease outbreaks affecting its agriculture sector and the impact from the loss of correspondent banking relationships due to the de-risking practices of major global banks.

Areas of praise

Members praised Belize for the following:

 

  • Its diversification into tourism which is now the major driver of the country’s economy, and the adoption of the country’s first National Trade Policy Framework.
  • Belize’s participation in the WTO. Some members also suggested that the country establish a permanent mission in Geneva.
  • Belize was commended  for being among the first Members to ratify the Trade Facilitation Agreement and for having notified its Category A commitments.  Belize also recently established a National Committee on Trade Facilitation
  • Members commended Belize’s efforts to modernize its trade regime and customs procedures.
  • Reduction by half of the number of products subject to import licensing, but some members noted that this was followed by tariffication, resulting in some applied MFN tariffs exceeding their bound rates.
  • Noting Belize’s membership of the Caribbean Community (CARICOM), Members encouraged Belize to continue engagement in regional integration and trade liberalization schemes.
  • Belize was commended for its acceptance of the Protocol amending the TRIPS Agreement; while some Members encouraged Belize to join the WIPO treaties.
  • The establishment of Belize’s first Internet Exchange Point to reduce the costs of local internet traffic.
  • Members acknowledged the recent reforms to Belize’s financial services regulatory framework.
  • Some Members welcomed Belize’s efforts to improve its air transport infrastructure and air links, and encouraged Belize to replicate such efforts to enhance land and maritime transport.

Areas of concern

  • Members, however, were concerned that Belize had not submitted notifications in a number of areas, and urged for compliance with the WTO requirements.
  • Several Members highlighted Belize’s three incentive programmes granting export subsidies which should have been eliminated by 31 December 2015. However, they acknowledged Belize’s ongoing efforts to amend the relevant legislation.

As noted by the Chairman, Belize was commended for providing prompt and helpful answers to all written questions submitted in advance by members, as well as to all that came after the deadline.

Belize is the fourth WTO member country to undergo review so far for the year, following Sierra Leone, Japan and Mexico. The other CARICOM member state to be reviewed this year is Jamaica which will undergo its review on September 13 & 15.

The documents from Belize’s review, including the full WTO Secretariat Report and the Chairman’s Concluding Statement, may be viewed 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.

Caribbean Trade & Development Digest – April 23-29, 2017

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Source: Pixabay

Welcome to the Caribbean Trade and Development Digest for the week of April 23-29, 2017! We are pleased to share some of the major trade and development headlines and analysis across the Caribbean region and the World.

We do apologise for the lack of a Digest for the past two weeks due to my travelling. It has been an interesting two weeks in world trade, with the US imposing tariffs on Canadian softwood lumber imports and the EU releasing its Guidelines for the Brexit Negotiations with the UK pursuant to Article 50. On the home front, Belize has concluded its third World Trade Organisation (WTO) Trade Policy Review. And that’s just the tip of the iceberg! We hope you enjoy this edition.

REGIONAL NEWS

Belize has concluded its third WTO trade policy review

WTO: The third review of the trade policies and practices of Belize takes place on 24 and 26 April 2017. The basis for the review is a report by the WTO Secretariat and a report by the Government of Belize. Read more

US and region deepen security ties

Nation News: The United States has pledged its commitment to deepening its cooperation with the Caribbean region to combat all threats. Read more

Barbados Hotel occupancies drop during the first quarter

BarbadosToday: Against the backdrop of a fall in hotel occupancies and weak returns on hotel room rates during the first quarter of this year, Chairman of the Barbados Hotel and Tourism Association (BHTA) Roseanne Myers Wednesday disclosed that travel agents from source markets were reporting that some repeat visitors were opting not to travel in winter because they were waiting for “when the rates are a little better”. Read more

Hopes for Caribbean Trade Boost

Business Authority: Local exporters, and their Caribbean counterparts, stand to benefit now that a major international trade agreement has come into force.  Read more

Barbados records significant rum trade with Europe

Jamaica Observer: Barbados has exported BDS$89.9 million (US$44.95 million) in rum products to the European Union over a four year period, Commerce Minister Donville Inniss has said. Read more

Barbadian Rum producers fear results of French election

BarbadosToday: Barbadian rum producers are keeping a close eye on the French presidential run-off election scheduled for May 7, fearing the results could hurt the local industry. Read more

Gopee-Scoon talks trade with local high commissioner and ambassador

Loop Trinidad: Trade and Industry Minister Paula Gopee-Scoon met with the High Commissioner-designate to the United Kingdom Orville London and Ambassador-designate to Costa Rica Tracey Davidson –Celestine on Wednesday. Read more

Sector leader sees improved trade relations with Trinidad & Tobago

Jamaica Gleaner: President of the Jamaica Manufacturers’ Association (JMA) Metry Seaga says his organisation has received fewer complaints from local manufacturers about unfair trade practices by their Trinidadian counterparts. Read more

We will do everything to keep GuySuCo alive – says Granger

Stabroek: President David Granger said today that his government will do everything possible to keep the sugar industry alive. Read more

Guyana considers Suriname’s gold export model

Demerara Waves: Guyana’s recent foreign currency shortage appears to have caused government to consider adopting Suriname’s model to ensure that more earnings from gold sales goes directly to the national treasury. Read more

Granger names three sugar estates to be retained

Demerara Waves: President David Granger has named at least three sugar estates that will be retained as part of a restructured Guyana Sugar Corporation. Read more

INTERNATIONAL NEWS

European Council Releases (Article 50) Guidelines

EU: The European Council has released its guidelines for the upcoming Article 50 Brexit negotiations with the UK. Read more

Africa and China trade is booming

BusinessReport: China remained Africa’s biggest trading partner as bilateral economic relations boomed, said Jiang Zengwei, head of the China Council for the Promotion of International Trade. Read more

US imposing 20 percent tariff on Canadian softwood lumber

CNBC: U.S. Commerce Secretary Wilbur Ross said on Monday his agency will impose new anti-subsidy tariffs averaging 20 percent on Canadian softwood lumber imports, a move that escalates a long-running trade dispute between the two countries. Read more

US lumber tariffs hit B.C. manufacturers hard

CBC Canada: New softwood lumber tariffs being imposed by the U.S. are already cutting deep into B.C. businesses. Read more

DG Azevedo: Global trade challenges are best tackled through the multilateral system

WTO: The WTO should seek to bolster global economic cooperation in order to leave a strong and well-functioning trading system for future generations, said Director-General Roberto Azevêdo. Read more

Downgrades depress South African exports and trade

BusinessReport: Recent credit downgrades by Standard and Poor’s (S&P) and Fitch have put more pressure on South African exports and international trade. Read more

WTO issues panel report on Chinese cellulose pulp duties

WTO: On 25 April 2017 the WTO issued the panel report in the case brought by Canada in “China – Anti-Dumping Measures on Imports of Cellulose Pulp from Canada” (DS483). Read more

Arbitrator issues decision in Mexico-US tuna dispute

WTO: On 25 April, a WTO arbitrator issued a decision on the level of retaliation that Mexico can request in its dispute with the United States over US “dolphin safe” labelling requirements for tuna products (DS381). Read more

ACP: One billion people to speak to Europe with one voice

The Southern Times: Seventy-nine countries from Africa, the Caribbean and the Pacific, which are home to around one billion people, will speak with one voice as they prepare to negotiate a major partnership agreement with the European Union (500 million inhabitants) in May. Read more

EU tells May: Give our citizens their rights or no trade talks

The Guardian: The EU has called on Theresa May to provide immediate “serious and real” guarantees to its citizens living in Britain. Read more

Some important clarifications on the EPA

The Guardian: All of the ECOWAS countries, apart from Nigeria and the Gambia, have to date signed the EU-West Africa Economic Partnership Agreement (EPA). The EPA may enter into force only if all ECOWAS member states sign and if at least two thirds ratify the agreement. Read more

Examining Trump’s record on trade

NPR: When the president speaks the world listens. Adam Behsudi of Politico talks with NPR’s Scott Simon about how Donald Trump’s outspoken commentary is affecting international trade with the U.S. Read more

Trump on trade: Scrutinise NAFTA, other deals for abuses

Politico: President Donald Trump’s latest executive order on trade calls for review of all U.S. free trade agreements — including NAFTA and the World Trade Organization pact — and possible renegotiation of any deal to eliminate “violations and abuses,” Commerce Secretary Wilbur Ross said Friday. Read more

Difficult trade-offs necessary for RCEP to be worthwhile: PM Lee Hsien Loong

Strait Times: Asean is keen to conclude a region-wide trade agreement with its key partners, but the pact must have substance to be worthwhile, said Prime Minister Lee Hsien Loong on Saturday (April 29). Read more

Southeast Asia prioritises trade pact including China

Channel News Asia: Southeast Asian countries will prioritise creating an Asia-focused trade pact this year that includes China, India and Japan, while trade issues with the United States will be put on the back burner, the Philippine trade minister said. Read more

Mwagiru: Durban forum expected to focus on intra-Africa trade

Daily Nation: Wary of the perils of depending on reluctant donors for its survival, Africa is on a quiet quest for self-reliance and intra-regional cooperation. These are among the themes that will feature at the three-day World Economic Forum that opens in Durban, South Africa, on Wednesday. Read more

CTLD NEWS

IMG-20170428-WA0014

Alicia Nicholls presenting her paper at the SALISES Conference, Trinidad.

Alicia Nicholls presented a paper at the 18th Annual SALISES Conference 2017, a major academic conference organised annually by the University of the West Indies (UWI). The Conference was hosted this year by the Trinidad (St. Augustine Campus) at the Hyatt-Regency Hotel in Port of Spain, Trinidad & Tobago.

Alicia’s paper is a work in progress and is entitled “Economic Citizenship and Freedom of Movement of the Caribbean Community National: An Irreconcilable Tension?”.

The theme of this year’s conference was “Small Nations, Dislocations, Transformations: Sustainable Development in SIDS” and was held over the period April 26-28, 2017.

For more CTLD News see News & Announcements

NEW ON CTLD BLOG

French Election 2017: What’s at stake for the world and the Caribbean?

The Trump Presidency – Implications and Opportunities for Caribbean IFCs

PM May calls snap election: Pros and Cons

Liked this issue? Read past issues of our weekly Caribbean Trade & Development Digest, please visit here. To receive these mailings directly to your inbox, please follow our blog.

Why the proposed US fee on remittance outflows to LAC makes no sense

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Alicia Nicholls

The cost of sending remittances from the US to some Latin American and Caribbean countries and dependencies will increase should HR 1813 introduced in the United States (US) House of Representatives on March 30, 2017, be passed. The proposed Bill entitled the “Border Wall Funding Act of 2017”, would amend the Electronic Fund Transfer Act by imposing a two percent fee on the US dollar value of remittances (before any remittance transfer fees) on the countries listed. The bill is sponsored by Representative Mike Rogers, a Republican from Alabama’s third district.

One of President Donald Trump’s most controversial campaign promises was to build a wall along the US’ southern border, which he claimed would be paid for by the Government of Mexico, to deter illegal immigration. The Government of Mexico has consistently and strongly denied that its taxpayers would be paying for the wall. As a result Republican lawmakers have been seeking ways to fund the wall without relying on the US taxpayer. Instead, should this bill become law, it will raise money for the wall on the backs of hardworking Caribbean and Latin American immigrants living in the US, some of which are actually US citizens.

Here are some few reasons why I, respectfully, believe the proposed fee makes no sense:

  1. The wall will still be paid for by some US taxpayers

The two percent fee is to be imposed on the sender of any remittances sent to recipients in the countries identified. Ironically, it would still be funded by some US taxpayers as some remittance senders are either US-born or have acquired US citizenship or have greencard status. Data from the 2015 American Community Survey show that there are an estimated 4 million Caribbean-born immigrants living in the US. Some 58.4% of those became naturalised US citizens, while 41.6% are not yet US citizens according to US Census Bureau 2016 data.

2. The list of ‘foreign countries’ excludes some of the largest sources of illegal immigrants to the US

The affected  countries would be: Mexico, Guatemala, Belize, Cuba, the Cayman Islands, Haiti, the Dominican Republic, the Bahamas, Turks and Caicos, Jamaica, El Salvador, Honduras, Nicaragua, Costa Rica, Panama, Colombia, Venezuela, Aruba, Curacao, the British Virgin Islands, Anguilla, Antigua and Barbuda, Saint Kitts and Nevis, Montserrat, Guadeloupe, Dominica, Martinique, Saint Lucia, Saint Vincent and the Grenadines, Barbados, Grenada, Guyana, Suriname, French Guiana, Ecuador, Peru, Brazil, Bolivia, Chile, Paraguay, Uruguay, and Argentina.

This arbitrarily drawn up list raises two main questions. (1) Why were Caribbean countries included in this list? The Caribbean sub-region as a whole only accounts for 2% of the illegal immigrant population in the US, according to Migration Policy Institute analyses. (2) Why were only countries from the Americas targeted when several Asian countries, like China for example, rank among the top sources of illegal immigrants to the US?

3. It is unlikely to raise enough money to pay for the border wall

It is unlikely that the two percent fee will raise enough money to pay for a wall which is estimated by a leaked memo from the US Department of Homeland Security to cost some 21.6 billion dollars, particularly if the monies will be raised mainly on the back of remittances sent to small Central American and Caribbean countries. Moreover, despite the threat of penalties, people will inevitably find ways to evade the fee by increasing their use of informal channels for sending remittances.

4. It could destabilise the US’ backyard which is contrary to US strategic homeland security interests.

With many of the region’s economies already threatened by de-risking, elevated debt levels and high unemployment, this proposed Bill is another worrying development. Although I do not believe the fee will stop the US-based Caribbean diaspora from remitting money to their loved ones, it may make it more difficult for them to do so as frequently as they normally do, which could have social and economic implications for the most remittance-dependent economies.

The Caribbean diaspora community in the US is an important source of remittance flows to the Region. According to a World Bank Migration and Development Brief released this month, stronger US job growth and a stronger US dollar were major reasons why the LAC Region was the only region to register an increase (6.9 percent) in remittance flows, with a total of $73 billion inflows in 2016. This is in contrast to the global landscape where remittances to developing countries in 2016 declined for the second consecutive year in a row.

Haiti and Honduras are the two most remittance dependent countries in the LAC Region and rank among the most remittance-dependent economies in the world, among countries for which data are available. Data provided in the previously mentioned World Bank Report show that in 2016 remittance inflows were equivalent to 27.8% of GDP for Haiti, 18.4% of GDP for Honduras, 17.6% of GDP for Jamaica, 17.2% of GDP for El Salvador,  and 8.6% of GDP for Guyana. For Belize it was 5% and Dominica, 4.6% of GDP.

A 2010 Report released by the Bank of Jamaica entitled “Remittances to Jamaica: Findings from a National Survey of Remittance Recipients” revealed that “more than half of the remittances sent back to Jamaica come from the US” and found that “remittances are an essential source of financing to many Jamaican recipients, which is used to supplement household income for necessities such as food, utilities and education”.

Successive US administrations have generally recognised that an economically and socially stable Caribbean region was in the US’ strategic homeland security interests. This is why the US government through its various economic and military aid programmes has poured millions of dollars into assisting Caribbean countries on issues such as crime, border security, among other things.

Besides the hardship that could be caused at the micro-level, a reduction in remittance inflows due to higher costs could have poverty alleviation and crime reduction implications and could have a destabilising effect on those economies and societies which are the most dependent on them. The same Bank of Jamaica report noted that “remittances to Jamaica have become an important source of foreign exchange and balance of payments support”.

Due to the paucity of official remittance data for many Caribbean countries, the importance of remittances to LAC economies is still underestimated and its micro and macro-economic importance to Caribbean economies is likely higher than currently measured.

How should we respond?

The bill has been referred to the House Subcommittee on Crime, Terrorism, Homeland Security and Investigations on April 21, 2017 and will need to be debated and passed by both chambers of Congress before being sent to the President for signature into law.

Latin American and Caribbean governments, along with their diplomatic representatives and the diaspora, should lobby against the passage of this bill by engaging in discussions with Congressional and other officials on the serious economic and social impact any potentially significant decline in remittance inflows could have on remittance-dependent countries in the Region, and the spin-off negative effect this could have on the US homeland.

To view the text of the proposed Bill, please see 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.

French Election 2017: What’s at stake for the world and the Caribbean?

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Alicia Nicholls

The results of the first round of voting in the two-round French presidential elections are in! Pro-EU businessman Emmanuel Macron and far-right candidate Marine Le Pen are the two candidates who will face off in the second/final round of voting within a fortnight.

French presidential elections do not normally attract this much fanfare internationally, but the results of the first round of the 2017 race are interesting for two main reasons. The first is that there is a 50% chance that there could be a Le Pen presidency which would add to a growing string of political upsets globally. The second is that neither candidate is from the mainstream political parties in France, a firm rejection by the French people of the entrenched political establishment, not unlike what occurred in the US with the election of Donald Trump.

France has a two-ballot presidential election system which means that in the event of no one candidate winning over 50% of the votes in the first ballot, the two front-runners  have to face off against each other in a second ballot. As of the time of this article’s writing, Emmanuel Macron is estimated to have won this first run-off with  23.9% of the vote, while Ms. Le Pen came second with 21.4%, beating the other candidates.

France at the moment is facing lacklustre GDP growth, high unemployment, high debt and an increase in high-profile and deadly terrorist attacks, which means the anti-establishment, anti-business as usual mood comes as no surprise. Incumbent President, Francois Hollande, currently faces low approval ratings and has decided not to seek a second term.

The Two Candidates

While Macron and Le Pen are ‘outsiders’ from the political mainstream, the two candidates represent two diammetrically opposed worldviews. Emmanuel Macron is a former investment banker who has never held elected office, but had worked for Mr. Francois Hollande during the 2012 Presidential Election campaign. He also subsequently served as Minister of Economy, Industry and Digital Affairs under then Prime Minister Manuel Valls in 2014 until August 2016. Mr. Macron founded his own party En Marche!  in April 2016 which currently has 253,907 members, according to the Party’s official website. The centrist Mr. Macron is pro- Europe, socially liberal and believes that France’s prosperity can be ensured through pursuing pro-trade and outward-looking policies and through continued membership in the EU.

Marine Le Pen is a lawyer, a Member of the European Parliament since 2009 and the leader of the populist Front National, a far-right party which had been on the dark fringes of French politics until recently.  She is the daughter of Front National co-founder, Jean Marie Le Pen, a far-right ethno-nationalist.  She sought to distance herself from some of her father’s most extreme views as she sought to broaden the Party’s appeal, and succeeded in having him ousted from the party. Ms. Le Pen, however, has strongly anti-immigrant, anti-EU views and has expressed enthusiastic support of both Brexit in the UK and the election of Donald Trump in the US.

The polarity in the views of the two candidates means that the election of either will have completely opposite global implications.

What’s at stake with the French presidential election?

Although polls are showing a Macron victory, Le Pen still has a chance of winning the final run-off on May 7. A Le Pen victory on May 7th would be the continuation of a nationalist, inward-looking turn in advanced western economies, with both economic and geopolitical implications. Domestically, she has indicated her intention to pursue protectionist economic policies and champion anti-immigration reforms. She is anti-globalisation and anti-free trade. She has vowed that she would pull France from the EU and the eurozone, and the North Atlantic Treaty Organisation (NATO). She has voiced her intention to strengthen relations with Russia and had forcefully condemned the EU decision to extend its sanctions on Russia until mid-2017.

In their forecasts for the global economy and world trade respectively, both the International Monetary Fund (IMF) and the World Trade Organisation (WTO) have forecast higher growth rates but noted the vulnerability of the forecast growth to trade, monetary and other policies pursued by governments. IMF Managing Director, Christine Legarde (who is a former French Minister of Finance) has been reported as stating that a Le Pen presidency could lead to political and economic upheaval.

First, France is the 6th largest economy in the world. A founding member of the EU, it is also the eurozone’s second largest economy. A more isolationist France would impact on the global economy and have implications for western approaches to current global threats and a reshaping of global alliances. Moreover, a French withdrawal from the EU (termed ‘Frexit’), coming on the heels of the UK’s withdrawal from same, could plunge the EU into an existential crisis more so than Brexit would.

Any implications of the French election for the Caribbean?

Will there be any implications of a possible Le Pen presidency for the Caribbean? The specifics of Ms. Le Pen’s policies are still not fleshed out. However, a French withdrawal from the EU would reduce the amount of EU development assistance which the region currently receives under the European Development Fund (EDF).

But what about trade? Thanks to the Economic Partnership Agreement (EPA) signed between the EU and CARIFORUM in 2008, the countries which make up CARIFORUM (CARICOM plus the Dominican Republic) currently enjoy preferential market access for their goods and services to the EU market, including to the French market (and to French Caribbean Outermost Regions, by extension).

However, should France leave the EU, it would no longer be a party to the EPA. On its own, the lack of preferential access to the French market would be unlikely to have any significant economic impact on the anglophone Caribbean trade-wise as the volume of trade between English-speaking Caribbean countries and metropolitan France is limited.

There are, however, small but growing trade links between some CARICOM countries) and the FCORs, which are Martinique, Guadeloupe and French Guiana. Martinique, for example, is one of the most important source markets for tourists to St. Lucia. While there are issues which have inhibited greater CARIFORUM trade with FCORs including the language barrier and the ‘octroi de mer’ (dock dues) charged on all imports into FCORs (despite the EPA), the FCORs are also seen as stepping stones for exporting to continental Europe using the EPA. A French withdrawal from the EU if Ms. Le Pen wins means the latter will not be possible.

It is the democratic right of the French populace to choose which of the two candidates is in their country’s best interests. However, given France’s economic and geopolitical importance globally, and the political upsets of late, the results of the final round on May 7 will reverberate far beyond its borders.

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.

The Trump Presidency – Implications and Opportunities for Caribbean IFCs

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Alicia Nicholls

On March 31, 2017 I was a panellist representing FRANHENDY ATTORNEYS at the Barbados International Business Association (BIBA) Barbados International Business Forum 2017 entitled “Is the Barbados International Business Sector Under Attack?” held at the Lloyd Erskine Sandiford Centre in Barbados.

I was on the second panel which discussed the topic “The Trump Presidency – Implications and Opportunities for IFCs“. My esteemed fellow panellists were Jeremy Stephen, Economist and UWI Lecturer, Lisa Cummins, Executive Director of UWIConsulting and Cadian Dummond, Attorney at Law. The discussion was expertly moderated by Melanie Jones, Partner at Lex Caribbean Attorneys-At-Law.

I spoke to the possible implications of the Trump Presidency in regards to de-risking, FATCA and visa restrictions.

For those who missed the panel discussion and have expressed interest in my remarks, please find a copy of same in powerpoint form here. Enjoy!

For more on past presentations I have done, please see news and announcements.

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.

 

 

PM May calls snap election: Pros and Cons

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Alicia Nicholls

United Kingdom (UK) Prime Minister, Theresa May, has today ‘reluctantly’ announced that Britons could be going to the polls in a general election on June 8, 2017, three years shy of the due date of May 2020.

The UK has a parliamentary system of government. Since 2011, parliamentary elections are fixed for every five years pursuant to the Fixed-Term Parliaments Act. However, early general parliamentary elections may be called before the five year period, inter alia, where two-thirds of the House of Commons (including vacant seats) vote in favour of same. In the UK parliamentary system (also known as the ‘Westminster System’) and in most British-inherited parliamentary systems like those in the Caribbean, the Prime Minister is not directly elected. In practice, though, it is the person who leads the party which wins the majority of seats in the House of Commons who becomes the Prime Minister.

The announcement of an early poll is surprising for two main reasons (1) it comes after months of denials by Mrs. May that she would be calling an early election, and (2) it also comes less than a month after the May Government made the UK’s notification under Article 50 of the Treaty on European Union (Lisbon Treaty) of its intention to withdraw from the EU.

Pros

So what are the upsides? Firstly, it is likely that in light of the disarray of the Jeremy Corbyn-led Labour Party, the Prime Minister is anticipating a stronger Conservative working majority in Parliament, reducing the likelihood of the final Brexit deal being voted against.

The Tories currently have a 17-seat working government majority in the House of Commons following the 2015 poll, which is a slim majority when one considers that there is a total of 650 seats in the House of Commons. After all, what Prime Minister would not want a more comfortable majority at home when facing difficult negotiations with the EU for the next (at least) two years? Prime Minister May said as much in her statement when she noted that “Division in Westminster will risk our ability to make a success of Brexit and it will cause damaging uncertainty and instability to the country”, and warned that “If we do not hold a general election now, [Opposition Party] political game-playing will continue.”

Polls already show a Tory sweep, but let us also remember polls had predicted a “No” win in the Brexit referendum.

Secondly, it should be recalled that Mrs. May became Prime Minister in July 2016 not through leading the party in a general election, but after then Prime Minister David Cameron resigned following his Brexit defeat.  If Mrs May leads the Conservative Party to victory in the June 8, 2017 poll, she would have:

(i) won a ‘direct mandate’ from the British people to pursue her own domestic agenda, which frees her from pursuing some of the policies promised by the then Cameron-led government.

(ii) This mandate, she would hope, would help quell the dissenting factions in her own party who disagree with her handling of Brexit thus far.

(ii) She would not be legally required to call another general election until June 2022, by which time the messiness of Brexit would be largely past (hopefully). Recall that Brexit negotiations could be extended up to 4 years, at which time the May Government would not wish to negotiating a final deal with the EU-27 while having to worry about an election at home which could be lost due to an unpopular final deal.

A third pro is likely economic. Although predictions of a British recession following the Brexit vote have not come to past, there is no telling what would happen to the British economy once the Brexit negotiations are underway. It makes more sense for Mrs. May to seek an election now than wait until things take a turn for the negative.

Cons

Firstly, on the flipside, calling a snap election after having made the Brexit notification and ahead of the negotiations with the Europeans risks adding even more uncertainty to an already uncertain political climate.

Secondly, although polls favour a Tory win, what happens if the polls are wrong and the Tories lose to an anti-Brexit Labour?  Or what if Labour and the Liberal Democrats expand their number of seats, further reducing the already slim Tory majority?

Thirdly, she risks dealing with ‘voter fatigue’.

Calling the election at this time is a risky move but one, which like all high risks, could have big rewards if the May-led Tories win and expand their mandate. In anticipation of a Tory win, markets took the news of the snap election quite enthusiastically. Sterling appreciated  against the US dollar to 1.26. However, it is also potentially a big gamble and the decision to hold the poll after triggering Article 50 is curious. It will be up to British voters to decide whether to reward or reject the gamble.

What is next?

When the House of Commons meets, they will need to deliberate and vote (as required under the Fixed-Term Parliaments Act) on whether they are in favour of an early election. A two-thirds majority will be needed. For his part, Labour leader Mr. Corbyn has supported the decision to go to the polls in his statement released on his official Facebook page following the Prime Minister’s announcement.

For Prime Minister May’s full statement, please see 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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