Category Archives: CBI

Golding Commission concerned about Caribbean Citizenship by Investment Programmes

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Alicia Nicholls

The CARICOM Review Commission, whose report was tabled in the Jamaica Parliament last week, has expressed concern about the administration of Citizenship by Investment programmes (CIPs) currently operated by five CARICOM Member States, and has called for the establishment of a CARICOM framework agreement on their operation.

CIPs were among the many diverse issues examined by the Commission whose mandate was to review Jamaica’s relations within CARICOM and CARIFORUM. CIPs are currently operated by five CARICOM Member States: namely, Antigua & Barbuda,  Dominica, Grenada, St. Kitts & Nevis and St. Lucia, and have been the subject of much scrutiny regionally and internationally.

Though recognising the economic importance of CIPs to these countries, the Commission, chaired by former Jamaica Prime Minister Bruce Golding, raised several issues with their current administration:

  • The programmes are driven more by short-term revenue benefits than long term investment gains
  • The lack of a minimum period of residency
  • The lack of a regional agreement on the operation of such programmes, especially given the national security and other implications for non-CIP operating CARICOM territories
  • While referrals to the CARICOM Implementing Agency for Crime and Security (IMPACS) are made, the State is not obligated to accept the advice of IMPACS
  • Concerns raised by third States (namely the US and Canada) about Caribbean CIPs and the fact that two CIP-operating Member States (St. Kitts & Nevis and Antigua & Barbuda) have already lost visa-free access to Canada due to these concerns
  • Cases of persons granted citizenship under these programmes who were later found to be less than savoury characters
  • The risks to the Community in light of ever more sophisticated trans-national crime
  • The alleged issuance of diplomatic passports to some new citizens
  • Varying due diligence procedures used by CIP-operating Member States

As such, one of the thirty-three recommendations made by the Commission in its Report is for the establishment of “an agreed framework with appropriate protocols and safeguards regarding the terms, conditions, qualifications and restrictions in relation to the operation of Citizenship by Investment programmes including prior consultations or sharing of information with other Member States”.

The full report of the Golding Commission may be viewed here.

Alicia Nicholls, B.Sc., M.Sc., LL.B., is an international 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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IMF Staff Recommend St Lucia CIP Revenues be used Primarily to Reduce Debt

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Alicia Nicholls

In the  Concluding Statement of their 2017 Article IV Mission to St. Lucia released February 6, 2017, International Monetary Fund (IMF) Staff recommended that revenues from the island’s Citizenship by Investment Programme (CIP)  be used primarily to reduce the island’s high public debt and that limits  be placed on the amount of CIP revenues used to finance high-priority expenditure. The recommendations were based on a country mission undertaken by IMF Staff during January 16-27, 2017 pursuant to Article IV of the IMF’s Articles of Agreement. The IMF’s Concluding Statement outlines the preliminary findings made by IMF Staff during their mission.

In their commentary on St. Lucia’s macroeconomic performance, IMF Staff noted that although tourism activity was weak,  unemployment continued to fall. The Staff highlighted the economic reforms programme currently in the process of being rolled out by the Government. The Staff expect positive but moderate short-term growth. However, they cautioned that the island’s high public debt, which currently stands at 82% of GDP, and its “delicate fiscal situation”, require prompt attention. They also made suggestions on how the fiscal package  announced could better achieve its targets.

St. Lucia’s CIP

In January 2016, St. Lucia became the fifth Caribbean country to offer a CIP as an alternative tool for attracting foreign direct investment (FDI), joining fellow Caribbean CIP countries: Antigua & Barbuda, Dominica, Grenada and St. Kitts & Nevis. St. Lucia’s CIP offers four investment options: a monetary contribution to the National Economic Fund (NEF), a real estate investment, a Government bond investment or an Enterprise Project Investment, with qualifying investment amounts set for each type of investment. In an effort to add exclusivity to the programme, the number of applications which could be approved by the Board had been capped at 500.

This was the IMF Staff’s first Article IV country mission to St. Lucia since the CIP’s first full year in operation. In their 2017 Concluding Statement, the IMF staff noted that the island received “relatively few applications in 2016” and that “the [St Lucian] authorities expect that the recent easing in the requirements and lowering of the costs to qualify for this program will encourage an increase in revenues.”

Changes to St. Lucia’s CIP Regulations – 2017 

Effective January 1, 2017, an Amendment to the Citizenship by Investment Regulations No. 89 of 2015  introduced several sweeping changes to St. Lucia’s CIP in an effort to boost its competitiveness. This includes, inter alia, a reduction in the qualifying contributions required, making it the most affordable programme in the Caribbean and the removal of the 500-application cap. A summary of the regulatory changes may be found on CIP St. Lucia’s website here.

However, while the Government’s desire to make its CIP more competitive is understandable, some have legitimately argued that these changes may undermine the programme’s exclusivity and may lead to a “race to the bottom” in terms of competition on price and ease of accessibility among Caribbean CIPs. Indeed, with the number of CIPs in the Caribbean now at five and several other countries around the world also offering CIPs or some form of immigrant investor programme, Caribbean CIPs face stiff competition both inter se and abroad.

As such, as I have argued before, increased cooperation among Caribbean CIP countries will be needed to ensure that high standards are maintained and that countries do not undercut each other in terms of price and robustness of their programmes. There seems to be some support for the need for greater cooperation, as St. Lucia’s Prime Minister, Allen Chastanet, earlier this year called for a joint OECS approach to CIPs.

Moreover, while I strongly believe that CIPs can be legitimate tools for development once managed well through raising revenue, encouraging FDI, infrastructural development, job creation and attracting  High Net Worth Individuals (HNWIs), they should be used as an adjunct and not the main propeller for economic growth and development.

IMF Recommendations

In the Concluding Statement, the IMF Staff made several recommendations aimed at minimising St. Lucia’s risk of fiscal dependence on its CIP revenues, which can be volatile, and to reduce the impact of the global rise in interest rates. These recommendations included:

  • Using CIP revenues primarily to reduce the high debt.
  • Using a capped amount of CIP revenue for investment projects of primary importance
  • The importance of “transparency, appropriate governance, and careful due diligence” to reduce risks of sudden stops in CIP revenue inflows.

More detailed information will be known when the full Staff Report is produced and released at a later date.

The full IMF Staff 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.

Citizenship by Investment receipts help power economic recovery in Eastern Caribbean Countries

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Alicia Nicholls

Receipts from citizenship by investment programmes (CIPs) continue to be a major contributor to economic recovery in the Eastern Caribbean Currency Union (ECCU). This is according to the International Monetary Fund’s latest Staff Report on the ECCU released this month (October 2016).

CIPs have been an important development tool in Eastern Caribbean countries. In January 2016 St. Lucia became the 5th ECCU country to institute a CIP. The other ECCU countries which run CIPs are St. Kitts & Nevis, Grenada, Dominica and Antigua & Barbuda.

According to the IMF, most ECCU governments continued to rely on CIP inflows to fund their budgets in 2015. CIP inflows were highest in St. Kitts and Nevis, which has the world’s longest running CIP. In that country, CIP revenues to the public sector were at 17.4 percent of GDP. The report also noted that inflows reached 7.9 percent of GDP in 2015 in Antigua and Barbuda and 3.6 percent in Dominica.

However, the IMF did mention several potential downsides to the sustainability of the CIPs, including the increased competition ECCU CIPs face not only amongst themselves but from other CIPs and residency programmes worldwide, including Malta’s. Other risks the IMF mentioned include rising global migration pressures, elevated security concerns and geopolitical tensions which may trigger adverse actions by the international community, including suspension of visa-free travel for citizens of CIP countries.

In order to improve the sustainability of the programmes, the IMF also encouraged authorities to “develop a strong, regionally accepted set of principles and guidelines for citizenship by investment programs in order to enhance their sustainability” The staff suggested that the authorities share due diligence information on clients to prevent citizenship shopping in cases where an application is rejected by one jurisdiction.

The IMF cited the need to improve the management of the programmes and cautioned against over-reliance on CPI revenues for funding recurrent budgetary operations. Mindful of the threat posed by natural disasters, the IMF posited that CIP countries save the bulk of the CPI revenues in a well-managed fund to address natural disaster shocks and to fund disaster resilient infrastructure.

Arguing that a comprehensive governance framework is crucial to mitigating increased risks facing CIPs, IMF also recommended more transparency by making data on the programmes public and subject to financial audits.

The full IMF Staff Report for the ECCU 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.

Are Citizenship by Investment programmes sustainable?

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Alicia Nicholls

The International Monetary Fund (IMF) in its end of mission press release following its recently concluded Article IV Consultation mission in St. Kitts & Nevis highlighted that strong construction activity, driven in part by large real estate projects funded under the island’s Citizenship by Investment (CBI) programme, had contributed significantly to the island’s five percent economic growth in 2015. Although the Article IV report itself has not been made available, the end of mission press release noted as follows:

“The outlook for 2016 is positive, but remains dominated by developments in CBI inflows. Growth is expected to moderate to 3.5 percent in 2016 and 3 percent, on average, over the medium term, reflecting a tapering of construction activity associated with a potential slowdown in the pace of new CBI applications, given the increased competition from new CBI programs [emphases are this Author’s].”

Two main things are clear from this paragraph and indeed from the entire press release. Firstly, St. Kitts & Nevis’ CBI programme, which has been in existence since 1984 and was the first of its kind, has contributed significantly to the island’s recent macroeconomic performance at a time when some Caribbean countries are still seeing sluggish GDP growth. Secondly, the IMF has concerns about the sustainability of this  CBI-led growth. This is reflected in the lower GDP growth rate projected for 2016 and for the medium term. It raises the question of how sustainable a role can CBI programmes play in fostering growth and development in the host country.

Citizenship by investment programmes or jus pecuniae (economic citizenship) remain a controversial topic in the Caribbean. Despite this,  given the high level of indebtedness of many Caribbean countries, the need for economic diversification, the fickle nature of foreign direct investment inflows and limited access to concessional borrowing, Caribbean countries are increasingly considering their attractiveness. In January this year, St. Lucia recently joined four other Caribbean countries (Antigua & Barbuda, Dominica, Grenada and St. Kitts & Nevis) as the fifth Caribbean state currently operating a CBI programme. Each of these programmes differs in terms of fees, types of qualifying investment and admission and other qualification criteria.

If managed well, CBI programmes can be an important source of targeted foreign direct investment and other foreign exchange inflows. They can also be alternative means of financing infrastructure projects which might be otherwise unattractive to most private investors. As an example, the Government of Dominica recently announced that its West Bridge project under the Roseau Enhancement Project will be financed through its CBI programme. Without private sector-led involvement, such projects would require use of government’s tax coffers, borrowing or public-private partnerships. Construction activity pursuant to these projects, where provided for, contributes to economic activity and generates employment. High Net Worth Individuals (HNWIs) and their families  also bring with them expertise, contacts and know-how to the businesses which they establish. CBI programmes can to some extent contribute to poverty reduction by creating employment and creating infrastructure in rural communities.

Growing global demand for Second Passports

There is also no disputing that global demand for second passports is increasing. Contrary to popular belief, this demand is not fuelled in the main by nefarious purposes but by HNWIs either fleeing political or economic instability in their home countries or seeking the greater mobility a less restrictive passport could bring. Caribbean passports, for example, rank among some of the least restrictive passports outside those of metropolitan countries.

A growing and increasingly mobile Chinese, Russian, Middle Eastern and African HNW class, and continued instability in the Middle East, are two of the major developments to watch. Turning to this hemisphere, Fortune reports  that 2015 was the third straight year in which a record number of US citizens renounced their US citizenship. Besides the onerous reporting requirements under the Foreign Account Tax Compliance Act (FATCA), the main factor is that under US law,  American citizens or resident aliens living or travelling outside the  US are mandated to file taxes in the US in the same way as those resident in the US. Moreover, if media reports are to be believed, that number may jump depending on the outcome of the presidential election this fall! It is therefore no surprise that citizenship planning is a multibillion dollar global industry.

Sustainability issues

While it is unlikely that global demand for second passports will abate anytime soon, there are concerns about the sustainability of these programmes not just because of the inherent reputational risks to the host countries if applicants are not thoroughly vetted, the implications for loss of visa-free access with third states, but also the security implications in the context of the free movement of persons as envisioned under the CARICOM Single Market and Economy. For example, St. Kitts & Nevis had to revamp its programme after the US and Canada raised concerns. The latter revoked visa-free access  to Kittitian nationals. I have touched on these issues in previous articles so my main focus here is on issues of economic development.

Like all inflows, CBI  revenue inflows are not guaranteed and could leave a country in the lurch if there is a sudden drop in inflows due to competition from other CBI programmes globally. It is a concern that the IMF rightly raised  in its Article IV end of mission press release in regards to St. Kitts & Nevis. Even so, market and size constraints mean there is only so much real estate and tourism construction activity which can take place in a small country at once, and concerns have been raised that increased demand for luxury real estate could drive up the general price of real estate, making it unaffordable to ordinary persons.

The CBI programmes in the Caribbean are direct citizenship programmes, which means that once all fees are paid and due diligence requirements met, a qualifying investor is granted citizenship on the basis of a one-time qualifying investment and is not required to be resident in the country for any period of time prior to applying for citizenship or afterwards. A slight exception is that under Antigua & Barbuda’s CBI programme  an investor may lose citizenship if he fails to spend at least 5 days in Antigua & Barbuda during the period of five calendar years after having obtained citizenship. Five days out of a possible 1,826 days is hardly any time and only applies after citizenship is obtained.

This may be contrasted with residence-to-citizenship programmes, such as the US’ EB-5 programme, which require a period of residency before an investor may apply for citizenship. The lack of a residency requirement means there is no incentive for the investor to reside in the new country of citizenship or contribute through expenditure, tax paying or otherwise once he receives citizenship.

Some countries seek to address this by establishing a relationship with their new citizens. In this article on the Government of Dominica’s website, the Prime Minister of Dominica is reported to have visited and addressed several new citizens of Dominica in Europe, Asia, Dubai and the Arab Emirates and “impressed upon them the importance of their contributions for the development and modernization of [their] country.”

Another option could be to do like Malta did and introduce a one-year residency requirement. A drawback is that this would increase the waiting time for the potential investor, making such a programme less competitive.  While one could argue that this has not hurt Malta which is currently  ranked as the top global residency and citizenship programme on Henley & Partners’ Global Residence and Citizenship Programs 2016 report, I believe that its  visa-free access to 168 countries, including EU citizenship, offsets any negative fall-out from having a residency requirement.

Conclusion

To go to the heart of the question posed in this article,  CBI programmes have their benefits. The revenue  inflows and the economic activity generated make the macroeconomic fundamentals of a country look good. However, they should not be relied on exclusively as an engine of inclusive growth and sustainable development.

Careful planning is needed to ensure that investment under CBI programmes is steered towards targeted growth areas and sectors which can boost economic diversification and growth. To some extent we are already seeing this being done. CBI-funded projects in St. Kitts & Nevis are adding to the appeal of the island’s tourism product. St. Lucia is using its programme in order to develop its luxury tourism and real estate sectors. However, this should be done in a sustainable way in order to boost development and at the same time having a minimal adverse human and environmental impact.

The IMF has also made a very interesting suggestion in its above-mentioned press release that the categories for qualifying investments under the Citizenship by Investment regulations be broadened to include renewable energy, education and health. This merits consideration by policy makers. However, promoting investment in these sectors would require more marketing as their profitability for investors may not be immediately apparent.

The IMF also recommended the need for a prudent framework that “would help build resilience to a sudden stop in CBI inflows, and facilitate the accumulation of fiscal buffers necessary to address natural disaster shocks and absorb unforeseen financing needs if tax performance disappoints after a slowdown in CBI inflows”. The Fund also emphasised that a Growth and Resilience Fund using savings from the CBI programme should be established which could be used as a contingency buffer in the case of natural disasters.

Besides these very timely suggestions, it would be useful if Caribbean countries released more data about the operation of their programmes. For example, periodic impact assessments should be done on the operation of the programmes and made publicly available, highlighting their contributions, challenges and whether they have met their targets. Such an exercise would not only assist policy makers in their policy planning but also show the public that CBI programmes are not a cloak used by unsavoury characters to conceal their illegal activity but are a policy tool to assist in development. I would also add that countries should continuously evaluate and monitor, and where necessary, revise their due diligence frameworks, to ensure the integrity of their programmes.

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.

St Lucia’s Citizenship by Investment programme officially opens for business

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Alicia Nicholls

As of January 1st of this year, St. Lucia’s Citizenship by Investment programme is officially open and taking applications by interested investors. Late last year, Prime Minister, The Hon. Dr. Kenny Anthony formally launched the programme at the Global Citizen Forum held in Monaco. St. Lucia joins St. Kitts & Nevis, Grenada, Antigua & Barbuda and Dominica to become the fifth Caribbean State to offer a citizenship by investment programme.

A citizenship by investment programme (CbI) offers qualifying investors (as well as their spouse and dependents once they meet certain criteria) citizenship in exchange for an investment in a qualifying activity, for instance, investment in real estate, a special fund or government bonds. In a world of dwindling access to financial resources, a growing number of States internationally are currently offering some form of citizenship by investment programme as a way to raise much needed finance, including for development objectives.

This phenomenon is not limited to developing countries. Several metropolitan countries such as the US and its EB-5 Immigrant Investor Programme, offer some form of citizenship by investment scheme. Other States offer residency by investment programmes, which grant the qualifying investor certain residency benefits. A Caribbean example is Barbados’ Special Entry and Reside Permit (SERP), while Spain’s Golden Visa is an international example.

The market for second passports is growing and is an attractive option for high net worth individuals (HNWIs), particularly business persons who come from countries  whose passports are subject to visa restrictions, making it difficult to travel to, and conduct business in major markets unimpeded. For HNWIs from those few countries like the US where personal income tax is levied based on nationality as opposed to residency,  renouncing one’s citizenship and obtaining citizenship of another State through a CbI programme is also increasingly seen an attractive option.

Some quick facts about St. Lucia’s programme

Basic Eligibility Requirements

  • Age Limit: Under the Citizenship by Investment Act No. 14 of 2015, a person who is 18 years or over may apply for citizenship of St. Lucia.
  • Dependents: Qualifying dependents include a spouse and a child and/or parent of the applicant or of his/her spouse once the child or parent meets certain criteria provided for in the Act.
  • Net worth: The applicant must have financial resources of at least US 3,000,000

In addition to these basic requirements, the applicant must fill out an application form, accompanied by the requisite information, documentation and fees and is subjected to due diligence checks.

All of this will be explained by the Authorised Agent. Authorised agents are licensed by the St. Lucia Financial Services Regulatory Authority and are authorised to act on the applicant’s behalf  in relation to the application for citizenship by investment.

Qualifying Investments: On approval of the application, the potential investor will be required to make the qualifying investment proposed in his or her application. Under Schedule 2 of the Citizenship by Investment Regulations Statutory Instrument No. 89 qualifying investments are:

  • Investment in the St. Lucia National Development Fund, with the level of minimum investment required depending on whether the applicant is applying alone, with a spouse and/or with dependents. For an applicant applying alone, the minimum threshold is US$ 200,000.
  • Investment in an approved real estate project. The minimum threshold is US$300,000.
  • Investment in an approved enterprise project. The minimum investment required depends on whether it is one or more than one applicant investing. For an applicant applying alone, the minimum investment is US$ 3,500,000 (plus no less than 3 permanent jobs).
  • Investment by purchasing Investment by purchase of non interest bearing Government bonds (5 years holding bond). For an applicant applying alone, the minimum threshold is US$ 500,000.

Benefits of St. Lucia Citizenship

  • St. Lucia allows for dual citizenship which means the investor is not forced to renounce his or her citizenship of another State.
  • The Citizenship by Investment Board is only allowed to grant a maximum of 500 applications annually which adds an element of exclusivity.
  • A St. Lucia passport allows for visa-free travel to over 90 countries, including the Schengen Area (26 European countries), as well as visa-free travel within the Caribbean Community (CARICOM) and the  other rights of which CARICOM nationals benefit under the Revised Treaty of Chaguaramas.

For further information on St. Lucia’s Citizenship by Investment programme, please contact the St. Lucia Citizenship by Investment Unit.

For a general overview of CbI programmes across the Caribbean, please feel free to read my earlier article: Economic Citizenship by Investment Programmes in the Eastern Caribbean: A Brief Look.

DISCLAIMER: Please note that the information presented in this Article is for general information only and is not intended to be, nor should it be construed as, investment or legal advice. The Author is in no way affiliated with the St. Lucia Citizenship by Investment programme or any of the relevant authorities. The information is taken from sources deemed to be accurate at the time of publication and the Author of this article accepts no liability or responsibility for any errors which may be contained herein or any actions suffered as a result of reliance on the information presented.

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.

 

 

2015 Year in Review for Caribbean Region: Triumph, Tragedy and Hope

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Alicia Nicholls

2015 has been a year of both triumph and tragedy for the countries which make up the Caribbean region. This article reviews some of the major political, diplomatic and socio-economic challenges and gains experienced by the Region in 2015, many of which would have been covered on this blog throughout the year. It also speaks to the prospects for 2016.

Political/Diplomatic issues

General elections led to changes of government in St. Kitts & Nevis, Guyana and Trinidad & Tobago, while voters in the British Virgin Islands, Belize and St. Vincent and the Grenadines bestowed the incumbent governments with a fresh mandate.  In October Haiti held its first round of presidential elections, as well as local elections and the second round of legislative elections. The second round of presidential voting which was slated to occur on December 27, was postponed indefinitely in December.

On the international stage, the election of Prime Minister Justin Trudeau in Canada was widely welcomed in the Caribbean Region as possibly heralding a new era in Caribbean-Canadian relations. However, the electoral defeat of President Nicolas Maduro’s United Socialist Party of Venezuela (PSUV) in the Venezuelan legislative elections in December has caused concern in the Caribbean about the future of Petrocaribe, a legacy of the late President Hugo Chavez under which Venezuela provides oil to participant Caribbean States on preferential terms.

In international diplomacy, the Region had two major triumphs. The first was the historic election of Dominica-born Baroness Patricia Scotland as the first female Secretary-General of the Commonwealth of Nations.  The second was the conclusion by 196 parties of an international climate change agreement in Paris, which though not perfect, paid consideration to the interests and needs of small states.

The catastrophic human and economic devastation inflicted by Tropical Storm Erika in Dominica in August and Hurricane Joaquin in the Bahamas in September-October, and the prolonged drought and water shortages being experienced across the Region are sharp reminders that climate change is an existential threat to the Region’s survival. Access to climate change finance will be critical in financing Caribbean countries’ mitigation and adaptation strategies. Despite the triumph of small states at Paris, this is only just the beginning and a major hurdle will be the ratification of the Agreement by all parties, critically the US.

Caribbean low tax jurisdictions’ battle against the tax haven smear made by metropolitan countries continued in 2015 after several Caribbean countries were included in blacklists by the European Union and the District of Columbia. At the 8th meeting of the OECD’s Global Forum on Transparency and Exchange of Information for Tax Purposes held in Barbados in October, there was acknowledgement made that the Global Forum was the “key global body competent to assess jurisdictions as regards their cooperation on matters of transparency and exchange of information for tax purposes”. However, the fight is not over.

On the international front, the border disputes between Guyana and Venezuela and Belize and Guatemala remain unresolved.  The Guyana-Venezuela dispute came to a boiling point after the announcement that Exxon Mobil Corp had discovered large oil and gas deposits in waters of the disputed region pursuant to a contract made with the Government of Guyana. While CARICOM countries have pledged their support of Guyana’s sovereignty, Venezuela’s more aggressive diplomatic engagement of the region in recent months has raised questions about where CARICOM states’ loyalties will truly reside; with a fellow CARICOM state or with a major financier. To further complicate matters, Suriname, a fellow CARICOM State, has restated its claim to a portion of Guyana’s territory. Indeed, the expeditious and peaceful settlement of both disputes will be important for the economic future of Guyana.

While the US embargo of Cuba remains despite an overwhelming United Nations vote (191 to 2) yet again in favour of ending it, the United States and Cuba made significant advancements in 2015 in the quest towards “normalization” of relations. These included the easing of several travel and trade restrictions, the mutual re-opening of embassies in August and the announcement in December of an agreement to resume commercial flights between Cuba and US for the first time in more than half a century. The future resumption of air links between Cuba and the US is a welcomed development and instead of simply fearing the impact this will have on their US arrivals, Caribbean States should see this as an impetus to increase their marketing efforts in the US market and to improve the competitiveness of their tourism product.

Socio-economic issues

Lower oil and commodities prices have had a mixed impact on the region. They have been a blessing for services-based, import-dependent Caribbean countries struggling to overcome the lingering effects of the global economic crisis on their economies by slightly reducing their import bills and narrowing their current account deficits somewhat. For commodities exporting Caribbean states, however, the impact has been negative. Low oil prices have had a deleterious impact on the Trinidad & Tobago economy which is dependent on the export of oil and petrochemicals and was recently confirmed to be in recession after four consecutive quarters of negative growth.

The tourism industry, the lead economic driver for most Caribbean countries, saw a strong rebound in 2015 with several Caribbean countries, including Barbados, registering record long-stay and cruise ship arrivals, buoyed by increased airlift and cruise callings and stronger demand from major source markets and lower fuel prices.

However, the Caribbean continues to confront an uncertain global trade and economic climate. As recently as December, Managing Director of the International Monetary Fund (IMF), Christine Lagarde, was quoted as stating that global growth for 2016 will be “disappointing” and “uneven”. Another arena Caribbean countries must watch is the troubled Canadian economy and the depreciation of the Canadian dollar as Canada is one of the major tourism source markets for Caribbean countries and an important market for Caribbean exports.

According to an Inter-American Development Bank (IDB) report released in December, Caribbean exports are estimated to decline 23% in 2015, with Trinidad & Tobago accounting for the bulk of the decline. A bright spark is that St. Lucia, Grenada and Guyana signed on to the World Trade Organisation (WTO)’s Trade Facilitation Agreement, joining Trinidad & Tobago and Belize. The on-going reforms being made by these countries pursuant to the Trade Facilitation Agreement should help facilitate and increase the flow of trade in these countries. Barbados, Guyana and Haiti underwent their WTO trade policy reviews in 2015.

The Caribbean region continues to be one of the most indebted regions in the world. Aside from high debt to GDP ratios, several Caribbean countries continue to face high fiscal deficits, wide current account deficits and sluggish GDP growth. Regional governments will have to continue measures to lower their debt, broaden their exports and lower their import bills.

In September, the world agreed to the 2030 agenda for sustainable development in the form of the 17 ambitious sustainable development goals and their 169 targets. A critical factor for achieving these goals will be access to financing for development. Caribbean countries already face several challenges in accessing development finance owing to declining inflows of official development assistance, unpredictable foreign direct investment inflows and limited access to concessionary loans due to their high GDI per capita. Caribbean States should continue to vocalize their objection to the use of GNI/GDP per capita as the sole criterion for determining a country’s eligibility for concessionary loans.

The alarming rise in crime across the Region remains an issue which Caribbean countries must tackle with alacrity not just for the safety of their nationals but for the preservation of the Region’s reputation as a safe haven in a world increasingly overshadowed by terrorist threats. 2015 was a year marked by an escalation in terrorism, with deadly attacks in Egypt, Kenya, Paris and Beirut capturing international headlines. Moreover, the news of recruitment of some Caribbean nationals by ISIL (Daesh as ISIL calls itself in Arabic) is an issue which Caribbean States must confront.

The growing threat of terrorism has caused some concern about the security and robustness of the Economic Citizenship Programmes offered by some Caribbean countries. St. Kitts & Nevis revamped its programme and in light of the Paris attacks, the Kittitian Government announced in December that Syrian nationals will be immediately suspended from its programme. However, the fact that St. Lucia has forged ahead with the establishment of its own programme, accepting applications from January 1st 2016, shows that some regional governments strongly believe the gains outweigh any potential risks.

High unemployment and youth unemployment rates continue to be major social issues threatening the sustainability of the Region, with consequential implications for crime and poverty reduction and political engagement.

Prospects for 2016

Without doubt there are several issues and challenges which confronted the Region in 2015 and will continue to do so in 2016. Moreover, since the “pause” taken years ago, CARICOM continues to face the threat of regional stagnation and fragmentation. While Dominica must be applauded for signing on the appellate jurisdiction of the Caribbean Court of Justice, it is only the fourth out of fifteen  CARICOM States to have done so nearly fifteen years after the Court’s establishment.

However, in spite of these challenges the Caribbean Region has several factors still going in its favour, including high levels of human development, well-educated populations, political stability and a large diaspora. These are factors which it should continue to leverage but should not take for granted. No doubt a critical success factor will be the ability of regional governments, individually and together, to formulate effective and innovative solutions to the challenges faced, working towards the achievement of the SDGs, and their ability to mobilize domestic and international resources to finance these solutions. Let us also hope that 2016 will be the year where there will be a greater emphasis on increasing the pace of implementation of the Community Strategic Plan 2015-2019. The unity displayed by CARICOM during the Paris negotiations should be a reminder that the Caribbean is at its strongest when united.

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. Please note that the views expressed in this article are solely hers. You can also read more of her commentaries and follow her on Twitter @LicyLaw.

Is the Caribbean Basin Initiative still relevant to CARICOM countries?

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Alicia Nicholls

For my latest article on CBI, click here.

In late December of last year, the United States Trade Representative (USTR) released its ninth report to the US Congress on the operation of the Caribbean Basin Initiative (CBI). As the CBI approaches almost thirty years in existence, it is worth pondering on whether the CBI, initially passed during the Cold War, is still relevant to CARICOM countries today.

The Caribbean Basin Initiative refers to the preferential trade concessions extended unilaterally by the United States under several key pieces of legislation to seventeen sovereign countries and dependent territories washed by the Caribbean Basin.  Instituted by the Reagan administration under the Caribbean Basin Economic Recovery Act (CBERA) in 1983, the CBI is said to represent a permanent commitment by the US to encourage the development of strong democratic governments and revitalized economies in the Caribbean Basin. The preferential treatment accorded under the CBERA includes duty-free treatment for most products, and in other cases, tariff rates which are much less than the most favoured nation (MFN) rate. Amendments to the CBERA and the passage of the Caribbean Basin Trade Partnership Act (CBTPA) in 2000 and the Trade Act of 2002 have increased the number of items eligible for preferential treatment and granted NAFTA-parity to some items.  Haiti benefits from additional concessions, primarily for apparel, under the  Haiti Hemispheric Opportunity through Partnership Encouragement (HOPE) Act of 2006,  the HOPE II Act of 2008 and the Haiti Economic Lift Programme (HELP) Act of 2010.

Trade under the CBI

The US is the Caribbean’s main trading partner and trade under the auspices of the CBI accounts for much of the US’ imports from CBI countries.  The USTR report reveals that in 2010 total US imports from CBI countries was $10.1 billion, representing 0.5% share of total US imports from the world. CBI countries were the eighteenth largest market for the US exports to the world. Although there were originally 24 beneficiary countries, five Central American countries plus the Dominican Republic became parties to a free trade agreement with the US (CAFTA-DR), thus losing their beneficiary status. Panama has also recently signed an FTA with the US (Panama-US).

Some challenges

The CBI is a unilateral arrangement. The benefits are granted by the US to certain eligible goods from CBI beneficiary countries without reciprocal treatment being demanded for US goods. The CBI statutes outline several eligibility criteria which must be met before the president can grant such treatment to any beneficiary country. The CBERA was passed during the height of the Cold War and many of the eligibility criteria under the initial act and in subsequent acts have the objective of furthering US national security and foreign policy goals. In some cases, these eligibility criteria do work in the region’s interest. The recognition of internationally recognised workers’ rights and commitments to eliminate the worst forms of child labour, to combat corruption and to  promote the rule of law are things which most CARICOM countries would readily demand of their governments. However, some criteria like the stipulation that no communist country can be a beneficiary country and the requirement of beneficiaries to provide  ‘equitable and reasonable access’  to their markets and basic commodity resources are much less innocuous and could arguably limit policy space and the right of the beneficiary countries to choose their own political and economic path to development without fear of repercussions.

Unilateral preferential arrangements like the CBI also bring with them a measure of uncertainty due to their unilateral nature.  CBI concessions can  be unilaterally limited, suspended or withdrawn in the case of non-compliance by a beneficiary country with the eligibility criteria or where imports from the country or a group of countries is deemed to cause ‘serious’ injury to domestic producers. This uncertainty is heightened by the increased international hostility towards non-reciprocal trading arrangements which has cast a shadow on the future of CBI. Like the African Growth and Opportunity Act (AGOA), the CBERA does not qualify under the WTO’s ‘Enabling Clause’ because it discriminates among developing countries and thus requires a waiver. Although the CBTPA extends the CBI through to September 2020 or until an FTA is signed with the US, the WTO waiver expires in 2014. This means that the  CBI preferences would no longer be legal under the WTO rules after 2014 unless another waiver is obtained.

Besides these inherent structural problems with the arrangement, not all countries in the region have benefited equally from the CBI. Its benefits have tended to be concentrated in a few countries.  Since the inclusion of petroleum products for preferential treatment, Trinidad & Tobago has benefited the most thanks to its resource base and manufacturing capacity.  With the exit of the CAFTA-DR countries, that country is now the leading CBI exporter to the US with petroleum products and methanol now making up the bulk (76%) of CBERA exports (from non-CAFTA-DR countries) to the US market in 2010 and almost all exports of such products come from Trinidad & Tobago.  Another ‘winner’ is Haiti. After Costa Rica joined the CAFTA-DR, Haiti became the second largest exporter to the US under the CBI. According to the USTR report, apparel not only accounts for over 90% of Haitian exports to the US but almost all of Haiti’s apparel imports enter under the CBTPA and the HOPE Acts.

Once a leading exporter of ethanol and apparel to the US under the CBI, Jamaica’s ethanol and apparel exports to the US have declined.  The Bahamas has in fact now superseded Jamaica as the third leading source of US imports under the CBI.  For some countries like Antigua & Barbuda and Barbados, the majority of exports to the US enter under normal trade relations (i.e. at the MFN rate) as opposed to under CBERA or the CBTPA. Not only has there been concentration in the gains from the CBI but the CBI has led to little economic or export diversification in CBI countries. Petroleum products and apparel account for most CBI exports to the US. Moreover, even before the exit of the CAFTA-DR countries, CBI countries’ share of the US import market has been on a downward trend from 3.1% in 1983 to 1984, to just 0.5% in 2010, according to the USITC.

Through their lobbying efforts and the aid of some empathetic members of the US Congress, CBI countries have succeeded in getting some important additional concessions which have helped make the CBI more beneficial. However, the CBI is a goods-only arrangement, meaning that only designated goods exports, as opposed to services exports, benefit from preferential access. Most CARICOM countries are now services-based economies and stand to benefit more from an arrangement which also provides market access for their service providers, particularly through Mode 4 (temporary movement of natural persons).  The CBI’s utilisation by regional exporters and its effectiveness have been limited by stringent rules of origin requirements and conditions, remaining non-tariff barriers to trade and declining margins of preference as the US continues to sign FTAs with other more competitive developing countries.  Some of these challenges were highlighted in a recent report. The argument can also be made that the CBI is based on an outdated school of thought which posits that free trade and increased exports automatically foment development.

Contemporary Relevance ?

Despite its many drawbacks and weaknesses, it is submitted that the CBI still remains relevant for CARICOM countries today even though some countries clearly benefit more than others and the developmental impact has been largely disappointing. It remains relevant because, for all its flaws, the CBI still provides a margin of preference for the region’s exports in a world where such non-reciprocal preferences are quickly shrinking away in favour of greater competition and a more ‘level’ playing field. The majority of the region’s exports which receive preferential treatment in the US market still enter under the CBI, as opposed to the Generalised System of Preferences (GSP) which has less favourable preferences than the CBI. For some countries like Barbados, no exports to the US entered under the GSP for the past few years and exports enter either at the MFN rate or under the CBI. Moreover, the CBI’s continued attractiveness is evidenced by the fact that according to the USTR Report, Suriname has indicated its interest in receiving beneficiary status and is currently in talks with the US to this effect.

Though the extension and reform of the CBI to address the challenges outlined would be the preferred option for the region, it is unlikely that WTO members would be willing to grant another waiver, especially given the opposition that the current waiver encountered. With the Free Trade Agreement of the Americas (FTAA) off the table for the foreseeable future and the US actively engaged in pursuing FTAs, it is inevitable that CARICOM will at some point have to pursue an FTA with the US.  A CARICOM-US FTA which has a trade and development focus could be beneficial to CARICOM countries if it provides market access for the region’s  service providers, allows for special and differential treatment (especially for lesser developed CARICOM States) and includes technical and capacity building assistance to help the region meet its commitments and develop its export capacity to better capitalise on the market access gained. However, given the asymmetry in bargaining power between the US and CARICOM and the US approach to FTAs, it is probably unlikely that CARICOM would be able to gain from the US all of the concessions which it had gained from the EU with the Dominican Republic under the CARIFORUM-EC Economic Partnership Agreement.

For my latest article on CBI, click here.

Alicia Nicholls is a trade policy specialist and law student at the University of the West Indies. You can contact her by email and follow her on Twitter at @licylaw.