Category Archives: Economy

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.

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IMF raises global GDP growth forecast but protectionist policies a threat

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Alicia Nicholls

“The sharp downtown in global trade in recent years is both a symptom of and a contributor to low growth“. – Making Trade an Engine of Growth for All (IMF, WTO, World Bank Report of April 2017)

Protectionism leading to trade warfare is a ‘salient threat’ to global economic growth, warned the International Monetary Fund (IMF) economists, not for the first time, in their recently released World Economic Outlook for April 2017.

The good news is that the Fund’s April outlook was much more upbeat than its January 2017 outlook. According to the Fund, the global economy is projected to expand by 3.5 percent in 2017, a modest increase from its 3.4 percent projection in its January 2017 outlook but greater than the 3.1 percent growth in 2016. The Fund has maintained its outlook for 2018 at 3.6 percent.

The not so good news, as already noted, is that the tenuous economic recovery remains vulnerable to several downside risks, including protectionism. Bear in mind as well that the global economy expanded on average 4.2 percent between 1999-2008, so the projected rate of growth is still below the pre-crisis rates of growth.

The Fund’s most recent WEO report comes on the heels of the release by the World Trade Organisation (WTO) of its trade growth forecast which projected some recovery in global trade growth to 2.4 percent in 2017. Most readers would remember that 2016 saw the slowest rate of global trade growth since the global economic and financial crisis which coincided with the slowest rate of global economic growth in 2016 since 2009.

As noted by the WTO in its press release, “the volume of world merchandise trade has tended to grow about 1.5 times faster than world output, although in the 1990s it grew more than twice as fast.” However, dampened trade volumes have been linked to a subdued global economy and global trade grew less than global economic growth in 2016. Although, the WTO’s projected rate of growth for 2017 signals a cautious recovery, the rate of merchandise trade growth is still much lower than pre-crisis merchandise trade growth and the forecast risk is higher due to both economic and policy uncertainty.

The IMF’s most recent WEO also follows a joint report released by that institution, the WTO and the World Bank entitled “Making Trade an Engine of Growth for All: The Case for Trade and for Policies to Facilitate Adjustment” in which it was stated, inter alia, that the role of trade in the global economy is ‘at a critical juncture’, and arguing that further trade integration was important for stimulating global growth.

At the same time, the IMF warned that protectionism could lead to trade warfare, citing several factors in mainly advanced economies which have seen greater political support for nationalist and protectionist policies. There is good reason for this concern, stemming from protectionist turns and mercantilist rhetoric emanating from political quarters in advanced economies, namely the US and Europe. Moreover, the communique from the March 2017 G-20 Finance Ministers’ Meeting in Germany  saw, for the first time, the exclusion of the pledge to “resist protectionism”. On the multilateral front, although the WTO’s Trade Facilitation Agreement has come into effect, there has been little progress otherwise on multilateral trade negotiations.

Trade is an important driver of global growth, and helped to propel global growth in the latter half of the 20th century. Trade has also played an important role in boosting competition, productivity and improving living standards and productivity. However, there has been dislocation as a result of free trade. In the case of developing countries, there has been the negative impact of competition from cheaper subsidised (particularly agricultural) imports from advanced countries on domestic industries which have higher production costs due to lack of economies of scale and lower technology use. An Oxfam report noted the  negative impact on Mexico’s corn industry following the introduction of the North American Free Trade Agreement (NAFTA).

While the cheaper imports benefit consumers through lower prices, they, however, can negatively impact domestic industries and jobs, and with implications for countries’ balance of trade, and in the case of the agricultural sector, food security. This is an issue which has been noted by developing countries and development economists for years but only seemed to gain mainstream discussion once the effects became more palpable in advanced economies, such as the US and Europe.

However, this is not to suggest that trade is undesirable or that the negatives outweigh the positives. Trade, as the IMF has rightly noted, is an important driver of the global economy. It does, suggest, however, that there needs to be greater consideration of the “social impact” of trade policies and of the need to make trade policies much more inclusive by ensuring that the most vulnerable to the negative fall-outs of trade, such as women and the poor, are protected through supporting policies and mechanisms. As such, domestic policies to assist with, and mitigate, these trade-related adjustments are important, a point made in the joint report by the IMF, WTO and World Bank.

Besides protectionism, the IMF also noted faster than expected interest rate hikes in the US, aggressive financial deregulation, financial tightening in emerging market economies, geopolitical tensions, inter alia, as among the inter-connected downside risks to global growth. Furthermore, the IMF emphasised the importance that countries’ policy choices will have on the global economic outlook and on reducing risks to this outlook.

To read the full IMF WEO April 2017 report, please visit 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.

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.

The WTO Trade Facilitation Agreement and Caribbean Small Island Developing States: Challenges and Opportunities

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Alicia Nicholls

Getting raw sugar from a sugar factory in Guyana or Suriname to supermarkets and kitchens half-way across the world involves many different customs processes and paperwork. The World Trade Organisation’s Trade Facilitation Agreement seeks to cut the red tape and reduce the transaction costs and delays in the movement, release and clearance of goods across borders through the harmonisation, simplification and acceleration of customs procedures.

Trade facilitation, along with investment, competition policy and government procurement, was one of the four “Singapore Issues” which developing countries were opposed to including in the multilateral negotiation agenda at the 5th WTO Ministerial in Cancun in 2003. However, negotiations on trade facilitation were eventually launched in 2004 (pursuant to Annex D of the July Package) with the “aim to clarify and improve” relevant aspects of trade facilitation articles under the GATT 1994″ in order to speed up the movement, release and clearance of goods, including goods in transit.

After nearly ten years of negotiations, the TFA was concluded at the 9th WTO Ministerial Conference in Bali, Indonesia in 2013. It is the only multilateral trade agreement to be concluded so far out of the deadlocked Doha Development Round and the first since the WTO was established twenty years ago.  A separate Protocol of Amendment was adopted by WTO members on November 27, 2014 to insert the TFA into Annex 1A of the WTO Agreement.

The TFA will enter into force once two-thirds of the WTO’s 161 states (as at April 2015) ratifies the agreement. So far of the only 52 countries which have already ratified the agreement, Trinidad & Tobago and Belize are the only countries of the Caribbean Community (CARICOM) to have done so, while Mauritius is the only other SIDS worldwide to have done so. A report published by UNCTAD in September 2014 on the status of implementation revealed that though a priority, trade facilitation is a major challenge for developing countries and least-developed countries (LDCs) and that some of the major barriers to implementation are lack of resources and of legal frameworks.

Caribbean Economies are trade dependent

Trade facilitation is important for Caribbean economies which have a high dependence on trade. Limited natural resources and lack of scale make most Caribbean SIDS (with the exception of Trinidad & Tobago) highly dependent on imported food, fuel and medicines, while their export profiles are characterised by a narrow range of exports and export markets. They have limited participation in global value chains and face declining terms of trade.

Smaller Caribbean SIDS have largely diversified from economic dependence on mono-crop agriculture to services trade, mostly tourism and/or financial services. However, the major commodities exporters in the region (Trinidad & Tobago and the mainland countries of Guyana, Suriname and Belize) rely on exports ranging from oil and natural gas in Trinidad & Tobago and Belize, to aluminium, rice and raw sugar in Guyana and Suriname.

Importance of Trade Facilitation

Despite market access opportunities created by trade agreements, a major complaint for Caribbean SIDS exporters, especially small and medium sized enterprises (SMEs), have been the cumbersome hurdles they face when seeking to export to foreign markets. These hurdles include not just complex customs procedures but also stringent sanitary and phyto-sanitary standards (SPS) and technical barriers to trade (TBTs), these latter two are covered in other WTO agreements (i.e. the SPS and TBT Agreements).

Customs procedures vary by country. By standardising and simplifying customs procedures, reforms pursuant to the TFA can enhance access and predictability for Caribbean SIDS exporters in foreign markets and promote export diversification.

As the industrial action by customs officials in Barbados earlier this year showed, customs delays can negatively impact businesses and consumers. These delays can stem from the time taken to process applications for obtaining import or export licenses to the length of time for barrels and containers to clear ports.The quicker goods clear customs the quicker they can reach businesses and consumers for use as inputs or as final goods. Efficient customs release and clearance is particularly important for time-sensitive perishable products such as fruit and meats. Loss of perishable goods equals lost revenue to businesses.

Transparent customs procedures and rules can also limit the opportunity for corruption by officials at checkpoints. Moreover, as import duties are still important revenue sources for Caribbean SIDS, modernisation of customs collection procedures can facilitate increased tariff revenue collection.

The Agreement

The TFA is divided into 3 sections: general provisions, special and differential treatment provisions for developing country members and least-developed country members (LDCs) and institutional arrangements and final provisions.

It provides binding obligations in relation to procedures for pre-arrival processing, electronic payment, procedures allowing the release of goods prior to the final determination of customs duties, taxes, fees and charge, a risk management system for customs control, post-clearance audits, establishment and publication of average release times, procedures to allow expedited release of at least goods entered through air cargo facilities and procedures for releasing perishable goods within the shortest possible time.

Provisions requiring publication and availability of information (such as applied rates and import/export restrictions) on the internet and for allowing traders and “other interested parties” the opportunity for comment and if necessary consultations before introducing or amending laws of general application to trade in goods, aim to promote transparency. While this latter provision may sound like an invasion of policy space, developing countries should take advantage of this provision to have their say on proposed policies by developed countries which might have an impact on their exporters.

The Agreement also includes some ‘best endeavour” provisions, such as encouraging members to use relevant international standards in their formalities and procedures and to establish a single window for traders. The Agreement further provides for the establishment of a permanent WTO committee on trade facilitation and member states are required to designate a national committee to facilitate domestic coordination and implementation of the provisions of the Agreement.

Special and Differential Treatment

The TFA presents numerous benefits for Caribbean SIDS. However, Caribbean governments’ capacity to implement these trade facilitation reforms varies considerably as evidenced by the difference in their Category A notifications.

The special and differential treatment provisions in Section II of the Agreement take this into account by linking countries’ commitments to their capacity to implement them. Moreover, LDCs will only be required to undertake commitments to the extent consistent with their individual development, financial and trade needs or their administrative and institutional capabilities.

These flexibilities are based on the modalities that had been agreed in Annex D of the July 2004 Framework Agreement and paragraph 33 of and Annex E of the Hong Kong Ministerial Declaration. Developing countries and LDCs are to receive assistance and support for capacity building to implement the provisions of the Agreement in accordance with their nature and scope.

Developing and LDC countries are required to categorise each provision of the Agreement  based on their individual implementation capacity, with Category A being those measures they can implement by the time the Agreement comes into force (or within one year after  for LDCs), Category B being those which they will implement after a transitional period following the Agreement’s entry into force and Category C meaning those which require capacity building support for implementation after a transitional period after the Agreement’s entry into force. Most Caribbean SIDS, including Barbados, have now submitted their Category A notifications.

Trade Facilitation Facility

A key developmental element of the TFA, the Trade Facilitation Facility (TFF) was established in July 2014 to provide assistance to developing countries and LDCs to ensure “no WTO member is left behind”. The TFF is to provide assistance in helping them assess their capacity to implement the TFA, by maintaining an information sharing platform to assist with the identification of possible donors , providing guidance on the implementation of the TFA through the development or collection of case studies and training materials,  undertaking donor and recipient match-making activities and providing project preparation and implementation grants related to the implementation of TFA provisions in cases where efforts to attract funding from other sources have failed.

According to the World Trade Report 2015, once it enters into force, the TFA is expected to reduce total trade costs by up to 15 per cent in developing countries.

Status of Implementation

At the recently concluded COTED meeting in Georgetown, Guyana, CARICOM members reported on their status of TFA implementation. However, this status information has not been made public. Despite this, the Organisation for Economic Cooperation and Development (OECD) has a ‘compare your country on trade facilitation performance’ portal which allows for comparing countries on trade facilitation indicators.

Looking at Barbados’ performance for instance, Barbados “matches or exceeds the average performance of high income countries in the areas of fees and charges and simplification and harmonisation of documents”, with performance improving in appeal procedures and automation. However, some ground was lost in information availability and internal border agency cooperation.

Implementation Challenges

Trade facilitation reforms can be beneficial to Caribbean SIDS.  This does not mean however that there will not be significant implementation challenges, particularly the infrastructure costs related to technology and equipment, and administrative, human resource and training costs. There will also be costs associated with raising private sector awareness. These costs are not just one-time costs but are recurring.  In light of competing resource demands and their limited access to concessionary loans these costs will not be easy for cash-trapped Caribbean SIDS which already have high debt to GDP ratios.

The flexibilities in the Agreement allow states  to implement the provisions in accordance with their capabilities and there are aid for trade initiatives such as the European Development Fund of which Caribbean SIDS have been taking advantage in varying degrees.  Other challenges for implementation include limited human resource capacity and the need to reform existing laws and regulations to give effect to obligations.

Surveys of developing countries and LDCs conducted by the WTO found that trade facilitation remains a high priority for developing countries. For Caribbean SIDS there certainly has been some interesting developments on this front. The governments of several Caribbean states have openly stated their countries’ firm commitment to trade facilitation and their recognition of its potential for economic growth.

Trinidad & Tobago was recently approved for a $25 million loan from the Inter-American Development Bank (IDB) to help strengthen the country’s Single Electronic Window for Trade and Business Facilitation Project (TTBizLink). With the aim of becoming a logistics hub, Jamaica has recently established a Trade Facilitation Task Force. Technical assistance and aid for trade facilitation are also included in the EC-CARIFORUM Economic Partnership Agreement, which includes a protocol on mutual administrative assistance in customs matters.Moreover, in Barbados’ latest Trade Policy Review 2014 WTO members noted the considerable progress the country made with respect to the adoption of trade-facilitation measures. Recently, the island  also amended its Customs Act to allow for post-clearance audits.

Taking full advantage of the technical assistance, aid and capacity building assistance under the TFF will be key for Caribbean SIDS in their implementation efforts.

The Case of Mauritius 

As the Indian Ocean island of Mauritius was the first SIDS to ratify the Agreement, it provides useful lessons for Caribbean SIDS. Seizing the opportunity to boost its competitiveness, Mauritius has received assistance from the International Trade Centre and UNCTAD, including for the establishment of the Mauritius National Trade Facilitation Committee. One can read about the Mauritius experience here.

Conclusions

Despite the high costs and challenges of implementation, trade facilitation reforms pursuant to the WTO TFA have the potential to bring many benefits to Caribbean SIDS. By streamlining the flow of cross-border trade, the ratification and speedy implementation of the TFA by Caribbean SIDS and their trade partners will allow Caribbean exporters to capitalise on the market access openings available in foreign export markets, thereby boosting Caribbean SIDS’ export competitiveness and GDP growth, with spillovers for income and job creation. However, regional exports will still need to meet SPS and technical standards which for many exporters still remain significant barriers to trade.

Ratification and full implementation  of the TFA by all CARICOM states could also improve Caribbean regional integration by easing transaction costs of exporting across CARICOM states. Implementing these reforms also send a strong signal to the business community of these countries’ commitment to improving their business environment.

Full realisation of the benefits of the TFA will not be automatic and the degree will largely be contingent on the pace and depth of implementation of the Agreement by  Caribbean governments and their trading partners and on stakeholder buy-in. Stakeholder holder consultation and strong coordination between public and private actors will be crucial for the formulation of implementation plans and the monitoring and assessment of the impact of the reforms. In this regard, lessons can be learnt from the Mauritius experience. Trinidad & Tobago and Belize have already made the step by ratifying  the Agreement. It is hoped that other Caribbean SIDS will soon follow suit.

The full text of the Trade Facilitation Agreement is available 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. 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.

G-20 Summit Begins in Antalya, Turkey

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Alicia Nicholls

The leaders of 20 of the world’s largest economies, the G-20, are meeting for the tenth annual G-20 Leaders Summit which begins Sunday, November 15th in the resort city of Antalya, Turkey. The two-day summit which is expected to focus on a myriad of issues, including climate change finance, the global economy, the migrant crisis and the refugee crisis, will likely be overshadowed by the issue of terrorism in light of Friday’s Paris attacks.

On November 13, 2015 gunmen linked to Islamic State (ISIL) targeted six sites in Paris, killing 129 persons and wounding over 350. The reports that one of the suspects responsible for the attacks may have been a Syrian refugee raises issues for the EU’s response to the migrant crisis, with the right-wing government of Poland pulling out of any plans to accept refugees. In light of the attacks, the President of France, Francois Hollande, announced he will be no longer attending to the G-20 and that Foreign Minister and Finance Minister will attend in his place.

G-20 leaders have a packed schedule ahead of them and some of the topics on the official schedule include climate change and development, the global economy, terrorism and the refugee crisis, financial regulation and IMF reform, trade and energy. Even with the terrorist attacks in Paris, the issues of terrorism will have dominated the discussions due to the rise in Islamic State from a regional to a global threat. The conflicts in Syria and the resultant refugee crisis are of particular security concern to European countries whose borders have been flooded by Syrian refugees, raising both human rights and national security concerns.

In its Joint Letter setting out the EU’s agenda for the summit, the European Council and European Commission highlighted several key issues to be discussed at Antalya, including social issues such as youth employment and social inclusion and trade opening. In regards to the issue of taxation, the European Council spoke of the need to tackle cross-border tax avoidance and tax evasion, including finalisation and implementation of the OECD Base Erosion and Profit Shifting action plan (BEPS).

Another area identified by the EC and said to be a major issue for Prime Minister Narenda Modi of India is climate change. It is hoped that this issue will not be pushed on the backburner in light of the attacks. Action on climate change, particularly climate change finance and commitments for the 21st Conference of Parties (COP21) in Paris, are critical to developing countries, including small island developing states like those of the Caribbean which will be among the hardest hit by the effects of climate change. Other issues of concern to the developing country members of the G-20 are IMF reform, including the reform of the quota system which would give emerging economies more say in that organisation.

The G-20 is an international forum comprised of 20 major world economies, including 19 countries (Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Republic of Korea, Mexico, Russia, Saudi Arabia, South Africa, Turkey, the United Kingdom, the United States) and 1 regional grouping (the European Union).

In light of the attacks, security for the Summit has reportedly been heightened.

The official programme for the Summit is as follows. It will be interesting to read the Communique and Antalya Action Plan once released upon the conclusion of the summit.

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

OECD Trims Growth Forecast and Warns of Trade Deceleration in Latest Economic Outlook

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Alicia Nicholls

The Organisation for Economic Cooperation and Development (OECD) has again trimmed its global growth forecast slightly downward in its second economic outlook for the year, reflecting the weakness in Emerging Market Economies (EMEs). The Paris-based grouping predicts global GDP will expand by just 2.9% in 2015, down from 3% forecasted in its Interim Outlook this September. Eight years into the crisis this is the weakest growth since 2009. In its report, the OECD noted that the outlook for EMEs is “a key source of uncertainty at present given their large contribution to global trade and GDP growth”.

While the OECD predicts that global trade and output will recover in 2016/2017 assisted by stimulus measures in China, in his address at the launch of the report, OECD Secretary General, Jose Angel Gurria, emphasised that this improvement is dependent on a variety of factors, including “supportive macroeconomic policies, investment, continued low commodity prices for advanced economies and a steady improvement in the labour market”.

In anticipation of the COP21 UN Climate Change Conference in Paris, the OECD’s Economic Outlook report includes a chapter on climate change which calls for urgent action to address this global issue. In his address Secretary General Gurria stressed “we are on a collision course with nature and we have to change course” and urged that  “the fragility of economic recovery cannot be an excuse for policy inaction”.

Key points from the Report 

  • Global output is expected to grow by 2.9 percent in 2015 (weaker than the 3 percent predicted in the September Interim Outlook), with a modest upturn to 3.3 percent in 2016 (slower than the 3.6 percent forecasted in the September Interim Outlook), provided there is smoothening of the slowdown in China and stronger investment in advanced economies.
  • In contrast to 2011 and 2012 where EMEs were propelling global growth, lacklustre EME growth, including recessions in Brazil and Russia and a slowdown in China have negatively impacted global output and trade growth in 2015.
  • Global trade growth has slowed and is precariously close to levels usually associated with a global recession. Noting the link between trade and economic growth, the OECD pointed out that softening Chinese demand for imports is responsible in part not just for the deceleration of global trade but has negatively affected growth in economies which are linked to the Chinese economy. In its report, the OECD noted that “a more significant slowdown in Chinese domestic demand could hit financial market confidence and the growth prospects of many economies, including the advanced economies”.
  • Growth in the Chinese economy is projected to slow to 6.8 percent in 2015 (up slightly from 6.7 percent in the September forecast), 6.5 percent in 2016 and 6.2 percent in 2017 as the Chinese economy rebalances towards consumption and services activity.
  • Advanced economies remain resilient so far. The growth forecast for the United States economy is 2.4 percent in 2015, 2.5 percent in 2016 and 2.4 percent in 2017. Despite steady recovery in output and in employment, workers pay is still subdued. The OECD has expressed its belief that the time is ripe for the Federal Reserve to raise interest rates. This would be the first interest hike by the US central bank since the recession began.
  • Although recovery in the Eurozone is expected to strengthen, growth projections were downgraded from the September Interim Outlook. Eurozone countries are now expected to grow by 1.8 percent in 2016 and 1.9 percent in 2017 thanks to lower oil prices, accommodative monetary policy and an easing of budget tightening.
  • The refugee surge to the EU is expected to promote labour force growth and help offset the effect of an ageing population but this will depend on several factors, including the skill set of the refugees and current labour market conditions.
  • Unemployment in OECD countries is expected to fall but there will still be 39 million people out of work in OECD countries, six million more before the crisis started.
  • Trade and investment protectionism, inequality and productivity are problems which must be countered in order for growth to be achieved. There is also need for accelerating structural reforms.
  • A well-designed climate change policies can bring an improvement in short term outlook.
  • The OECD will release a policy note looking at the labour market and fiscal impact of the European refugee surge in advance of the G20 summit in Antalya.

The full report and presentations on the OECD Economic Outlook may be found 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 read more of her commentaries and follow her on Twitter @LicyLaw.

Jamaica tops Anglophone Caribbean on ease of doing business in Doing Business Report 2016

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Alicia Nicholls

Jamaica can boast of being ranked as the easiest place to do business among countries of the English-speaking Caribbean, according to the World Bank’s Doing Business Report 2016. Jamaica has an overall rank of 64 out of 189 economies surveyed in the report, improving seven places from a ranking of 71 last year. Jamaica was not only the highest ranked of the English speaking Caribbean countries but was second only to Puerto Rico (57) out of all Caribbean countries. Jamaica was also the only Caribbean economy ranked among the ‘top 10 improvers’ in terms of performance on the Doing Business indicators in 2014/2015.

Now in its 13th year of publication, the 2016 edition of the Report entitled ‘Measuring Regulatory Quality and Efficiency’ ranked 189 economies globally on the ease of doing business based on 10 indicators which measure and benchmark regulations which pertain to local small to medium-size enterprises throughout their life cycle. The indicators were: starting a business, dealing with construction permits, getting electricity, registering property, getting credit, protecting minority investors, paying taxes, trading across borders, enforcing contracts and resolving insolvency. Although presented in the economy profiles, labor market regulation indicators are not included in the aggregate ease of doing business ranking this year.

On two of the indicators Jamaica ranked among the top 10 economies globally, namely ‘ease of starting a business’ (9) and ‘getting credit’ (7, tied with Puerto Rico). Its lowest rankings were in regards to ‘trading across borders’ (146), ‘paying taxes’ (146) and ‘registering a property’ (122).

Several reforms introduced by Jamaica during the 2014/2015 period were deemed to have made business easier including, streamlining internal procedures for starting a business,  implementing a new workflow for processing building permit applications, by encouraging taxpayers to pay their taxes online, introducing an employment tax credit, just to name a few. However, the introduction of a minimum business tax, the raising of the contribution rate for the national insurance scheme paid by employers and increased rates for stamp duty, the property tax, the property transfer tax and the education tax were viewed less favourably.

The average ranking of Caribbean economies on the ease of doing business was 104. After Jamaica (9), the next three top regional performers were St. Lucia (77), Trinidad & Tobago (88) and Dominica (91). Haiti had the lowest rank among CARICOM countries (182), followed by Grenada (135) and St. Kitts & Nevis (124). Of note is Barbados which slipped 3 places from 116 in last year’s ranking to 119 in the 2016 ranking, making it the fourth lowest ranked CARICOM economy by ease of doing business. In regards to the region as a whole, the Report commended the region’s continued “remarkable progress” on reforms to resolve insolvency, including the new insolvency laws adopted by Jamaica and St. Vincent & the Grenadines.

It should be noted that although no Caribbean country made it into the top 50 economies on the list, the region did well compared to most SIDS globally, with the notable exception of Mauritius which ranked a laudable 32. On average the Caribbean region ranked highest on ‘getting electricity’ (74), ‘starting a business’ (87) and ‘enforcing contracts’ (90), while scoring lowest in ‘registering property’ (144), ‘resolving insolvency’ (114), ‘paying taxes’ (112) and ‘getting credit’ (112). However, individual countries’ performance on each of these indicators showed great variance.

While it has its limitations, the Doing Business Report, a flagship report of the World Bank, remains one of the best comparative measures of countries’ business environments. After all, it touches on many of the indicators which companies consider when seeking to invest in a foreign market. As such these rankings are and should be used by countries across the region as a guide to measure the success of their regulatory reforms, identify strengths and weaknesses of their business environments, and compare their countries’ business environment ranking regionally, globally and over a time period as they compete which each other for global investment inflows. While Jamaica’s over all performance is praiseworthy, what these rankings demonstrate is that there still remains great room for improvement if Caribbean countries are to become globally competitive as choice destinations for doing business.

The full Doing Business 2016: Caribbean States Regional Profile may be accessed here, while the full Doing Business Report 2016 is available 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.

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