Caribbean Trade Law and Development

Category: news

  • G-20 Summit Begins in Antalya, Turkey

    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.

  • Has the Caribbean Basin Initiative Outlived its Usefulness to CARICOM countries?

    Alicia Nicholls

    This September the United States International Trade Commission (USITC) released its biennial report on the operation of the Caribbean Basin Economic and Recovery Act (CBERA), one of the components of the Caribbean Basin Initiative under which CARICOM countries currently enjoy non-reciprocal, preferential access to the US market for most merchandise exports.

    Three years ago I authored an article questioning whether the CBI was still relevant and beneficial to CARICOM countries. In that article I had highlighted that while the CBI still has relevance for CARICOM countries, its structure meant that CARICOM countries have benefited unequally and risk losing any margin of preference if its WTO waiver is not extended. I had concluded that a reform of the CBI would have been a preferred option but that a CARICOM-US FTA which had a trade and development focus could be more beneficial in the long term to CARICOM countries once it allows for special and differential treatment and capacity building assistance.

    The USITC reports that average CBERA utilisation rates fell in 2014 and that the impact, though positive, has been small and again limited to a few exports and a few countries. This prompts two questions: has the CBI outlived its usefulness and is it time for CARICOM countries to negotiate a free trade agreement (FTA) with the US?

    Current CARICOM-US Trading Arrangements

    Most CARICOM countries currently enjoy non-reciprocal duty-free or reduced duty access for most merchandise exports (about 5,700 HTS 8-digit tariff lines) to the US market under the Caribbean Basin Initiative. The CBI is comprised of CBERA (non-expiring) and CBTPA (expiring September 30, 2020). Haiti also enjoys additional preferences under the HOPE Acts (Haitian Hemispheric Opportunity through Partnership Encouragement Acts of 2006 (HOPE I) and of 2008 (HOPE II)) and the Haitian Economic Lift Program (HELP) Act of 2010 which give preferential treatment to Haitian apparel, textiles, and certain other goods.

    The stated goal of the CBI is to contribute to the economic growth and development of beneficiaries. The seventeen Caribbean beneficiary countries and territories are: Antigua and Barbuda, Aruba, The Bahamas, Barbados, Belize, British Virgin Islands, Curaçao, Dominica, Grenada, Guyana, Haiti, Jamaica, Montserrat, St. Kitts and Nevis, St. Lucia, St. Vincent and the Grenadines, and Trinidad and Tobago. Though a CARICOM country, Suriname is not a CBERA beneficiary.

    In May 2013, CARICOM countries signed a Trade and Investment Framework Agreement (TIFA) in Port of Spain, Trinidad following a meeting between CARICOM Heads of Government and US Vice President Joe Biden. The TIFA, an updated agreement to one signed in 1991, is not an FTA. While it outlines several objectives and goals, it does not create binding commitments or market access. It does however create a CARICOM-US Trade and Investment Council which will be charged with executing the agreement. An annex to the Agreement called the Initial Action Agenda sets out priority areas for action. Currently, Grenada, Jamaica and Trinidad & Tobago are the only CARICOM countries which currently have bilateral investment treaties in force with the US.

    Current Level of CARICOM-US Trade

    The US is CARICOM countries’ largest trading partner for goods and services trade and a major tourism source market for CARICOM countries. However, the $8.5 billion USD worth of total US exports from CBERA countries (with and without preferences) only accounted for 0.36% of total US’ imports from the world, and declined from $8.9 billion in 2013 and $12 billion in 2012 (USITC 2015).

    US product imports from CBERA countries are concentrated primarily in the energy and mining and manufacturing sectors (USITC 2015). Trinidad & Tobago, Haiti, The Bahamas, and Guyana jointly accounted for 89.1 percent of the value of US CBERA imports in 2014 (USITC 2015).

    The USITC 2015 reports that CBERA utilisation rates, that is, CBERA imports as a percentage of total US imports from that country, have fluctuated over the past five years and have varied by country. After rising to 26.5% in 2013, average CBERA utilisation rates fell to 23.1% in 2014, although a few countries saw an increase in their utilisation rates during this period. This means that of the CBERA countries’ exports to the US in 2014 ($8.5 billion), only 23.1% ($1.97 billion), or less than a quarter, were done under CBERA. Most CARICOM merchandise exports to the US are therefore not under the CBERA but are either under the Generalised System of Preferences (GSP) or under Most Favoured Nation (MFN) applied rates.

    According to the USITC Report, while Belize had the highest CBERA utilisation rate (62.5%) and was the fifth largest source of US imports under the CBERA in 2014, Trinidad & Tobago was the leading source of US imports under CBERA but registered the 6th highest CBERA utilisation rate for the same period. Trinidad & Tobago which has been the main beneficiary of CBERA due to its energy exports (mainly methanol and crude petroleum) has seen its total imports and utilisation rate decline due to declining US consumption, increased US production of crude oil and maintenance and shutdown of some factories in Trinidad (USITC 2015).

    CBERA is of less importance for smaller islands of the region whose economies are services-based, mostly tourism and financial services. St. Lucia’s utilisation rate dropped from 51.7% in 2010 to just 7.5% in 2014. While Barbados saw its utilisation rate increase from a mere 3.8% in 2013 to 10.6% in 2014, this still is down from its rate of 17% in 2010.

    The good news is that despite my prediction back in 2012, the WTO Council for Trade in Goods considered and approved the US’ waiver request for CBERA again and it is now up to the General Council to adopt it. Additionally, some of the products which are eligible for dutyfree access under the CBERA are not eligible under the GSP. However, more sobering is that the weaknesses of the CBI remain, including the exceptions in its product coverage, the lack of eligibility for services trade and certain stringent product eligibility requirements. Another problem is its unpredictability due to its unilateral nature. A beneficiary’s status may be revoked or the programme discontinued at any time. As an example, the US recently indicated it will suspend South Africa’s benefits under AGOA, a preferential programme for African countries, for allegedly failing to make continual progress towards eliminating barriers to U.S. trade and investment.

    Generalised System of Preferences

    Besides CBI, certain CARICOM countries also currently benefit under the Generalised System of Preferences (GSP), the oldest of the US’ trade preference programmes. Similar to the CBI, the GSP is a unilateral arrangement providing non-reciprocal duty-free access to eligible products originating in qualifying countries. Unlike the CBI which currently applies only to Caribbean countries, according to the USTR Report 2015, as of January 1, 2015, there were 122 designated GSP beneficiary developing countries, of which 43 were LDCs.

    Under the GSP less tariff categories and products benefit from preferences than under the CBERA. However, LDCs, such as Haiti, are entitled to additional product coverage.

    The only CARICOM countries currently eligible for benefits under the US GSP are Belize, Dominica, Grenada, Guyana, Haiti, Montserrat, St. Kitts & Nevis, St. Lucia, Suriname, St. Vincent and the Grenadines. Eligibility of a country for beneficiary status is subject to both economic and political considerations. Among other things, the US President is prohibited by statute from designating any communist countries (with exceptions) or countries which have expropriated, imposed taxes or other measures on US property as GSP beneficiaries.

    If he/she finds that a country is sufficiently competitive or developed, the President may withdraw, suspend or limit the GSP status of any beneficiary country. Antigua & Barbuda, the Bahamas, Barbados, and Trinidad & Tobago are not currently GSP beneficiaries.

    The GSP expired on July 31 2013 and was renewed retroactively on June 29, 2015. It has been extended to December 31, 2017. The future of the GSP beyond December 2017 is uncertain. However, some in the US believe GSP benefits should only be extended to LDCs, in which case only Haiti would benefit among current CARICOM beneficiary countries. Some so-called import sensitive products for the US, especially those in which developing countries have a competitive advantage such as most textiles and apparel, are not eligible. GSP imports are also subject to more stringent rules of origin than those under CBERA.

    Would an FTA with the US be the answer?

    Several former CBERA beneficiaries have concluded FTAs with the US, including five Central American countries (Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua) and the Dominican Republic (CAFTA-DR in 2004) and Panama (US-Panama FTA in 2012). Given the issues outlined with both the CBI and the GSP, should CARICOM countries do the same?

    Since the failure of the CARICOM-Canada negotiations, CARICOM still only has one FTA with a developed partner (the Economic Partnership Agreement with the EU). CARIFORUM’s negotiation position during the EPA negotiations was strengthened by the presence of the Dominican Republic. Such would not be the case in FTA negotiations with the US.
    US FTAs, even those with developing countries such as CAFTA-DR and US-Panama, are generally light on development provisions and strong on those which provide protection for US investors and their investments, and for intellectual property rights.

    For a sense of the US’ negotiation prowess, just take into consideration that with just a few exceptions the Trans-Pacific Partnership (TPP)’s investment chapter agreed to by 11 other negotiating partners is practically a carbon copy of the US’ Model BIT 2012. CARICOM countries will have to be strategic and clear on what they want to achieve and what are their deal breakers.

    Priorities for CARICOM would be recognition of CARICOM countries’ small size and economic vulnerability and asymmetry in the commitments. As such they would likely be lobbying for special and differential treatment, development cooperation provisions, including technical assistance and capacity building to assist them, especially CARICOM lesser developed countries, in taking advantage of the market access opportunities an FTA with the US would open. With regards to services trade, CARICOM countries would likely seek enhanced commitments from the US in regards to (Mode 4) temporary entry for CARICOM natural persons.

    Under the CBI, Caribbean countries are not required to extend duty-free treatment to like US imports into their territories. One of the main drawbacks to an FTA with the US will be the loss of tax revenues from the removal and reduction of tariffs on US imports as would be required under an FTA. One way to mitigate this would be lobbying for asymmetric and phased tariff removal, similar to what was committed to under the CARIFORUM-EPA with the EU. However, US FTAs, including CAFTA-DR are always ambitious in their scope in regards to liberalisation. Under the EPA, CARIFORUM was able to exclude a number of their most sensitive sectors from liberalisation. A deal breaker for any FTA with the US would be the extent to which CARICOM countries are able to protect nationally-important and sensitive industries from the stiff competition and possible death of these sectors and job losses if liberalised to competing US products too quickly. Civil society and industry consultations thus would be crucial to determining which sectors are most sensitive.

    While an FTA with the US will likely increase the volume of US goods into CARICOM, the reverse is not necessarily guaranteed. Most CARICOM merchandise goods exports are already competing with other countries’ exports under normal trade conditions (i.e. at the MFN applied rate), and not under preferences. Therefore, the margin of preference secured for some CARICOM goods under a trade agreement may be negligible.

    Investment treaty practice has evolved since the days when Grenada, Jamaica and Trinidad & Tobago signed their BITs with the US. The investor protections provided by a comprehensive investment chapter in a US-CARICOM FTA, coupled with robust investment promotion provisions, could serve as a signal for greater US investment to the region, while at the same time include development-friendly provisions and provisions which reinforce the right of the State to regulate.

    As CARICOM service providers enjoy no preferential access to the US market, they face competition from service providers of countries which already have FTAs with the US. However, even when market access is created under an FTA for cross border services trade, there will be the need for mutual recognition agreements and visa waiver agreements in order to translate market access into market penetration.

    The US will likely insist on a negative list approach to market access liberalisation of service sectors, the approach used in NAFTA and its subsequent FTAs. The negative list approach requires liberalisation of all sectors unless a reservation is specifically made in a country’s list of reservations. CARICOM countries and other developing countries have preferred to use the positive list approach used under the General Agreement on Trade in Services (GATS). It is a more development friendly approach which means only sectors specifically listed in a country’s schedule of commitments are liberalised and thus allows for the gradual liberalisation of sectors in keeping with each country’s development goals.
    The US will also likely insist on no less favourable treatment than what CARICOM countries had agreed to with the EC under the EPA. CARICOM will also have to bear in mind that given a provision in the MFN clause in the EU-CARIFORUM EPA, the EU can insist on any more favourable treatment given to US than was given the EU under the EPA.

    US treaty practice typically includes binding commitments on non-trade issues, such as labour. It has an on-going claim against Guatemala before the CAFTA-DR dispute settlement body in which it claims Guatemala has failed to meet its obligations under the CAFTA-DR agreement relating to effective enforcement of labour laws.

    There are currently three main trade issues between the US and CARICOM countries which have to be addressed expeditiously even without an FTA. CARICOM rum exports are losing market share in the US market because of large subsidies given to rum producers in two US territories: the USVI and Puerto Rico. Secondly, the US/Antigua & Barbuda cross border gambling services dispute remains unresolved despite a WTO ruling in Antigua & Barbuda’s favour. An FTA will not necessarily resolve these issues as the DR which is a part of CAFTA-DR has complained about the rum issue as well.

    Thirdly, the US has for a long time criticised copyright protection and enforcement in the Caribbean, a possible issue which might trigger disputes under any future US-CARICOM FTA. Caribbean countries constantly feature on the US Watch Lists under its annual Special 301 Report. The 2015 Special 301 Report is no different.

    The Bottom Line

    CARICOM countries should continue to take advantage of the non-reciprocal duty-free access to the US market provided by the CBI for their goods while these benefits last. However, while I do not think the CBI has outlived its usefulness just yet, it has several deficiencies which means it should not be treated as a long term strategy for boosting CARICOM trade with the US.

    As mentioned, CBERA exports as a proportion of total CARICOM exports to the US are small and declining. The beneficial impact on regional exports has been unevenly spread and its unilateral nature, like the GSP, means benefits may be discontinued by the US at any time.

    For the short term, the updated TIFA presents the best opportunity for CARICOM through the US-CARICOM Trade Council to lobby for reform of the CBI, address the long-standing rum and internet gambling disputes, and to negotiate concrete frameworks for increasing trade and investment between the US and CARICOM countries. Success on this front will not be automatic and will require strong regional cooperation, as well as effort on the part of both CARICOM and the US to ensure that concrete initiatives and commitments come out of these efforts.

    However, given the importance of the US market for CARICOM and the growing importance of services-trade to regional economies, CARICOM will at some point  in the future have to consider, albeit cautiously, negotiating an FTA with the US as part of a long term plan to create a more predictable trade framework for US-CARICOM trade.

    I say in the future because negotiations are an expensive and human-resource intensive exercise and require extensive research and stakeholder consultations. At the moment CARICOM countries are still grappling with the lingering effects of the 2008/2009 crisis on their economies and are also still struggling to implement many of the commitments made to the EU under the EPA. Progress on deepening CARICOM integration itself has ground to a halt and it would be easier to formulate a consolidated negotiating position as a more integrated region. I say cautiously because based on its current treaty practice the US is unlikely to extend the same level of special and differential treatment or development assistance which CARIFORUM was able to secure from the EU.

    An interesting space to watch would be the on-going Trans-Atlantic Trade and Investment Partnership (TTIP) negotiations between the US and EU. The EU is currently insisting on the inclusion of certain sustainable development provisions into the agreement. An example is its recently released proposed text for the investment chapter. It would be interesting to see whether these provisions make it into the final TTIP text and that could help make it easier for CARICOM to insist on some of the same provisions in any future FTA with the US.

    For my previous article on the relevance of the CBI, please click 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.

  • Trans-Pacific Partnership Agreement in Review Part I: The Investment Chapter

    Alicia Nicholls

    The Trans-Pacific Partnership Agreement is the largest regional free trade deal concluded to date, creating a free trade area which encompasses 12 Pacific-rim countries and which accounts for 40% of global GDP. The TPP in its preamble speaks of the goal to establish a comprehensive regional agreement that promotes economic integration to liberalise trade and investment, bring economic growth and social benefits, among other things. However, like NAFTA over two decades ago, the TPP Agreement has been mired in controversy from its embryonic stages, with opinion sharply divided on whether it truly advances global trade or whether it sets the clock back on development issues such as labour rights and the environment. This article attempts a sober look at some of the main provisions of the investment chapter of the TPP and is the first in a series of articles which will examine some of the key aspects of the Agreement.

    Framers of International Investment Agreements (IIAs) have to play a delicate balancing act between protecting the rights of investors while at the same time preserving the right of host states to regulate in the public interest and in the interest of fulfilling policy objectives.

    The TPP’s investment chapter shares many striking but unsurprising similarities with the US Model Bilateral Investment Treaty (BIT) 2012. It includes a long list of definitions followed by substantive provisions detailing investor rights and finally a separate section on procedural provisions providing for Investor-State Dispute Settlement (ISDS).

    Definition of “investment”

    The definition of “investment”  in the TPP Agreement is broad akin to that in the US Model BIT 2012. It defines an investment as “every asset that an investor owns or controls, directly or indirectly, that has the characteristics of an investment, including such characteristics as the commitment of capital or other resources, the expectation of gain or profit, or the assumption of risk”. It outlines some of the forms which an investment for the purposes of the Agreement may take. The definition of “investor” is standard and does not merit much discussion for present purposes.

    Treatment

    The TPP includes national treatment and Most Favoured Nation treatment clauses, which are standard clauses in nearly all IIAs. The National treatment provision (Article 9.4) provides that parties are to accord to investors of another Party and their covered investments treatment no less favourable than that they accord in like circumstances, to their own investors and their investors’ own investments with respect to the establishment, acquisition, expansion, management, conduct, operation, and sale or other disposition of investments in its territory. It establishes pre-establishment rights, which is typical of US BITs and US-modelled IIAs.

    In recent years the inclusion of the Most Favoured Nation clause in IIAs has been controversial as it allows for treaty shopping. Investors who are claimants in disputes have sought to rely on these clauses to benefit from more favourable treatment provided by the respondent state in treaties with third parties. In Maffezini v Spain, a precedent was established where an investor was able to benefit from more favourable dispute settlement provisions in a treaty which the respondent state had entered into with a third party state. As a result, a few IIAs have opted to omit MFN clauses.

    One of the criticisms which have been levelled at the TPP is that the MFN clause potentially negates any progress made on rebalancing the rights of investors with states’ rights to regulate by allowing investors to cherry pick from provisions in older and more investor-friendly agreements.

    To their credit, the drafters of the TPP have sought to build in several safeguards. Firstly, at section 9.5(3) a carve-out is made exempting procedural provisions such as those in Section B (ISDS) from applicability of the MFN clause. Secondly, it uses the qualifier term “in like circumstances”, although a broad interpretation by an arbitration tribunal may still be possible.

    Minimum Standard of Treatment

    The minimum standard of treatment provided for under the TPP is similar to those found in bilateral investment treaties (BITs) and IIAs in general. Per Article 9.6, each Party must accord to covered investments treatment in accordance with applicable customary international law principles, including fair and equitable treatment and full protection and security.

    The FET provision in many BITs has been the cause of headache for many states due to its vagueness. This has made it open to interpretation by tribunals which have tended to expand the scope of FET to encompass rights beyond customary international law standards. The proliferation of FET cases brought by investors under NAFTA’s ISDS prompted the NAFTA Commission to release an interpretative note which declared definitively that fair and equitable standard of treatment was no more than the minimum standard of treatment afforded to aliens under customary international law. This language was also included in the US and Canada model BITs.

    The TPP drafters sought to mitigate this in several ways. Article 9.6(2) clearly states that the concepts of “fair and equitable treatment” and “full protection and security” do not require treatment in addition to or beyond that which is required by that standard, and do not create additional substantive rights. For greater certainty, the framers go further to define what they mean by “FET” and “full protection and security”.

    The framers also go to lengths to define what does not constitute a breach. Article 9.6(3) states that determination of a breach of another Article does not establish a breach of Article 9.6. Furthermore, neither the mere fact that a Party takes or fails to take an action that may be inconsistent with an investor’s expectations nor that a subsidy or grant has not been issued, renewed or maintained, or has been modified or reduced, by a Party, do not constitute breaches of this Article, even if there is loss or damage to the covered investment as a result.

    Expropriation and Compensation

    One of the most pervasive threats posed to foreign investors in a foreign country is direct or indirect expropriation of their investment by the host state without compensation being paid. Similar to standard BITs, the TPP provides that state parties may take measures which directly or indirectly expropriate a covered investment but only in the circumstances outlined under Article 9.7(1) and with compensation.

    Performance Requirements

    In its preamble, the framers of the TPP talk about recognising the differences in the levels of development and diversity of economies of member states. However, how has this been borne out in the provisions? Performance requirements have been typically used by countries to ensure that investors add value to the local economy. These include requirements on the investor to buy local goods and services, set levels of exports of goods and services, technology transfer and domestic content requirements. The TRIMS Agreement prohibits trade-related performance requirements. However, it has been common practice for US-based FTAs to include prohibitions against all performance requirements. The TPP follows this approach. Four of the twelve parties to the TPP are developing countries.  This therefore will have an effect on those developing countries members of the Agreement as their ability to ensure investors make a contribution to their economies through the use of non-trade related performance requirements will be compromised.

    Free Transfer

    One of the basic assurances investors look for is the ability to move their assets, such as repatriated profits, freely and without delay into and out of the host country. A standard provision in BITs, Article 9.8 of the TPP protects this right and is subject to the exceptions in 9.8(4). Of concern is that no exception is included for where the host state is encountering exceptional economic or financial challenges, such as currency and balance of payments difficulties. The omission of an exception for financial and economic difficulties is typical of US treaty practice but some treaties such as some UK BITs allow a carve-out for this. Such a provision would be particularly useful for developing countries which are generally more vulnerable to balance of payments difficulties.

    Special Formalities and Information Requirements

    Article 9.13 of the TPP provides carve-outs from National Treatment and MFN for special formalities and information requirements. It includes a carve-out from the National Treatment provision, allowing a Party to adopt and maintain measures which prescribes special formalities in connection with a covered investment, such as residency requirements for registration and requirements that a covered investment be legally constituted under the laws or regulations of the Party, provided that these formalities do not materially impair the protections afforded by the Party to investors of another Party and covered investments under the Chapter.

    It also makes a carve-out from the National Treatment and MFN provisions allowing a Party to require an investor of another Party or its covered investment to provide information concerning that investment solely for informational or statistical purposes. However, such information is to be kept confidential from any disclosure which would prejudice the competitive position of the investor or the covered investment.

    Carve-outs for Regulatory Objectives

    Investment Agreements are a balancing act between the rights of investors and the rights of host states to regulate in the public interest and in the interest of fulfilling policy objectives. Article 9.15 attempts to make a carve-out by providing that nothing in the Agreement should be construed to prevent a Party from adopting, maintaining or enforcing any measure otherwise consistent with this Chapter that it considers appropriate to ensure that investment activity in its territory is undertaken in a manner sensitive to environmental, health or other regulatory objectives. However, what happens if the measure in question is not consistent with this Chapter. The inclusion of the phrase “otherwise consistent with this Chapter” is a loophole which potentially negates the efficacy of this carve-out.

    Corporate Social Responsibility

    The provision on CSR in Article 9.16 is rather weak; it is drafted in best endeavour language and is not enforceable. It simply reaffirms the importance of each Party to encourage enterprises operating in its territory or subject to its jurisdiction to voluntarily incorporate internationally recognised CSR principles into their internal policies. A stronger CSR provision would have been ideal here, particularly a requirement that investors comply with all applicable laws in the host State, comply with international labour standards and adopt environmentally sustainable practices.

    ISDS

    The most disdain for the TPP’s investment chapter has been targeted at the ISDS provisions. ISDS systems allow an investor to bring a claim directly against the host state. A feature of investment law, they are an innovation in public international law as there is no requirement for the exhaustion of local remedies and the investor can bring the claim directly without having to go through its state of nationality.

    Critics argue that ISDS provisions only serve to give investors the ability to sue host States for introducing public policy legislation deemed to hurt their investment. The truth is that the majority of BITs have ISDS provisions. In this regard the TPP is neither unique nor more onerous. ISDS systems are more efficient, while the use of an arbitration tribunal instead of the local courts ensures that decisions are rendered fairly and free of political bias.

    That withstanding, the ISDS has many well-documented flaws. ISDS cases are a costly exercise and have been a painful experience for those States which have found themselves on the wrong end of an arbitral award. However, UNCTAD data shows that of the 356 known cases concluded, 37 percent were won by the State, 25% by the investor and 28% were settled. Therefore, it is not an automatic case that the investor wins.

    The TPP provides several options of arbitral forum and includes several provisions which attempt to address some of the criticisms made about the ISDS. There is the requirement that the parties to the dispute attempt to resolve the dispute through consultation and negotiation. Claims cannot be made after more than three years and six months have elapsed from the date on which the claimant first acquired, or should have first acquired, knowledge of the breach alleged.

    Lack of transparency has been one of the biggest criticisms leveled at the ISDS system as many arbitral proceedings and awards are not made public. Article 9.23 which deals with transparency in arbitral proceedings, provides that certain documents are to be made public “promptly”. What constitutes “prompt” is not defined and will likely depend on the circumstances. The tribunal is to conduct hearings in public, a marked departure from what is provided in most IIAs. However, Article 9.23(3) makes exceptions for protected information and information that may be withheld under the articles on security exceptions and disclosure of information. The TPP’s ISDS allows for the consolidation of claims arising out of the same set of events or circumstances.

    In determining whether to make an award to the prevailing disputing party of reasonable costs and attorney’s fees incurred in submitting or opposing the objection.is warranted, the TPP provides that the tribunal is to consider whether either the claimant’s claim or the respondent’s objection was frivolous, and is to provide the disputing parties a reasonable opportunity to comment. If the tribunal determines such claims to be frivolous, the tribunal may award to the respondent reasonable costs and attorney’s fees.

    My verdict on the Investment Chapter

    The investment provisions in the TPP are generally no more generous to investors than those found in most standard BITs, including the US Model BIT 2012. Indeed, in several cases the TPP’s framers have attempted to close some of the loopholes which have been so troublesome in older BITs, such as with the FET clause. There are some weaknesses and grey areas in the Agreement. The biggest concern is the MFN clause which if a liberal interpretation by an arbitral tribunal is given may ultimately undo a lot of the improvements made in the TPP by allowing investors to rely on more favourable provisions in other agreements concluded by the host state. While there are some exceptions and additions, the influence of the US model BIT 2012 on the language and content of the TPP’s Investment Chapter is quite strong. The TPP also falls into the same trap many IIAs do in that strong investor protections are not matched by strong obligations on the investor to adhere to local laws, follow environmentally sustainable practices or labour standards. Perhaps the framers missed a chance here to advance investment treaty practice on this. While the TPP is not as development-friendly as one would wish, its investor protections are generally no more generous than most traditional BITs. However, the real test will be in the Treaty’s operation once it comes into force.

    More articles in this TPP article series are 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. You can read more of her commentaries and follow her on Twitter @LicyLaw.

  • Barbados hosts 8th meeting of the OECD’s Global Forum on Transparency and Exchange of Information for Tax Purposes

    Alicia Nicholls

    On October 29-30th, Barbados hosted the 8th meeting of the OECD’s Global Forum on Transparency and Exchange of Information for Tax Purposes. Present at the meeting were 250 delegates from 88 jurisdictions and 11 international organisations and regional groups. Barbados is the second Caribbean country (after Bermuda) to have hosted a meeting of the Global Forum and is a Vice Chair of the Global Forum’s Steering Group.

    The Global Forum is the leading multilateral forum on international cooperation on transparency and the exchange of tax and financial information. Comprising both OECD and non-OECD countries, the Global Forum undertakes peer reviews as well as provides technical assistance to members. A noted initiative is the recently launched Automatic Exchange of Information (AEOI) Portal.

    The international business sector is an important sector and development strategy for Caribbean offshore financial jurisdictions (OFCs). In an impassioned opening address, Prime Minister of Barbados, the Hon Freundel Stuart, stressed the significance of this plenary to Caribbean offshore financial centres in helping to shape the future of the world’s tax agenda. He highlighted Barbados’ competitive advantage in international business and the country’s continuous efforts at seeking to comply with internationally agreed standards on tax transparency and the exchange of tax information. Among several actions undertaken in an effort to move from ‘partially compliant’ to ‘largely compliant’ status, this week Barbados signed the Multilateral Convention on Mutual Administrative Assistance on Tax Matters and the Multilateral Competent Authority Agreement. According to the Statement of Outcomes, there are now 89 jurisdictions covered by the MAC and 74 by the MCAA.

    Prime Minister Stuart reiterated Barbados’ commitment to the work of the Global Forum. He spoke critically about Caribbean OFCs’ inclusion on arbitrary blacklists by some OECD member countries, including the recent EU and District of Columbia lists, which were published without regard to Caribbean countries’ compliance on tax matters and the reputational and development implications of such blacklists. In this vein, he reiterated the need for a clear position by the Global Forum on blacklists. Happily, one of the stated outcomes of the Global Forum was the acknowledgement that the Global Forum is currently the key global body competent to assess jurisdictions on their cooperation on matters of transparency and exchange of information for tax purposes, and that the findings in the Global Forum peer reviews should be taken into account as appropriate in any lists pertaining to non-cooperative jurisdictions in this area.

    Prime Minister Stuart also condemned financial institutions’ use of the Global Forum’s ratings of countries without communicating with the Global Forum to ascertain those countries’ actual progress on the implementation of measures. He noted that this practice has penalised some countries which are ranked as “partially compliant” or lower. Noting that this could compromise countries’ development goals, he emphasised the need for such financial institutions to communicate with the Global Forum on those countries’ progress on implementation so they are not unfairly penalised. Additionally, he also mentioned the need for consideration of the possible role of the Global Forum on tax matters of importance to small vulnerable states.

    In regards to the Exchange of Tax Information, the Global Forum published its 2015 Annual Report “Tax Transparency 2015: Report on Progress”, which includes details on the progress of the peer reviews and ratings.

    Outcomes

    Among the key outcomes of the 8th Global Forum meeting were:

    • Reiteration of the resolve to meet the commitments to implement automatic exchange of information within the agreed timelines of first exchanges in 2017 or 2018.
    • Recognition of changes made by several Global Forum members to their legal framework or practices on exchange of information on request to address Global Forum recommendations which led to the adoption of several supplementary peer reviews.
    • Acknowledgement that the Global Forum is currently the key global body competent to assess jurisdictions as regards their cooperation on matters of transparency and exchange of information for tax purposes, and that the findings in the Global Forum peer reviews should be taken into account as appropriate in any lists pertaining to non-cooperative jurisdictions in this area.
    • Agreement on the detailed framework for a second Round of peer reviews of the standard of exchange of information on request to be launched in the second half of 2016.
    • Intensification of efforts to ensure developing countries benefit from the recent gains made in international tax transparency.

    The full Statement of Outcomes may be accessed here, while the press release on the conclusion of the meeting 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.