Caribbean Trade Law and Development

Category: Trade

  • Caribbean Response to the Withdrawal of Correspondent Banking

    Alicia Nicholls

    IMF Deputy Managing Director, Mr. Tao Zhang, gave an interesting and comprehensive speech summarising the “Caribbean response to the Withdrawal of Correspondent Banking” at the Conference on the Withdrawal of Correspondent Banking in Antigua & Barbuda on October 28, 2016.

    The following realities stood out to me from Mr. Zhang’s speech:

    1. Almost 60% of the Caribbean Association of Banks’ member institutions,  which it has interviewed, report a loss of CBRs.
    2. In some cases where the banks have been able to hold on to CBRs,  some key services have been discontinued e.g: cheque clearance, trade finance and wire transfers
    3. Some banks face higher costs for the remaining services.
    4. Global correspondent banks are withdrawing from transactions involving money transfer operators.

    Given the above, Mr. Zhang rightly noted that if this continues, not only would it affect the financial stability of affected countries, but also economic growth, financial inclusion, and other development goals. He further reiterated that continued loss of CBRs would drive legitimate transactions underground and encourage increased informality, thereby undermining anti-money laundering and countering the financing of terrorism (AML/CFT) objectives.

    Mr. Zhang then turned to the issues driving this trend. A number of international organisations and agencies have studied this issue, including the IMF, and their findings were echoed in Mr. Zhang’s speech. He noted, for example, the cost-benefit considerations which banks have to weigh; rising expenses associated with compliance and international tax transparency versus limited profitability in some CBRs.

    He made reference to several policy responses being made by Caribbean authorities and other affected regions which he  noted have already started to have some results. He gave the example of the US Treasury Department which has increased its education of financial institutions on the “precise nature of transactions and behaviours that are subject to sanctions”. He further made reference of Eastern Caribbean Currency Union (ECCU) countries’ decision to consolidate their national AML/CFT work into one regional operation under the responsibility of the Eastern Caribbean Central Bank (ECCB).

    Mr. Zhang emphasised that there is “no quick fix” to the problem and reiterated the need for urgent action to mitigate the impact on affected economies.

    In addressing what are the next steps, he outlined three areas for further exploration:

    • Addressing the problem of economies of scale
    • Mitigating cost and technical limitations
    • Improving information flows

    He also set out a number of ways in which the IMF could be of assistance, including for example, facilitating dialogue and encouraging standard-setting bodies to take account of the impact of CBR policies.

    In concluding, Mr. Zhang reiterated the IMF’s continued commitment to working with affected countries on the issue until it is solved.

    The full speech is a must-read and may be accessed 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.

  • CETA Trade Deal Deadlock Broken

    Alicia Nicholls

    UPDATE: Text of the Addendum (in French) is available here.

    The Comprehensive Economic and Trade Agreement (CETA) between the European Union (EU) and Canada has finally won the backing of Belgium’s hold-out Walloon region. This is according to reporting by BBC News which broke the news earlier this evening. According to the BBC, Belgium’s Prime Minister, Charles Michel,  has advised that after internal negotiations among Belgium’s federated bodies, an addendum to the deal has been struck which has “addressed regional concerns over the rights of farmers and governments”.

    Hailed as the EU’s most ambitious agreement with a third party to date, CETA is a  landmark agreement encompassing not just the elimination of customs duties on goods between the EU and Canada, but also deep provisions on trade in services, intellectual property, investment, government procurement, inter alia. Though negotiations formally ended in 2014, the agreement has not yet been signed.

    As a mixed agreement under EU law, CETA requires the signature of all 28 EU member states (in accordance with their own constitutional arrangements). Under Belgium’s federated structure, the consent of its regional legislatures is required before the Belgium federal government can sign trade agreements with third states.

    Wallonia is Belgium’s francophone region, with a population of 3.6 million which is generally less prosperous than Flanders, the Dutch-speaking region.  Wallonia’s minister-president, Paul Magnette had raised a number of concerns over the Agreement’s provisions which he insisted needed to be addressed before Wallonia would give its support. These included, chiefly, the potential impact on Walloon farmer’s in the face of competition from Canadian pork and beef imports and the potential impact of the agreement’s investor-state dispute settlement (ISDS) provisions on governments’ regulatory rights.

    Monday’s deadline which the EU had set for Belgium to address its internal opposition to the agreement was missed and the signing ceremony which had been carded for today, Thursday, was cancelled. The prospect of one region potentially vetoing seven years’ of negotiating work led not only to concerns about the EU’s ability to effectively enter into international trade deals with third parties, but  on whether a similar scenario would play out in the Brexit negotiations with the UK..

    Symptomatic of the anti-globalisation, anti-free trade furor sweeping over western countries, CETA has faced some popular and political opposition in other European countries as well, although all EU governments (including the Belgium federal government) have indicated their intention to sign.

    So, it seems as though disaster has been averted for now and both the EU and Canada can give a sigh of relief. Wallonia’s acquiescence paves the way for Belgium to sign the Agreement. However, two notes of caution must be borne in mind. Firstly, the exact details of the Belgian addendum have not been reported as yet. Secondly, the addendum will need to be accepted by the remaining 27 EU member states. Suffice it to say, the ending of this story has not been written as yet.

    As an update, the text of the Addendum (in French) is available here.

    Read the full BBC article here.

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

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

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

    Alicia Nicholls

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

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

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

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

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

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

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

    The full IMF Staff Report for the ECCU may be viewed here.

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

  • Jamaica is Commonwealth Caribbean’s Easiest Place to do Business, World Bank Doing Business Report 2017

    Alicia Nicholls

    Jamaica has once again topped the Commonwealth Caribbean as the easiest place in which to do business, according to the recently released World Bank Doing Business Report 2017. This flagship annual index  measures and benchmarks countries around the world on the ease in which a hypothetical local entrepreneur can open and run a small to medium-size business when complying with relevant regulations.

    Economies are ranked on 11 regulatory areas reflecting the life cycle of a business, namely starting a business, dealing with construction permits, getting electricity, registering property, getting credit, protecting minority investors, paying taxes, trading across borders, enforcing contracts, resolving insolvency and labor market regulation. A total of 190 economies were included in this year’s index.

    Jamaica’s Performance

    Jamaica had an overall rank of 67th, down 2 places from its ranking of 65th on the 2016 index.  The World Bank noted that both Jamaica and Grenada “made significant upgrades to their electronic platforms, resulting in a substantial decrease in the time required for international trade processes”. The World Bank also praised Jamaica for making tax paying less costly by increasing tax depreciation rates and the initial capital allowance for assets acquired on or after January 1, 2014. Those reforms earned the country a leap of 39 places on the “paying taxes” indicator.

    However, one criticism made by the World Bank was of Jamaica’s removal of the ability to complete next-day company incorporation which the Bank argued made starting a business more difficult. Outside of the indicators “paying taxes” and “trading borders”, the island saw slippage in its rankings on all other indicators. Its most precipitous fall was in its ranking on “getting electricity” where it slipped 20 places to 101st place.

    Other Caribbean Countries’ Performance

    Overall, Puerto Rico was the highest ranked economy in the Latin America and Caribbean (LAC) region with a rank of 55th, up one place from its rank of 56th in the 2016 index. Honourable mention must be made of Guyana which rose 16 places to 124th place. The Dominican Republic retained its 103rd rank.

    All other Caribbean countries saw declines from their 2016 rankings. The biggest decline was St. Lucia which dropped 8 places to 86th from 78th in 2016.

    The rankings of all Caribbean countries are as follows:

    WorldBankDoingBusinessCaribbean2017.jpg
    Doing Business Data 2017

    Global Rankings

    On a global scale, the top 5 easiest places in which to do business were as follows: New Zealand, Singapore, Denmark, Hong Kong and the Republic of Korea. The bottom 5 economies were South Sudan, Venezuela, Libya, Eritrea and Somalia.

    The full  Doing Business 2017 report may be accessed 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.