Caribbean Trade Law and Development

Category: Trade

  • EU-Canada CETA trade deal hangs in the balance

    EU-Canada CETA trade deal hangs in the balance

    Alicia Nicholls

    The Comprehensive Economic and Trade Agreement (CETA) negotiated between the European Union (EU) and Canada appears to be in limbo as Belgium’s French-speaking Walloon region has said a strident non (no in French) to the deal. According to media reporting, two key issues appear to be sticking points for the Walloon government. Firstly, there are concerns about potential increased pork and beef imports from Canada which they believe would be disadvantageous to Walloon farmers. Secondly, there is disagreement about the investment court system mechanism proposed for the settlement of investor-state disputes which they argue is tilted in favour of investors and would infringe on states’ rights to regulate.

    The other 27 EU countries (including the UK) have indicated their willingness to sign and so does the Belgium government. So how is it that a Belgium region of roughly 3.6 million out of a total EU population of 500 million could potentially veto a trade agreement which took in essence seven years to negotiate? The CETA is a mixed agreement which means that it requires signature and ratification by each EU member state in accordance with its own constitutional requirements. Under Belgium’s constitutional arrangements, each of that country’s regions must give its consent to the national government  to sign any trade agreement. The Walloon Government has declined to give its consent to the Belgium government to sign the CETA. This has given rise to the quandary now being faced.

    The CETA is the EU’s most ambitious free trade agreement to date with a third party. It not only seeks to eliminate customs duties on all industrial goods and on most agricultural and food products, but covers trade in services, intellectual property, government procurement, investment, inter alia. The negotiations were officially completed in September 2014. The text has been legally reviewed but only becomes binding once the Agreement has entered into force.

    CETA’s investment chapter is novel as it establishes a permanent investment court which would hear disputes brought by investors, allows for greater transparency in proceedings, defines more narrowly the circumstances under which investors can bring claims, includes an express right of states to regulate and includes an appeal system. This new system is a marked departure from the traditional ISDS system found in old school BITs and in investment chapters of most FTAs like the Trans-Pacific Partnership (TPP). CETA will replace the 8 bilateral investment treaties that currently exist between individual EU states and Canada and under which claims by investors were heard by ad hoc arbitration panels. The provisions in these BITs were tilted heavily in favour of the investor and lacked language protecting states’ regulatory rights. It should be noted that Belgium and Canada do not have a BIT.

    This current showdown between Wallonia on the one hand, and the rest of the EU and Canada on the other is just the latest episode in the drama playing out between free trade and the rising anti-trade populism and consequent political opposition sweeping across western countries. For example, US ratification of the Trans-Pacific Partnership remains held up in the US Congress and whether it is indeed ratified is not a certainty given the rhetoric of both major presidential candidates. With regard to CETA itself, this is not the first hurdle the agreement has faced as earlier this year Bulgaria and Romania had raised objections to the agreement over Canada’s failure to remove visa requirements for Bulgarian and Romanian nationals.

    The Monday deadline has been missed and it is the first time that one region in an EU country has threatened to derail a negotiated outcome with a third state, a prospect which is not just frustrating for EU leaders and Canada but raises questions about the reliability of the EU as a negotiating partner seeing that this agreement is with a western country with similar values on trade.

    To this effect, Canada’s Minister of International Trade, Chrystia Freeland, is reported as stating as follows:

    “Canada has worked, and I personally have worked very hard, but it is now evident to me, that the European Union is incapable of reaching an agreement — even with a country with the European values such as Canada, even with a country as nice and patient as Canada.”

    Another question is what does this state of affairs mean for the future BREXIT negotiations once the UK makes its Article 50 notification? Some commentators had previously argued that CETA might have been a suitable model for future EU 27-UK relations as it does not involve the free movement of labour. This issue was raised by EU Commissioner, Cecilia Malmstrom, who is quoted in media reports as saying “If we can’t make it with Canada, I’m not sure we could make it with the UK.”

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

  • Caribbean Trade and Development Digest – October 16-23, 2016

    These are some of the major trade and development headlines and analysis across the Caribbean region and the world for the week of September 25-October 1, 2016. 

    For past issues, please visit here.

    Regional

    CARICOM Urged to Expand US-Caribbean Trade 

    SFCN: Member states of the Caribbean Community (CARICOM) need to collectively engage the United States in discussions designed to expand the trade in services from the Caribbean region as well as seek to have the problem of Caribbean rum exports to the U.S. resolved soon. Read more 

    International

    EU Sets Belgium Monday Deadline to Back CETA

    CBC Canada: The European Union has given Belgium until late on Monday to overcome opposition to a free trade deal with Canada from its French-speaking region or a summit to sign the pact that could boost both economies is off, EU sources said on Sunday. Read more

    Increase in World Trade the tonic the world economy needs

    Times of Malta: The world economy needs international trade to pick up, according to Reuters polls of hundreds of economists who see no end yet to the aggressive monetary stimulus through which central banks have tried to prop up inflation.Read more

    Inuit to address world shipping group on Arctic Trade

    CTV News: A delegation of Arctic aboriginals that includes Canadian Inuit will use its first appearance before the group that regulates global shipping to argue that it shouldn’t be its last. Read more

    Brexit Puts Britain in Need of Trade Expertise

    WSJ:  In their heyday, British trade negotiators fanned out to Japan, Peru, the Soviet Union and elsewhere, hashing out such delicate arrangements as securing access for English biscuits in return for allowing in a Russian perfume called “Lenin’s Tomb.” Read more

     

     

  • FATF releases Guidance on Correspondent Banking Services

    Alicia Nicholls

    The Paris-based Financial Action Task Force (FATF) has released its long-awaited guidance on the application of FATF standards in the context of correspondent banking services following its plenary session held October 19-21st, 2016. The purpose of the guidance is to address de-risking and has been prepared in collaboration with the Financial Stability Board (FSB).

    The target audience for the guidance includes not just banks and money or value transfer service (MVTS) providers engaged in providing correspondent banking or respondent bank services, but financial institutions with account holders that are MVTS which in turn provide correspondent banking-type services to their own customers, as well as competent authorities (particularly AML/CFT regulators and supervisors of banks and of MVTS providers).

    Key Points from FATF Guidance on Correspondent Banking Services

    Some key points from the Guidance are as follows:

    • FATF recommendations do NOT require the correspondent bank to know its customer’s customers (KYCC). In other words, correspondent banks are not required to conduct CDD (Customer Due Diligence) on the individual customers of its respondent institution.
    • While noting that simplified CDD are never appropriate in the cross-border correspondent banking context, FATF explains that not all correspondent banking services carry the same level of money laundering or terrorist financing risk so enhanced due diligence measures must be commensurate with the degree of risk identified.
    • FATF identified some factors to consider in assessing correspondent banking risks, including the respondent institution’s jurisdiction, products/services offered and customer base. FATF recommended the risk factors included in Annex II of the BCBS Guidelines on Sound Management of Risks related to ML/FT.
    • However, FATF stopped short of defining what constitutes a higher risk on the basis that doing so could lead to ‘a tick the box approach’ which could encourage, rather than discourage, de-risking.
    • The requirements of FATF Recommendations 10 (Customer Due Diligence) and 13 (Correspondent Banking) must be met before correspondent banking services may be provided to a respondent institution.
    • Correspondent institutions may obtain information required by FATF recommendations 10 and 13 directly from the respondent institution but this information MUST be verified in order for it to meet those requirements.
    • FATF provided some examples of sources of verification from BCBS General Guide on Account Opening
    • On-going due diligence of existing and new CBRs is required but the frequency should depend on the level of risk associated with each relationship.
    • FATF recommended maintaining an on-going, open dialogue with correspondents and noted that while FATF requirements require termination of customer relations where identified risks cannot be managed in accordance with the risk-based approach (RBA), the other options offered by recommendation 10 should be explored before the relationship is terminated.

    This is welcomed news especially for Caribbean countries which, according to a World Bank study released in September 2015, appear to be the most affected by the loss of correspondent banking relationships.  This guidance is an important step in tackling de-risking by providing definitive clarity on a number of key areas, including on the hitherto confusing issue of KYCC.

    It also stresses against the wholesale termination of CBRs as a first resort, but rather keeping an open dialogue with respondent banks. If followed, therefore, the guidance should reduce the alacrity with which some banks have restricted or terminated correspondent banking relationships. However, this guidance is not binding and the effectiveness will depend on the level of observance by foreign banks and by their regulators.

    The Guidance on Correspondent Banking Services is to be read in conjunction with FATF recommendations and guidance papers, including the guidance on RBA for the Banking Sector. It also complements other guidance on correspondent banking services previously released by the Wolfsberg Group and the Committee on Payments & Market Infrastructure (CPMI).

    The full FATF Guidance on Correspondent Banking Services may be read 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.

  • FATF congratulates Guyana on AML/CFT Improvements

    FATF congratulates Guyana on AML/CFT Improvements

    Alicia Nicholls

    At its recently held plenary session on October 19-21, 2016, the Paris-based Financial Action Taskforce (FATF) congratulated Guyana on the “significant progress” the country has made in addressing the deficiencies in its framework for anti-money laundering/combatting the Financing of Terrorism (AML/CFT).

    Background

    Since its establishment in 1989, FATF has sought to protect the integrity of the global financial system from threats posed by money-laundering (ML), terrorist financing (TF) and the financing of proliferation of weapons of mass destruction. Its main role is setting and promoting standards on these areas and its 40 plus 9 Recommendations are the international standards for AML/CFT and the financing of the proliferation of weapons of mass destruction. FATF’s work is complemented by the nine FATF-style regional bodies, including the 27-member Caribbean Financial Action Task Force (CFATF), of which Guyana has been a member since 2002.

    The AML/CFT Mutual Evaluation is a peer review process to evaluate each member country’s level of compliance with FATF’s Recommendations. These reviews are concerned not just with the jurisdiction’s technical compliance with the recommendations but also now with the effectiveness of the country’s AML/CFT systems.

    CFATF was very critical of Guyana’s technical compliance with the FATF recommendations in its third round Mutual Evaluation report dated July 2011. Inter alia, the reviewers had highlighted several deficiencies in the Anti-Money Laundering and Countering of the Financing of Terrorism (AML/CFT) Act 2009, the  lack of statistics, staffing shortages and limited staff training. As a result, the country was placed on expedited follow-up and required to report every Plenary. Due to internal political wrangling over the proposed bill’s content, for many sittings Guyana’s legislature could not pass the proposed amended AML legislation.

    This inaction, however, had several negative consequences. Starting in May 2013, CFATF had named Guyana among its list of jurisdictions with strategic AML/CFT deficiencies that had not made sufficient progress in addressing them and had warned that if Guyana did not take specific steps by November 2013, not only would it call upon its members to consider implementing counter measures to protect their financial systems from the ongoing ML/TF risks emanating from Guyana but would consider referring the country to the FATF International Cooperation Review Group (ICRG) which analyses the AML/CFT threats from high-risk jurisdictions.

    After Guyana had failed to meet the agreed timelines in the action plan, the regional watch body followed through on its threat in its public statement released May 2014 in which it called on its Members to “consider implementing further counter measures to protect their financial systems from the ongoing money laundering and terrorist financing risks emanating from Guyana”.

    That language may sound extreme to the reader considering that Guyana is not an international financial centre and any AML/CFT lapse is unlikely to cause even a ripple in the global financial system. Regulatory costs are burdensome for cash-strapped small states which often lack the financial resources and the human resource capacity to meet all the requirements. What little technical assistance is given is often not adequate. As countries which are not members of FATF Caribbean countries also have little say in the regulatory framework or agenda which are often slanted towards the interests of advanced economies.

    However, these important inequities aside, a sound AML/CFT framework is important for countries, especially those with porous borders and which are dependent on foreign investment and foreign trade. Having a reputation for a deficient AML/CFT framework could make it difficult for an FDI-dependent country to attract new investment as some parent companies may prohibit the establishment of subsidiaries in a country with a deficient AML/CFT regime. It also increases the country’s risk profile which would make financial transactions and relationships with businesses and persons in that country subject to enhanced due diligence due to the higher level of perceived risk, increasing the chances of its local banks losing their foreign correspondent banking relationships and  thereby restricting its access to the global trade and financial systems.

    Guyana’s progress to date

    Since coming to power in 2014, the new government in Guyana has been able to implement several reforms to improve the country’s level of compliance with FATF recommendations. These changes have been well-documented in this article by Anand Goolsooran. However, some of those identified in CFATF’s 10th Follow Up Report released June 2016 include the passing of the AML/CFT (Amendment) No.2 Act 2015 in January 2016 and  of the AML/CFT (Amendment) Act No. 15 of 2016 in May 2016 and the issuance of AML/CFT Directives and Guidelines.

    As a result, the CFATF assessors concluded as follows:

    Guyana has significantly improved its overall level of compliance and most importantly Guyana has fully addressed the core and key Recommendations. While Guyana satisfies the criteria for application to exit the follow-up process, it is still in the FATF ICRG process which it needs to complete first. As such it is recommended that Guyana stay in enhanced follow-up and be required to report on continuing implementation to the next Plenary in November 2016

    In mid-September 2016, the visiting FATF/ICRG delegation praised Guyana’s progress towards bringing its framework in compliance with FATF recommendations.  As of October 2016, Guyana is no longer subject to FATF’s on-going global AML/CFT compliance process.  Guyana will continue to work with CFATF to address the outstanding issues with the goal to exit the CFATF follow-up process.

    The outcomes of the FATF October 2016 Plenary session 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.