Category Archives: Trade Policy

President Trump’s Trade Policy Agenda for 2017 Released

Posted on by Leave a comment

Alicia Nicholls

The Office of the United States’ Trade Representative (USTR) today released a preliminary report outlining President Trump’s Trade Policy Agenda for 2017.  It should be noted that this is a preliminary report prepared in order to comply with the statutory deadline for the report’s annual release March 1, but bearing in mind that President Trump’s nominee for USTR, experienced trade lawyer and former deputy USTR under former President Ronald Reagan, Robert Lighthizer, has not yet been confirmed by the Senate. As such, it has been noted in the report that  a more detailed version will be published once the USTR has been confirmed and has had the opportunity to provide input in that report’s development.

As stated in the report, President Trump sees bipartisan support by the American people for a complete overhaul of US trade policy. In order to effect this, the report states that the overarching purpose of the Trumpian trade policy “will be to expand trade in a way that is freer and fairer for all Americans”.

To this effect, the report outlines four priorities identified by the Administration:

(1) defend U.S. national sovereignty over trade policy;

(2) strictly enforce U.S. trade laws;

(3) use all possible sources of leverage to encourage other countries to open their markets to U.S. exports of goods and services, and provide adequate and effective protection and enforcement of U.S. intellectual property rights; and

(4) negotiate new and better trade deals with countries in key markets around the world.”

Several preliminary things stand out from the report:

(1) The report highlighted that the US is not bound by WTO decisions and evinces a policy stance going forward not to accept any adverse rulings from the WTO. The paragraph below taken directly from the report is instructive:

“And, when the WTO adopts interpretations of WTO agreements that undermine the ability of the United States and other WTO Members to respond effectively to these real world unfair trade practices with remedies expressly allowed under WTO rules, those interpretations undermine confidence in the trading system. None of these outcomes is in the interest of the United States or a healthy global economy.”

This is coupled with what appears to be the Trump administration’s plans to make greater use of unilateral remedies.

US disregard for adverse WTO rulings is a troubling prospect for many reasons, but particularly for small island states’ enforcement of their trade interests. It should be noted that the Caribbean island state of Antigua & Barbuda is still awaiting compensation from the US, after many years, since winning the US-Gambling dispute. It remains to be seen whether this will ever be resolved.

(2) Based on the arguments made in this report, I think it likely that Trump’s team will advocate for changes to be made to the WTO’s dispute settlement mechanism for their own interest.

(3) The Administration has stated its intention to not only more aggressively go after countries the US deems to be “engaging in unfair trade practices”, but will also with equal zeal go after countries which do not sufficiently open their markets to US exports. As mentioned previously, the pursuit of countries’ trading practices which are perceived to be inimical to US interests is not new and has been US policy for years. The singling out of China in this regard came as no surprise.

(4) The Trump administration’s criterion for whether a trade agreement is bad or good appears to be based solely on whether the US has a trade (merchandise) deficit with the country in question. This is not just a facile way of assessing the merits of a trade agreement, but also ignores services trade and investment which in many cases the US has a surplus with its trading partners.

(5) While there are references to “free and fairer trade” throughout the report, I believe the term “zero sum” trade may be the more appropriate term to describe these proposals.

The full report 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.

 

Advertisements

Trump Trade Policy ‘Achievements’: The First Month

Posted on by

Alicia Nicholls

February 20th marked United States (US) President Donald Trump’s first full month in the Oval Office. And what a month it has been! We have seen a lot of focus by his administration on immigration. But what about trade? Trade occupied a major part of the platform of then US presidential candidate Trump. In his Contract with the American Voter , he had enumerated several trade-related pledges as part of his 100-day action plan to “Make America Great Again”. His first one hundred days are not yet up, but it is worth looking at what have been the achievements towards his “America first” trade policy during his first month in office.

President Trump’s Trade Promises

As a reminder, these were the major trade-related promises gleaned from his Contract with the American Voter. He pledged to:

  • Announce his intention to renegotiate the North American Free Trade Agreement (NAFTA) or withdraw from the deal under Article 2205;
  • Announce the US’ withdrawal from the Trans-Pacific Partnership;
  • Direct the Secretary of the Treasury to label China a currency manipulator;
  • Direct the Secretary of Commerce and U.S. Trade Representative to identify all foreign trading abuses that unfairly impact American workers and direct them to use every tool under American and international law to end those abuses immediately;
  • Work with Congress to introduce the “End Offshoring Act” to establish tariffs to discourage US companies from laying off their workers in order to relocate in other countries and ship their products back to the U.S. tax-free.

Three main reasons possibly explain Mr. Trump’s slow progress on his trade agenda thus far. Firstly, two key members of his trade team  who are needed to help effect his policies are still awaiting Senate confirmation, namely his United States Trade Representative (USTR) pick, noted trade lawyer and former deputy USTR under President Ronald Reagan, Robert Lighthizer, and his commerce secretary nominee, Wilbur Ross, an investor and former banker.

Secondly and related to the first point,Mr. Trump’s policy inexperience means he will likely be more reliant on the guidance and advice of his yet-to-be confirmed trade team than would other presidents. Thirdly, it is possible that Mr. Trump is realising that there is a wide chasm between presidential campaign rhetoric and how Washington and the role of president actually work, particularly when contrasted with being a CEO of one’s own company.

What has he achieved so far and what hasn’t he?

With that in mind, it is not surprising that of his stated promises, his only substantive trade policy achievement thus far has been directing the USTR via a presidential memorandum to withdraw the US from the Trans-Pacific Partnership (TPP). Withdrawal from the TPP was a low-hanging fruit. The US had signed but not yet ratified the Agreement and there was almost bi-partisan criticism of the deal. The acting USTR has since followed up on this memorandum, submitting a withdrawal letter to the TPP depository and TPP partners, and indicating their interest in bilateral trade deals with former TPP partners with which the US does not currently have a trade agreement.

Further to the latter point, President Trump and his soon-to-be confirmed trade team have been consistent so far on their preference for bilateralism over multilateralism. Trade was one of the hot button topics at his initial meetings with United Kingdom (UK) Prime Minister Theresa May,   Japan’s Shinzo Abe and Canadian Prime Minister, Justin Trudeau.

In keeping with his campaign promise that post-Brexit UK would not be at the back of queue for a trade deal, Mr. Trump received Prime Minister May as his first foreign head of government. The two have reportedly agreed to establish working groups in regards to a possible post-Brexit US-UK trade deal. Indeed, the UK House of Common’s International Trade Committee has already launched an inquiry on this.  However, formal negotiations on any such deal can only legally begin once the UK concludes its withdrawal agreement with the European Union (EU) pursuant to Article 50 of the Lisbon Treaty.

More immediately possible, however, may be trade talks between Japan and the US. Despite Mr. Trump’s earlier criticism of former TPP partner Japan’s “unfair trade practices”, the meeting with Mr. Abe went cordially, with agreement in principle for beginning US-Japan trade and investment talks. It should be noted that Japan has a large trade surplus with the US, boosted particularly by automobile exports, which might be a bone of contention in any trade talks between the two countries.

Outside of withdrawing from the TPP and these preliminary aspirational trade talks, there has been limited progress so far on his specific campaign promise in comparison to the ambitious agenda he proposed. So far he has not labelled China a “currency manipulator”. Indeed, the International Monetary Fund (IMF) had indicated that China’s currency was no longer below value. Nonetheless, Trump’s Secretary of the Treasury, Steve Mnuchin, hesitated in a recent CNBC interview to “pass judgment” on China’s currency practices, stating his preference to go through the US Treasury’s established process on judging whether China (and other countries) was manipulating its currency to boost exports.

Additionally, President has not yet triggered the 90-day notice period by informing Congress of his intention to renegotiate NAFTA, which he had promised to do “immediately”. While Mr. Trump has criticised the shift of US jobs to Mexico and the US’ large merchandise trade with that NAFTA partner, it is also not clear on what particular provisions of the agreement he wishes to “tweak”.

What is clear is that Mr. Trump’s main grievance with NAFTA appears to be with Mexico more so than with Canada. Indeed, Mr. Trump took a less protectionist stance towards Canada during his meeting with Prime Minister Trudeau, speaking collectively of keeping jobs and wealth within North America (US and Canada) and not just the US. While reporting on his meeting with Canada’s Prime Trudeau indicates that he would be looking for greater access by American firms to Canadian procurement markets, it is unclear when the NAFTA renegotiation talks will begin.

With respect to the promise to direct the USTR to identify countries engaging in “unfair trade practices”, his USTR nominee is still awaiting confirming. However, it has been longstanding US policy to challenge nations whose actions are against US economic and trading interests, as evidenced by the large number of disputes brought by the US before the WTO’s dispute settlement body.  Therefore, President Trump will not be doing anything more than what previous US administrations have done in this regard, although we will likely see an even more aggressive stance towards China’s trade practices.

Mr. Trump has spoken frequently against US companies which offshore production processes (and therefore jobs), as evidenced by his deal with air conditioner maker Carrier. He has promised to, but has not yet proposed, legislation to impose a punitive tax on US companies seeking to offshore may receive stiff opposition from the business community and from Congress.

He has, however, vacillated in his views on the controversial Border  Adjustment  Tax (BAT) proposal being pushed by Congressional Republicans as part of their tax reform plan. Different from Trump’s border tariff proposal, the GOP BAT Proposal seeks to convert the US corporate income tax from an origin-based to a destination-based tax. It would prevent companies from deducting the costs of their imported goods as an expense, while giving a tax break to companies which export. However, while some business leaders have praised the idea, some economists have argued that it will not boost US exports.

What next?

Besides the questions surrounding the renegotiation of NAFTA and which other nations the Administration will earmark for future bilateral deals, it is unclear what will be the Trump administration’s stance on other existing trade agreements, and on the on-going negotiations, including the Trans-Atlantic Trade and Investment Partnership (TTIP) with the EU and on the plurilateral negotiations such as the Trade in Services Agreement (TISA). There is also need for clarity on the Administration’s position on key multilateral trade issues, bearing in mind the WTO’s upcoming 11th Ministerial Conference in Buenos Aires at the end of this year.  Nonetheless, it is early days yet and it is hoped there will be greater policy clarity before the one hundred days have elapsed.

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.

TPP: Trump to Withdraw US from Agreement on day one

Posted on by Leave a comment

Alicia Nicholls

United States (US) President-elect Donald Trump has made clear his intention to honour one of his more popular campaign pledges; withdrawing his country from the Trans-Pacific Partnership (TPP) Agreement. He reiterated this promise in an online video aimed at updating the American people on the progress of his transition and policy plans for the first one hundred days of his presidency which will officially begin on January 20, 2017.

In a video which was silent on his more controversial plans like building a wall Mexico would supposedly pay for or pulling out of the Paris Climate Change Agreement, Mr. Trump stated that on the first day of taking office he would “issue a notification of intent to withdraw” from the 12-member mega-regional trade agreement whose members account for forty (40) percent of global GDP.

Referring to the TPP as “a potential disaster for our country”, the President-elect stated that he would instead “negotiate fair bilateral trade deals that bring jobs and industry back to American shores”, one of the main cornerstones of his Trade Policy. The US has signed the TPP but has not yet ratified it.

The TPP has faced tremendous opposition. Among other things, TPP critics have denounced the negotiations’ secrecy and lack of transparency, the potential impact on access to medicines by the stronger intellectual property rights provisions, and the investor-state dispute settlement provisions which allow investors to sue . However, Mr. Trump’s criticisms of the Agreement have been largely vague centering around the need to bring back American jobs and take back control of the American economy. On the campaign trail Mr. Trump famously called the TPP “a rape of our country“.

While Mr. Trump’s former opponent, former Secretary of State Hillary Clinton, had revoked her support of TPP during her democratic primary fight against Senator Bernie Sanders, current US President Barack Obama has been a staunch supporter of the TPP. The outgoing President recently defended the Agreement at last week’s Asia-Pacific Economic Cooperation (APEC) summit in Lima, Peru.

Mr. Trump’s promise to withdraw from the TPP may be music to the ears of TPP critics and workers in US ‘rustbelt’ states but fellow TPP member states are not optimistic. Japanese Prime Minister Shinzo Abe has said the TPP would be “meaningless” without the US. Reuters reports that Peru has proposed talks to save the TPP. It should be noted that none of the countries have ratified the Agreement as yet. With the TPP practically “dead on arrival”, Asian states appear to be already pivoting towards the China-pushed rival deal, the Regional Comprehensive Economic Partnership  (RCEP), and the Free Trade Area of the Asia-Pacific (FTAAP).

In the short video, President-elect Trump also reiterated his promise to cut regulations and increase the production of fossil fuels and pledged to “direct the Department of Labour to investigate all abuses of visa programmes that undercut the American worker”. Mr. Trump has promised in the video to share more updates in upcoming days.

The President-elect’s full video may be viewed here.

Alicia Nicholls 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.

Trump Presidency: What priorities for US-Caribbean Economic Engagement?

Posted on by

Alicia Nicholls

The United States’ position as most Caribbean countries’ largest economic partner and an important foreign policy ally means that constructive engagement with the incoming Trump administration is not just a choice but an imperative. The Caribbean Community (CARICOM) and individual Caribbean governments have all expressed congratulatory messages, emphasizing their willingness to work with Mr. Trump and continuing the harmonious US-Caribbean relationship.

But in contrast to the idealism attending then Senator Barack Obama’s “Yes we can” message eight years ago, a spectre of profound uncertainty shrouds the President-elect not just because of his extreme rhetoric on trade and foreign policy, undergirded by his “Make America Great Again” and “America First” refrains, but also the lack of policy specificity.

In this article, I will outline what I believe are five key priorities which will likely frame US-Caribbean economic and foreign policy engagement for the foreseeable future:

  1. Correspondent Banking/De-Risking

A first order of business will be continuing the conversation that CARICOM governments and stakeholders have started with US officials and regulators on the de-risking activities of US-based international banks, including the withdrawal and restriction of correspondent banking relationships. These relationships are Caribbean’ lifeline to the global financial and trading system, critical for the trade, investment and remittance flows which buoy our small open economies and sustain households.

US foreign policy orientation towards the Caribbean has constantly recognized that an economically secure “third border” complements US’ strategic security interests. Any threat therefore to the region’s economic and financial inclusion is something which should be of mutual concern. Unfortunately, there appears to be limited progress on the correspondent banking issue.

While de-risking is a cost-benefit decision for banks, it is also partly fuelled no doubt by ambiguous regulations and the Caribbean’s undeserved reputation in some quarters as a high risk place for doing business. To their credit, the US Treasury and Federal Banking Agencies released a Joint Factsheet on Foreign Correspondent Banking. Additionally, the US Treasury has reiterated that the de-risking issue is a “key priority”.

However, actions by US authorities which unfairly label Caribbean countries as “tax havens” contribute to the perception that Caribbean jurisdictions and banks are higher risk. In 2015 the state legislature of Montana, and the District of Columbia, had included several Caribbean countries among their proposed lists of tax havens. This is despite Caribbean countries’ having taken steps to ensure their compliance with the Foreign Account Tax Compliance Act (FATCA) and our clean bill of health by the Organisation for Economic Cooperation and Development (OECD).Continued engagement with US states and federal authorities on this issue is a must.

  1. International Financial Services & FATCA

Although President-elect Trump has promised to lower the US federal corporation tax rate from 35% to 15% and  provide a deemed repatriation of corporate profits held offshore at a one-time tax rate of 10%, his orientation towards international financial centres (IFCs) in general is not well-known.

The Obama administration has not been friendly to Caribbean IFCs, and that is putting it mildly. On the other hand, Mr. Trump’s background as a businessman may make him more appreciative of the role IFCs play in making US businesses more efficient and profitable, which in turn facilitates their contribution to US economic and job growth. Moreover, conventional wisdom holds that Republican governments are usually friendlier to the Caribbean than are Democratic governments, and there is good anecdotal evidence to support this.

Additionally, continued engagement with US authorities will be necessary to iron out any implementation and reporting issues under FATCA.

  1. Caribbean Basin Initiative & Other Market Access Issues 

Manufacturers in most Caribbean countries enjoy non-reciprocal duty-free access to the US market for most goods under the Caribbean Basin Initiative (CBI), an initiative of the Reagan administration in the 1980s which had both economic, ideological and geopolitical imperatives. The CBI is unilateral which means that the benefits can be unilaterally revoked and the criteria for eligibility changed at any time. However, CBI is generally believed to be beneficial to US manufacturing and jobs and Caribbean has a large trade deficit with the US, which should keep CBI off the President-elect’s immediate radar.

One sticking point in US-Caribbean trade relations is the cover over subsidies which the US Federal government pays to the US territories of Puerto Rico and the US Virgin Islands out of excise taxes it collects from imported rums, which has made Caribbean rums less competitive in the US market. Turning to merchandise trade in general, non-tariff barriers such as sanitary and phyto-sanitary and labelling requirements have also been a constraint on market access.

Caribbean workers benefit from temporary employment under the US Farm Workers and Hospitality Workers programmes. However, outside of this, Caribbean service providers have no preferential access to the US market. The CBI does not cover services trade. Caribbean business persons seeking to supply a service in the US instead rely on non-immigrant visas. Mr. Trump has promised to tighten the US’ border and control policy. It is not certain whether this will be extended to non-immigrant visas as well.

  1. Immigration & Workers’ Programmes

Mr. Trump made tightening immigration one of the cornerstones of his campaign platform. While his ire was directed towards Mexican and Muslim immigrants, Caribbean immigrants will be collateral damage. For instance, undocumented immigrants who had come to the US as children and had identified themselves in good faith when applying for protection under the Deferred Action for Childhood Arrivals (DACA) programme might have unwittingly made themselves prime targets for deportation if Mr. Trump goes through with his plans.

Most Caribbean immigrants are law-abiding citizens who are making sterling contributions to the American society. However, another pertinent concern is Mr. Trump’s vow to accelerate the deportation of those immigrants convicted of crimes to their country of birth, which has been a sticking point in US-Caribbean relations for some time. Caribbean governments have criticised the deportation of persons who were born in the Caribbean but socialised in the US with only superficial Caribbean roots. They have also linked these deportations to increased violent crime in the Region.

Mr. Trump has also spoken earlier about reforming legal immigration. This will make it difficult for Caribbean persons to emigrate legally to the US. This also has implications for remittances, a lifeline for many poorer Caribbean households.

5. Mobilising Climate Finance

Climate finance is needed to assist countries, particularly poorer and most vulnerable countries, in their climate change adaptation and mitigation efforts. It is something which the Small Island Developing States in particular were adamant upon during the negotiations leading up to the eventual signing of the Paris Climate Change Agreement.

Developed countries committed themselves to mobilising 100 billion USD in climate finance from a variety of sources each year by 2020, a pledge which dates back to Copenhagen in 2009 and one which President Obama has supported. Caribbean countries have also received climate change aid under USAID programmes.

Mr. Trump, however,  is not a believer in anthropogenic (man-made) climate change, and has vowed to “cancel the Paris Agreement”, to ramp up fossil fuel production and to defund the clean energy initiatives. Further US contribution to the Green Climate Fund, which was established to assist developing countries like those in the Caribbean, is now in question.

Conclusion

Mr. Trump’s election has evoked an aura of uncertainty over what will be the future paradigm of US-Caribbean relations. Although the Caribbean had not featured in the policy discussions during the campaign, Mr. Trump’s populist rhetoric illustrated a marked departure from the tenets of current US economic and foreign policy. He has, however, been light on specifics. If implemented, his proposals will be a strong departure from current US policy, particularly in the area of climate change which I addressed in a previous post.

Nonetheless there are two sparks of hope. Firstly, President-elect Trump is a businessman at heart and should be more attuned to a ‘dollars and cents’ argument. Secondly, Mr. Trump’s malleability in regards to his positions evinces some pragmatism on his part. It is worth remembering that for much of his public life, Mr. Trump has espoused liberal views until becoming an independent and then a Republican in later years. He has also softened some of his most ardent positions during the campaign and since winning the election, and has also been rumored to be considering some of his former Republican opponents for Cabinet positions.

These two factors suggest that there may be more scope for discussion with a Trump administration than may initially be perceived. What will the emerging Trump Doctrine mean for the Caribbean? And whether we will see a “hard” or “soft” Trump, to borrow the clever nomenclature employed by former WTO Director General, Pascal Lamy, no one knows. A clearer sense of Mr. Trump’s true policy orientation will be more discernible when more of his Cabinet picks are revealed and his proposals are elaborated upon.

While these issues I have highlighted will not be policy priorities for the Trump Administration, they are issues of importance to Caribbean countries. As such, Caribbean governments and other stakeholders must be pro-active in their engagement with the Trump administration from day-one when he assumes office in January 2017.

Alicia Nicholls 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.

WTO Public Forum 2016 focuses on “Inclusive Trade”

Posted on by Leave a comment

Alicia Nicholls

How can we make trade and trade rules more inclusive for small and medium sized enterprises (SMEs) and women in business? This was the central theme with which government representatives, NGOs, civil society organizations, business leaders, academics, students and ordinary citizens from around the world grappled at the World Trade Organisation’s (WTO) Public Forum held September 27-29, 2016. The flagship outreach event in the WTO’s calendar, the 2016 Public Forum attracted a record 2,000 registrants according to WTO Director General, Roberto Azevedo in his opening remarks on the first day of the event.

This year’s main theme “Inclusive Trade” is timely given the current global trade and economic climate marked by slowing global trade and economic growth, rising anti-trade sentiment in advanced economies and a strong populist backlash against the Trans-Pacific Partnership (TPP) and the Trans-Atlantic Trade and Investment Partnership (TTIP).

On the first day of the event, the WTO Secretariat launched its flagship trade policy publication, the World Trade Report 2016. Themed “Levelling the Trading Field for SMEs“, the Report explores SMEs’ participation in global trade, obstacles to their participation and cooperative approaches to promoting SME participation in global trade. Among the Report’s findings are that “trade participation of SMEs in developing countries is low, with exports accounting for 7.6 per cent of manufacturing sales, compared to 14.1 per cent for larger firms”.

In his opening remarks Director-General Azevedo noted that the backlash against trade and globalisation is not unique during periods of low growth, but cautioned that “history also shows the dramatic consequences that this kind of sentiment can have”. He explained that while trade was an important anti-poverty tool there needs to be acknowledgement that the benefits of trade “don’t reach as many people as they should and we should act … not by attacking trade, but by making it work better.”

Throughout the three-day event, a number of sessions and workshops were held exploring various themes, including e-commerce and bridging the global digital divide, SME access to trade finance, the sustainable development goals (SDGs), regional trade agreements (RTAs), sustainable investment, inter alia.

Audio recordings of the various sessions are available on the WTO’s website 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.

US President Obama’s Trade Agenda 2016

Posted on by Leave a comment

Alicia Nicholls

The Office of the United States Trade Representative (USTR) has released President Obama’s Trade Policy Agenda for 2016 with the theme of “Trade that serves the American People”.

As expected in an election year and the President’s final term, the agenda document mentions some of the accomplishments of the President’s trade agenda over his two-terms, including the conclusion of free trade agreements with Korea, Colombia and Panama, the signing of the Trans-Pacific Partnership Agreement, the bringing of 20 enforcement cases in the World Trade Organisation (WTO), renewing the Generalised System of Preferences (GSP) and the Africa Growth & Opportunity Act (AGOA) and “rejuvenating the WTO negotiation process”.

According to the preface to the document by current USTR, Michael Froman, the President’s 2016 agenda is centred on promoting growth, supporting well-paying jobs in the US and strengthening the middle class. To this effect, a central thrust of the Agenda will be continuing work towards achieving the removal of foreign taxes on US exports and enforcing US trade rights.

To further these goals, the administration in its remaining time has committed itself to continue its negotiation of free trade agreements which help promote jobs  for Americans and opportunities for US exporters. Mention was made of the on-going negotiations with the European Union on the Trans-Atlantic Trade and Investment Partnership (T-TIP) and deepening its relationship with Brazil through the Agreement on Trade and Economic Cooperation (ATEC). At the plurilateral level, there is commitment to conclude the Environmental Goods Agreement and the Trade in Services Agreement.

So where does the Caribbean feature in all of this? It should be noted that in the document, the Caribbean was mentioned a grand total of only twice. The document made reference to the Caribbean Basin Initiative, the US’ only permanent preference programme, and also noted that in 2016, the US  will continue its engagement with the region to encourage even greater trade and investment”.

It signals the US’ commitment towards preserving the preferential access Caribbean countries enjoy under the CBI for many of their merchandise exports. However, it also makes clear that the Region does not enjoy any real priority in Washington’s trade agenda. In contrast for example, the report notes that the US will “intensify engagement with trading partners in sub-Saharan Africa to advance key trade and investment initiatives” as US companies continue to see opportunities in Africa.

In regards to Cuba, the President’s agenda states as follows:

“Within the parameters for the new relationship with Cuba set by the Administration and the existing embargo, we will work in the WTO and bilaterally to explore ways to deepen our trading relationship with Cuba, and if conditions are right, advance the normalization of U.S.-Cuba trade relations.”

While the current agenda reaffirms the embargo, it does hint at normalisation “if conditions are right”, whatever those right conditions are.

In terms of the US’ multilateral engagements at the World Trade Organisation (WTO), the document confirms once and for all that Doha is dead as far as the US is concerned:

“In 2016, WTO members have an opportunity to undertake new approaches to longstanding issues and take up new issues without being constrained by the strictures of the Doha Round architecture.”

Instead, the President in his 2016 agenda has committed to “advancing a new form of pragmatic multilateralism that will tackle emerging issues important to developing and developed economies alike.” The agenda also states the US’ commitment to assisting the integration of Least Developed Countries into the global economy.

It is an election year in the US with its infamous “lameduck period” which brings uncertainty about how much of the Agenda the President will actually be able to achieve in his remaining time in office. The Trans-Pacific Partnership Agreement (TPP), which is a “central part of the President’s broader economic strategy”, has received major resistance and opposition both in the US congress, among the general public and some presidential candidates. As expected, the President, therefore, has a major fight on his hands to obtain Congressional approval of the TPP before he leaves office. There is no guarantee his successor will support it.

The full 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.

Fat Taxes: What Role for Fiscal Policy Interventions in Promoting Good Health in Barbados?

Posted on by Leave a comment

Alicia Nicholls

Public health is once again under the microscope in Barbados, with the lens being focused on the crippling burden of non-communicable diseases (NCDs) on the country’s health care system. According to data reported by Nation News, “an estimated 64 per cent of adult Barbadians are overweight and 31 per cent of children are obese or overweight”. If that is not worrying enough, NCDs account for 84 percent of total deaths in Barbados, according to World Health Organisation estimates. What is more, the rates of diabetes and diabetic-related amputations in Barbados are among the highest in the world. The net result is a reported $700 million a year health care budget, which is very unsustainable for a cash-strapped small island developing state which also has an aging population.

Not for the first time, public health advocates in Barbados have proposed levying a tax on foods with high fat and sugar contents as one policy measure to force dietary change among Barbadians. While it would appear that this suggestion has not met with the Barbados Government’s approval at this time, it does raise the question of what role could and should fiscal policy interventions play in promoting good health in Barbados.

The intersection of fiscal and health policy

Fiscal policy instruments are used by Governments mainly to raise revenue. However,their use  as tools for pursuing public health objectives has been receiving increased attention by governments around the world which are faced with a high incidence of obesity and NCDs. Public health advocates have argued that in much the same way that “sin taxes” such as excise taxes on alcohol and cigarettes have reduced consumption of these products over time, taxing foods high in fat, sugar or salt could influence consumption patterns away from poor dietary habits, a major risk factor for obesity and NCDs.

The fat tax is usually levied as an ad valorem or specific tax, increasing the price of the product with the intention of dampening consumer demand for the taxed product and forcing a switch to healthy alternatives. Effective August 2015, Barbados introduced a 10 percent excise tax on “sweetened beverages”. Given its novelty, it is unknown whether the “sweet drink tax” has led to any shift in Barbadians’ soft drink consumption patterns. It is to be reviewed in two years to determine whether it has met its objectives.

Fat taxes, like most taxes, are highly unpopular. Opponents argue that these measures are regressive and inefficient and are an intrusion by Government on consumers’ rights to choose their own lifestyles. Opponents also argue that these taxes place a disproportionate burden on the poor, who spend a larger proportion of their income on food.

Worldwide use of “fat taxes” 

There is still limited empirical data on the efficacy of “fat taxes” in changing consumption patterns. Several academic studies internationally have sought to model the impact of proposed taxes on consumption behaviour with mixed results. However, as one study points out, there appears to be some consensus in the academic literature that these taxes have to be substantial (at least 20 percent) in order to shift consumer behaviour.

In the real world, what little is known about fat taxes shows that their impacts has varied by market. Among the countries which have experimented with, or currently have fat taxes include Norway, France, French Polynesia, Samoa, Finland, Hungary, to name a few.

Denmark is perhaps the favourite “poster child” for anti-fat tax critics. In October 2011 Denmark instituted a tax on foods with a saturated fat content of more than 2.3 percent, which was repealed only a year later after much public outcry and dissent. According to an IEP report, the tax failed for several reasons, including the lack of impact on Danes’ purchasing habits. Many Danes either switched to cheaper brands or crossed the border into neighbouring countries to purchase these items, phenomena which Danish policymakers either had not considered or had dismissed at the time of design and implementation of the tax.

On the flipside, Mexico has been a success story. Mexico is currently battling an obesity rate which is the second highest among OECD countries. It imposed a tax of MX$1 (US$0.80) per litre on sweetened beverages and an 8 percent tax on foods containing 275 calories or more for each 100 grams in 2014. A study found that in the first year of the tax’s operation, the volume of sweetened drinks sales is said to have declined on average by 6 percent while there was a 4 percent increase in the sale of untaxed beverages like bottled water. The impact on consumption was most marked on lower income households.
What these two case studies show is that the efficacy of a fat tax  would depend on its design and application.

The proof is in the pudding

While fat taxes are often regarded as a Government intrusion, lifestyle choices, though personal in nature, can create huge burdens on the public health apparatus and the public purse. In this vein, they are a legitimate Government concern. Government intervention in the market  is sometimes necessary to save people from themselves. My personal belief is that there is a role for fiscal instruments like fat taxes in public health policy.

However, like the two cases studies of Denmark and Mexico show, the proof is in the pudding. After all, on what basis should unhealthy foods/drinks be taxed? Should it be based on their caloric content? What level of tax would be prohibitive enough to have a material impact on Barbadian consumers’ purchasing behaviour? The answers to these questions require extensive market research, including research on Barbadian consumers’ habits, the level of price elasticity of demand for these unhealthy foods, income elasticity, of unhealthy food demand, and any other unhealthy substitutes which consumers might logically shift to.

International studies and case studies are instructive but as each market is unique, Barbadian-based studies would be more consequential. A good case study would be the “sweet drinks tax” which was introduced last year. Some economists have argued that the 10 percent levy is too small influence consumer behaviour and this may well be the case.

While any policy no doubt should take into account the impact on the local manufacturing sector and employment levels therein, particularly at a time when the sector has not seen much growth, such a policy could induce manufacturers to reduce the sugar and fat contents in their products and to produce more health-conscious alternatives. Even without a fat tax and before the introduction of the “sweet drink tax”, we have seen some of our Barbadian manufacturers over the years introducing health-friendly alternatives to the market with success as Barbadians become more health conscious. One ice cream manufacturer has introduced diabetic ice cream, while another manufacturer has a line of low fat milks and low sugar juices.

There is a possible role for a fat tax but other policy interventions are needed as well. One of the major reasons given by most Barbadians for the popularity of unhealthy foods over healthy foods is the lack of affordability of many healthy alternatives. This pricing discrimination is seen in some supermarkets where low-fat foods are often more expensive than their high fat counterparts, which gives consumers little incentive to buy “healthy”. Healthy foods should be exempted from the imposition of value added tax, while import duties should be removed on healthy products, vegetables and fruits which are not made or produced locally to increase their affordability to the general public.

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.

« Older Entries