Caribbean Trade Law and Development

Category: Trade Policy

  • US President Obama’s Trade Agenda 2016

    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?

    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.

  • Report of Haiti’s 2nd WTO Trade Policy Review now online!

    Alicia Nicholls

    Following up to my previous article, Haiti has completed its second WTO Trade Policy Review which took place this week December 2nd-4th. The report of Haiti’s second review is now online.

    Haiti’s Economic and Trade Performance

    Some of the key summary points from the 2015 report in regards to Haiti’s economic and trade performance are as follows:

    • Haiti’s economy has been recovering slowly since the devastating earthquake in January 2010.
    • The fiscal deficit is largely financed by external grants and poses a considerable problem for medium-term expenditure sustainability.
    • The Haitian Government has implemented a set of measures to increase revenues and reduce the level of expenditure.
    • Haiti has maintained a large trade deficit for many years.
    • Remittances sent by Haitian workers living abroad are the main source of foreign exchange in the domestic economy.
    • Haiti’s main exports are textiles and clothing.
    • Services contribute around 56% of GDP.
    • Financial services still make only a modest contribution to GDP, although banking institutions have rapidly increased their holdings in recent years.

    Haiti’s Trade Policy Framework

    Some of the summary points in regards to its trade policy framework are as follows:

    • Generally speaking, Haiti’s trade and investment laws are relatively old.
    • Haiti has not signed any of the WTO plurilateral agreements.
    • Haiti receives non-reciprocal preferential treatment from a number of developed countries under the Generalised System of Preferences (GSP) and is also a member of the Caribbean Community (CARICOM).
    • Tariffs are still among Haiti’s principal trade policy tools, as well as being an important source of income, since customs revenue accounts for around one third of fiscal revenue each year.
    • There have been no major changes to the export regime since the previous Trade Policy Review.
    • Haiti has no legislation on competition, standardization or contingency trade measures.
    • Although a major step forward was made with the adoption of the legislation on copyright and related rights, the system of intellectual property protection remains weak, however, and trademarks are frequently infringed.
    • The agricultural sector continues to play a key role in food security and employment.The mining sector makes only a marginal contribution to GDP, despite its considerable potential.
    • Contributing to the majority of Haiti’s exports, the manufacturing sector’s contribution to GDP has remained relatively stable over recent years, at around 8%.

    The full WTO Secretariat report, the Government report and other documents from Haiti’s second trade policy review 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. Please note that the views expressed in this article are solely hers. You can also read more of her commentaries and follow her on Twitter @LicyLaw.

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

    Alicia Nicholls

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

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

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

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

    Caribbean Economies are trade dependent

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

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

    Importance of Trade Facilitation

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

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

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

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

    The Agreement

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

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

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

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

    Special and Differential Treatment

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

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

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

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

    Trade Facilitation Facility

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

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

    Status of Implementation

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

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

    Implementation Challenges

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

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

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

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

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

    The Case of Mauritius 

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

    Conclusions

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

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

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

    The full text of the Trade Facilitation Agreement is available here:

    Alicia Nicholls, B.Sc., M.Sc., LL.B. is a trade and development consultant with a keen interest in sustainable development, international law and trade. Please note that the views expressed in this article are solely hers. You can also read more of her commentaries and follow her on Twitter @LicyLaw.