Caribbean Trade Law and Development

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  • WTO predicts weak global trade growth in 2016

    WTO predicts weak global trade growth in 2016

    Alicia Nicholls

    “Trade is still registering positive growth, albeit at a disappointing rate.” This is according to the World Trade Organisation’s Director-General Roberto Azevedo in the WTO’s latest Trade Statistics and Outlook released this afternoon. In its latest report, the WTO has significantly revised its forecast of global trade growth in 2016 to 2.8%, down from its forecast of 3.9% in September 2015. This is disconcerting news for Caribbean countries  as weaker global demand also impacts demand for Caribbean exports.

    2015 performance

    According to the WTO, the projected expansion of global trade at 2.8% in 2016 would be same rate at which global trade grew in 2015. In what was described as a tumultuous year for global trade on account of weak global demand, 2015 saw trade declines in developing and developed countries in the second quarter of 2015 and a rebound in the final half of the year. South America saw the lowest growth in imports in 2015 as Brazil’s recession dampened demand for imports.

    The WTO did not provide any data for the Caribbean’s 2015 performance in its report. However, recently published data from the Barbados Statistical Service showed, for example, that though Barbados’ total merchandise exports from January-December 2015 increased year on year by $17.1 million or 1.8%  over 2014,  this export growth was limited to a robust 16.6% increase in re-exports whilst domestic merchandise exports actually fell by 8.8%.

    2016 forecast

    Though projected trade growth remains positive, WTO economists have noted that the rate of global trade growth remains below the average global trade growth rate of 5% since 1990. This year’s forecast would also make it five consecutive years that global trade would have grown at almost the same rate as global GDP, as opposed to twice as fast. The report also notes that despite the growth in trade volumes, the dollar value of trade fell 13% in 2015  due to falling commodities prices and exchange rate volatility.

    According to the WTO’s Report, Asia will lead global export growth in 2016 at 3.4% growth, followed by North America and Europe, which are both estimated to see a 3.1% increase in their exports. For South and Central America, Africa, the Commonwealth of Independent States and the Middle East, the picture is not as rosy, with imports expected to contract (albeit lower) due to low oil and commodities prices. WTO economists predict that while exports from developed countries are expected to grow around the same rate (2.9% in developed countries and 2.8% in developing), developed economies imports are projected to grow faster (at 3.3%) than developing countries’ imports (at 1.8%) in 2016.

    Noting that “risks to the trade forecasts remain tilted to the downside”, the WTO highlighted the slowdown in the Chinese economy, the worsening volatility in financial markets, exposure of countries with high levels of foreign indebtedness to sharp exchange rate movements and declining business and consumer confidence in developed countries which could lead to slower GDP growth in the EU and US in 2016.

    At the same time, the WTO has also suggested that more accommodative monetary policy of the European Central Bank could promote growth in the Euro area and encourage demand for goods and services. The WTO also highlighted the threat of “creeping protectionism” due to the growth in trade restrictive measures. The good news is that global trade growth is expected to pick up in 2017 to 3.6%.

    These are developments which the Caribbean should continue to monitor closely, particularly the developments in the US and EU, our major trading partners, as well as China which has become a leading development partner for the region. The drop in oil prices has negatively affected oil exports from Trinidad & Tobago and its economy is currently in recession. Commodities exporter Suriname has also faced hard times due to the low commodities prices.

    The full press release 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.

  • Inaugural Africa Regional Integration Index Launched

    Alicia Nicholls

    “ The Vision of the African Union is to
    become an integrated, prosperous and
    peaceful Africa, driven by its own citizens
    and representing a dynamic force in the
    global arena.”
    African Union Agenda 2063

    In a not insignificant milestone in the thrust towards a united African continent, the African Union Commission, along with the African Development Bank (AfDB),and the United Nations Economic Commission for Africa (UNECA),  launched the inaugural Africa Regional Integration Index  last Sunday in Addis Ababa, Ethiopia during Africa Development Week.

    Recognising that integration is key for securing prosperity and development for the continent’s peoples and promoting economic growth, the African Union has made it no secret that it plans to deepen the continent’s integration imperative, with plans for a continental free trade area by 2017. The African Union’s Agenda 2063 “sets out the vision for Africa’s integration path over the next 50 years” and is complemented by the Regional Integration Policy and Strategy (2014-2023) developed by the African Development Bank Group.

    However, significant data gaps on the current levels of integration and their impact on countries within the continent exist. The inaugural African Regional Integration Index 2016 aims to remedy this lacuna by providing a monitoring and evaluation mechanism, with the concomitant aim of facilitating evidence-based regional policy making.

    The current report focuses on the member countries of the 8 regional economic communities (RECs) recognised by the African Union: Community of Sahel–Saharan States (CEN–SAD),  Common Market for Eastern and Southern Africa (COMESA), East African Community (EAC), Economic Community of Central African States (ECCAS), Economic Community of West African States (ECOWAS), Intergovernmental Authority on Development (IGAD), Southern African Development Community (SADC) and Arab Maghreb Union (UMA).

    The analysis is based on five dimensions (regional infrastructure, trade integration, financial and macroeconomic integration, productive integration and free movement of people) and 16 indicators.

    Findings

    The report shows that the EAC (consisting of Kenya, Rwanda, Burundi, Tanzania, Uganda) has the highest level of integration among the RECs and “has higher than average scores
    across each Dimension of Regional integration, except for financial and macroeconomic integration”. Overall, it found that trade integration had the highest scores while financial and macroeconomic integration had the lowest. Another interesting finding was that the biggest economies, such as Nigeria, Egypt and Algeria, were not among the best integrated.

    In his foreword to the report, Deputy Chairperson of the African Union Commission, Erastus Mwencha,noted that

    Findings show that while progress is being made, with 28 high
    performing countries across the eight Regional Economic Communities, average
    integration scores stand at below half of the scale. It is time for Africa to build on this
    and drive regional integration ever further forward.

    African integration still has a long way to go and many of the challenges facing Africa in its integration efforts are not dissimilar to those we share in the Caribbean Community (CARICOM). For instance, similar to CARICOM, Africa countries’ major trading partners are not each other but are external. Intra-African trade currently constitutes around 12% of total African trade, lagging behind other regional groupings. A myriad of logistical and other challenges have served as barriers to intra-African trade and a continental FTA would be a solution to removing many of these barriers.

    I believe this index initiative is a laudable step, even more so that the results have been made available to the public. To know where one needs to go, one needs to know where one stands and the empirical data contained in this stocktaking report are an important first step in both measuring and monitoring the pace and impact of integration on the countries included and should serve as a basis on which reforms and policy decisions concerning the region can be made. It is something which we in the Caribbean Community (CARICOM), whose  experimentation with integration predates Africa’s, should consider emulating as we seek to reform our own integration process.

    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.

     

  • Correspondent Banking concerns raised in IMF’s Staff Report on Belize

    Alicia Nicholls

    Though noting that the termination of major correspondent banking relationships with Belizean banks has so far had a limited impact on that country’s financial system and economic activity, the International Monetary Fund (IMF) in its latest staff report on Belize pursuant to its Article IV consultations agreed that the “recent termination of corresponding banking relationships with Belizean banks and banks in many other countries could have a significant impact on financial stability and economic activity in the affected countries.”

    Belize is one of the few Caribbean countries, whose government still sees it fit to allow the IMF  Article IV staff reports to be publicly available. Belize has been at the forefront of efforts by Caribbean governments to raise awareness about the havoc the loss of correspondent banking relationships due to international banks’ de-risking practices could have on the economies of the Region, including on their trade, investment and remittance inflows.

    Last year, Bank of America, one of the largest US banks, terminated its correspondent banking relationship with Belize Bank. The IMF staff report noted that this had had a limited impact on the financial system as new arrangements were able to have been put in place with the help of the Central Bank and major credit card companies. However, among the downside risks which could affect their baseline outlook, the IMF noted that “other banks could also lose their CBRs with global banks with severe impact on international financial transactions”.

    IMF directors “urged the authorities regulating international banks that are terminating correspondent banking relationships to better clarify their expectations of how these international banks should deal with local banks they perceive as “high risk””.

    The IMF staff lauded Belize’s AML/CFT reform efforts, noting that “the deficiencies identified by the Caribbean Financial Action Task Force (CFATF) in 2011 have been mostly addressed”. They did, however, stress that “important reforms are still needed to ensure compliance and effective implementation of Belize’s AML/CFT regime in line with the 2012 FATF standard”.

    In regards to Belize’s overall macroeconomic position, the IMF highlighted the recent improvement in economic activity. However, they noted that “Belize’s economic outlook is characterized by sluggish growth, weak fiscal stance, and external and financial sector vulnerabilities”. Though predicting that growth over the short-to-medium term would hover around 2.5 percent, they noted that excess spending could cause the fiscal outlook to worsen. They also expect public debt to increase to “unsustainable levels” in excess of 100 percent of GDP in 2016.

    The full IMF Staff Report on Belize 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.

     

  • Global Trade and Socio-economic tides pushing Caribbean countries to the back of the shoal: Integrate or be left behind

    Alicia Nicholls

    A few days ago I had the pleasure of being on the Regional Integration panel at the 17th Annual SALISES Conference held this year in Barbados where I presented a paper co-authored with founder and president of the African, Caribbean and Pacific Young Professionals Network (ACP YPN), Miss Yentyl Williams. The consensus all the panelists had reached in our papers was that as small fish in a very large pond, Caribbean countries are facing a growing swell of global trade and other socio-economic tides which are deepening our marginalisation in the global economy.

    We argued that the region desperately needed to deepen and widen its integration process or face being further relegated to the back of the global shoal. Of course, what we were saying was not novel and indeed, has been one of the oldest and most compelling justifications for the regional integration project.

    The Good

    Caribbean countries have generally attained high levels of socio-economic and political development and high per capita incomes, which have put us “ahead of the pack” of other small island developing states (SIDS). An unfortunate side effect has been the graduation of several “high income” Caribbean countries like Barbados, the Bahamas and Trinidad & Tobago from accessing most concessional loans and grants, with a shift in aid focus towards Least Developed Countries (LDCs). We also have long traditions of stable democratic rule underpinned by respect for the rule of law which has been a source of comfort for investors seeking to do business in the region.

    The Bad

    Despite these very noteworthy accomplishments, Caribbean countries confront many challenges endemic to SIDS, including vulnerability to natural disasters and to international economic and financial shocks, open economies with a high dependence on imports and on a narrow base of exports and trade partners, a paucity of natural resources, unsustainably high levels of debt, low growth rates, wide fiscal and current account deficits, declining competitiveness, growing informal economies and unpredictable foreign direct investment (FDI) inflows.

    The potential shift in trade rule making from the multilateral level (Doha is practically dead post-Nairobi), to the regional and plurilateral levels means Caribbean countries will be subject to rule-taking on important trade issues such as services, competition policy, investment and government procurement, without having a seat at the negotiating table. Mega regional trade agreements like the recently concluded Trans-Pacific Partnership Agreement (TPP), the Trans-Atlantic Trade and Investment Partnership (TTIP) which is currently under negotiation and plurilaterals under negotiation like the Trade in Services Agreement (TISA), also have the potential to further erode the narrow margins of preference Caribbean countries’ exports enjoy in the US and EU markets respectively. Regional exports to these countries are not only below potential but remain heavily concentrated in commodities, namely, minerals and fuels and agricultural products,  and some textiles.

    Although low oil prices have benefited oil-importing countries of the region by lowering their fuel import bills, the region’s largest oil exporting economy, Trinidad & Tobago, has gone into recession.

    One bright spot is that Caribbean tourism appears to be on the rebound in the aftermath of the impact of the global recession. The latest Caribbean Tourism Organisation (CTO) State of the Industry Report indicates that in 2015, international arrivals to the Caribbean region grew 7%, outpacing global tourism growth of 4% in the same period. Tourist arrivals from within the Caribbean increased by 11.4%. Nonetheless, shocks like 9/11 and the global recession and possibly the current Zika outbreak, highlight the very sensitive nature of the industry, which has implications for countries like Barbados, the Bahamas and the Eastern Caribbean where tourism is a major foreign exchange earner and employer.

    The loss of correspondent banking relationships due to the de-risking practices of banks in metropolitan countries has the potential to undermine the region’s trade, investment and remittance flows, a lifeline for many communities within Caribbean countries. The view of the region as being a “risky” place to do business cannot be divorced from Caribbean countries’ constant need to fight their inclusion on arbitrary blacklists, with the EU being one of many latest examples. On the social front, there is rising unemployment and underemployment, which are particularly acute among young persons, as well as rising crime and security concerns.

    All of these challenges, many both national and regional in texture and scope, are injurious to regional development, including our progress towards achieving the 17 United Nations sustainable development goals (SDGs). These challenges necessitate harmonised national and regional responses. However, progress on the regional project remains lacklustre.

    Functional cooperation has been the pillar in which CARICOM has been most successful. There has also been some success on the foreign policy coordination front as exemplified by the Region’s cohesive position at the Paris Negotiations which led to the Paris Agreement. However, economic integration has been where the challenge lies. The implementation deficit, though spoken of ad infinitum, remains problematic given the long delays in domestic implementation of regional decisions and missed deadlines. The “E” of the Caribbean Single Market and Economy (CSME) is still in the realm of dreams as opposed to reality.

    CARICOM countries export the majority of their trade extra-regionally (mainly to the US, EU and Canada). Intra-regional trade remains low and under-exploited and dominated by CARICOM MDCs, particularly petroleum exports from Trinidad & Tobago.

    Without doubt, the lack of political will deserves a significant share of the blame for the current malaise. The fact that most CARICOM states have still not signed on to the appellate jurisdiction of the Caribbean Court of Justice is just but one example. At the same time, the slow process of integration in CARICOM can be juxtaposed to the deep level of integration among member states of the Organisation of Eastern Caribbean States, which have their own Eastern Caribbean Supreme Court, currency union, central bank and recently have granted Martinique, a French Caribbean Outermost Region, associate membership.

    Besides the lack of political will, other factors remain hindrances to regional integration as well, including human and financial capacity constraints at the national and regional levels, limited monitoring and evaluation of member states’ implementation of reforms and the inability of CARICOM to force compliance with regional imperatives due to its intergovernmental structure. Not to be overlooked are the fears, suspicions and nationalist sentiments we Caribbean people still harbour towards each other, as well as the very “inward looking” as opposed to “regional looking” approach by  many regional leaders.

    The options

    As the saying goes, Caribbean states are tiny fish in a very large pond but a shoal of fish is better than one if the region is to avoid being swept away by global tides and relegated to the back of the global shoal. Boosting intra-regional trade among Caribbean countries and trade with third states are priorities. For this, improving trade facilitation and ease of doing business in the region are a must.

    Caribbean countries have an average rank of ease of doing business of 104 out of 189 economies, according to the latest World Bank Doing Business Survey 2016. Though in ease of trading across borders, Caribbean countries had a average regional rank of 95 (higher than Latin America (108) and East Asia Pacific Islands (112), a lot more work needs to be done. Just compare our average to the comparable SIDS, Mauritius which topped Africa with a rank of 32 in 2016. The highest ranking Commonwealth Caribbean country was Jamaica (68).

    Doing business between Caribbean countries can be a frustrating exercise due to differing customs regulations and other regulatory standards, existing non-tariff barriers to trade (e.g: sanitary & phyto-sanitary standards and technical barriers to trade), foreign exchange controls, the high cost of regional transport and lack of access to timely information on documentary and other requirements. While the region has very liberal investment regimes, investors seeking to do business in multiple Caribbean countries have to navigate a complex web of different border and behind the border regulations. This increases the cost of doing business.

    A single economic and investment space as envisioned by the CSME, aided by fiscal, investment policy and regulatory harmonisation, would make intra-regional trade easier and also make the region a more attractive destination to extra-regional investors. To this effect, it is imperative that Caribbean countries follow through with the current reforms and the vision of the CARICOM Strategic Plan 2015-2019. Additionally, so far just a handful of Caribbean countries have ratified the World Trade Organisation’s Trade Facilitation Agreement, which while a global agreement, the reforms undertaken would also benefit intra-regional trade.

    What the  global financial and economic crisis has reinforced is the need for Caribbean countries to diversify their export profiles and trade partners. The latter is happening to some extent as both China and Venezuela have become major investors and development partners in the region, adding to the traditional partners of the US, EU and Canada. However, China’s economy has slowed as it transitions from export-led to more consumption-led growth. Venezuela faces significant socio-economic turmoils which call into question the sustainability of the Petrocaribe arrangement, under which most Caribbean countries receive oil from Venezuela on highly concessional terms. Some OECS countries are exploring deepening diplomatic and possibly economic relations with Middle Eastern countries. Antigua & Barbuda recently announced it was establishing an embassy in Iraq and lifted its ban on Iraqi nationals seeking to apply for its Citizenship by Investment programme.

    Like all trading economies Caribbean states have both offensive and defensive interests. There is the need to convert market access under existing trade agreements such as the CARIFORUM-EU Economic Partnership Agreement and preferential arrangements like the Caribbean Basin Initiative (CBI) and CARIBCAN into market presence. CARICOM should also explore the expansion of existing partial scope agreements the region has with the Dominican Republic (its CARIFORUM partner), Costa Rica, Cuba and  Colombia, as well as the possibility of concluding trade arrangements with other South and Central American countries.

    Additionally, there is the need to move into higher value products than just traditional commodities like cocoa, sugar and rice and also accelerate the development of possible growth sectors like the cultural industries, transshipment, ICTs and renewable energy (for domestic consumption and possible export). To this effect, the region needs to make optimum use of aid for trade initiatives.

    CARICOM countries must continue to speak with “one voice”, particularly on global trade, economic and social issues which have implications for the development of our economies and our peoples. This includes continued advocacy for the interests of small vulnerable economies (SVEs) in WTO negotiating groups and continuing to support the multilateral system to ensure its primacy, and not FTAs and plurilaterals, as the forum for trade rule making so that the Region has a say in the rules to which it is subjected.

    OECS countries have long seen the utility of maintaining joint representation in diplomatic capitals, such as the OECS Joint Mission in Brussels. It is time CARICOM consider the same.

    Any regional strategy requires continuity and continuity mandates engaging the future of the region – our young people. The region has to harness and unleash the energies of its young people, many of whom feel alienated from the regional integration process and from their societies in general. While the CARICOM Youth Ambassadors is a great step, I have always argued that CARICOM needs a Young Professionals Programme similar to the young professionals programmes of other organisations, where the region’s young people, many of whom have increasing difficulty finding jobs commensurate with their skills, can be systematically recruited into various regional institutions and inject new ideas and enthusiasm. As SIDS, our human resource has always been our greatest resource. It is time we exploit it to the fullest.

    In sum, the growing challenges facing the region means it cannot be business as usual. The time for talking is over. It is time for action. Countries with economies and populations larger than ours have seen the importance of deepening their integration. As small fish in a large pond, Caribbean countries need to do the same or face being left at the back of the global shoal.

    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.