Caribbean Trade Law and Development

Blog

  • 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.

  • WTO Panel rules in Argentina’s favour in EU Biodiesel Anti-dumping Case

    Alicia Nicholls

    A World Trade Organisation (WTO) dispute settlement body panel has ruled primarily in Argentina’s favour regarding anti-dumping measures imposed by the EU on Argentine biodiesel exports to the EU. Inter alia, the panel found that the EU had contravened the Anti-dumping Agreement and the GATT 1994 by failing to calculate the cost of production of the product on the basis of the records kept by Argentine producers, and by imposing anti-dumping duties in excess of the margins of dumping that should have been established per the Anti-dumping Agreement and the GATT 1994.

    Background

    The dispute (DS473) European Union – Anti-dumping Measures on Biodiesel from Argentina surrounds two EU measures regarding biodiesel imports from Argentina and Indonesia, namely:

    • Article 2(5), second subparagraph, of Council Regulation (EC) No. 1225/2009 of 30 November 2009 on protection against dumped imports from countries not members of the European Community (the Basic Regulation)
    • Anti-dumping measures imposed by the European Union on imports of biodiesel originating in Argentina and Indonesia.

    The EU’s anti-dumping measures were implemented following an investigation by the European Commission after the European Biodiesel Board (EBB), which represents the interests of EU biodiesel producers, lodged a complaint on July 17, 2012, for anti-dumping against biodiesel imports from Argentina and Indonesia. The  EBB has argued that Argentine and Indonesian biodiesel producers were selling biodiesel at artificially low prices in the EU market thereby putting the EU biodiesel industry at a disadvantage, compromising jobs in the industry and the industry’s ability to contribute to sustainable green transport in the EU.

    In January 2013, the Commission made Argentine and Indonesian biodiesel imports in the EU subject to registration. Following its investigation, the Commission imposed provisional anti-dumping duties on May 29, 2013 and definitive anti-dumping duties on 27 November 2013. In the Definitive Regulation No 1194/2013, it was calculated that the injury margins ranged from 41.9% to 49.5% . The EU applied anti-dumping duties of 22.0% to 25.7% which took the form of specific duties expressed as a fixed amount in euro/tonne.

    Argentina, one of the world’s largest exporters of biodiesel, argued that the EU’s measures were protectionist and aimed at protecting inefficient European biodiesel producers. It has been reported in Argentine media that the measures are estimated to have cost Argentina almost the equivalent of 1,600 million dollars worth in biodiesel exports annually.

    The Dispute

    In December 2013, Argentina requested consultations with the EU and requested that a panel be established in March 2014. A panel was established in April 2014.

    Argentina based its claims on various articles of the Anti-Dumping Agreement, the General Agreement on Tariffs and Trade (GATT) 1994 and the WTO Agreement, arguing that “as applied” the EU’s measures were inconsistent with various articles of these agreements. Argentina also asked the Panel to find that Article 2(5), second subparagraph of the Basic Regulation was  “as such” inconsistent with Articles 2.2, 2.2.1.1 and 18.4 of the Anti-Dumping Agreement, Article VI:1(b)(ii) of the GATT 1994, and Article XVI:4 of the WTO Agreement.

    “As such inconsistent”, basically means that the measure is inconsistent in and of itself and is not solely inconsistent because of its application in a specific instance. “As such” challenges are therefore “serious challenges” as noted by the Appellate Body in US – Oil Country Tubular Goods Sunset Reviews particularly given the presumption that WTO Members act in good faith in the implementation of their WTO commitments.

    Additionally, the ruling’s contribution to the WTO’s body of jurisprudence should not be overlooked. As noted by the panel, Argentina’s claims “raise[d] complex questions pertaining to the interpretation of Articles 2.2 and 2.2.1.1 of the Anti-Dumping Agreement and Article VI:1(b)(ii) of the GATT 1994 that have not been addressed previously by panels or the Appellate Body”.

    Ruling

    In its panel report released yesterday (March 29), the panel found in favour of most of Argentina’s complaints. However, the Panel found that Argentina did not establish that Article 2(5), second subparagraph of the Basic Regulation was “as such” inconsistent with Articles 2.2.1.1 and 2.2 of the Anti-Dumping Agreement and Article VI:1(b)(ii) of the GATT 1994.The Panel also rejected  Argentina’s claim that the amount for profits established by the EU authorities (15% on turnover) was not based on a reasonable method  within the meaning of Article 2.2.2(iii) and also rejected Argentina’s claim that the EU had failed to meet the “fair comparison” requirement under Article 2.4 of the Anti-Dumping Agreement.

    However, the Panel did find in Argentina’s favour on several key issues. Argentina claimed that the EU had failed to calculate the cost of production of biodiesel on the basis of the records kept by the producers/exporter under investigation and had therefore acted inconsistently with Article 2.2.1.1 of the Anti-dumping Agreement.

    Article 2.2.1.1. of the Anti-dumping Agreement provides that:

    For the purpose of paragraph 2, costs shall normally be calculated on the basis of records kept by the exporter or producer under investigation, provided that such records are in accordance with the generally accepted accounting principles of the exporting country and reasonably reflect the costs associated with the production and sale of the product under consideration.

    One of the issues the Panel had to consider was whether an investigating authority’s belief that a producer/exporter’s records reflect costs that are artificially low due to an alleged distortion constitutes a legally sufficient ground under Article 2.2.1.1. for that authority to find that a producer/exporter’s records do not “reasonably reflect the costs associated with the production and sale of the product under consideration”.

    The EU authorities had argued that Argentina’s Differential Export Tax had artificially depressed the domestic price of soybeans and soybean oil (the inputs for Argentina’s biodiesel) and had distorted Argentine producers’ production costs.  They argued that this cost distortion should be taken into account in constructing Argentine producers’ normal value and chose  to rely on the average reference price of soybeans published by the Argentine Ministry of Agriculture for export as opposed to the actual price for soybeans reported in the Argentine producers/exporters’ records.

    The panel found that the EU’s argument for ignoring the producers’ costs  did not constitute a legally sufficient basis  for arguing that the producers’ records do not reasonably reflect the producers’ costs as required per Article 2.2.1.1 of the Anti-dumping Agreement.Because of its ruling on Article 2.2.1.1, the Panel did not see it necessary to rule on whether as a consequence, the EU had acted inconsistently with Article 2.2 of the Anti-Dumping Agreement and Article VI:1(b)(ii) of the GATT 1994 in this regard.

    The Panel also found that the EU did not use a cost that was the cost prevailing in the country of origin (i.e. Argentina) in the construction of the normal value and had therefore acted inconsistently with Article 2.2 of the Anti-Dumping Agreement and Article VI:1(b)(ii) of the GATT 1994.

    The Panel ruling also supported Argentina’s claim that the EU had imposed anti-dumping duties in excess of the margin of dumping per Article 2 of the Anti dumping argument and had therefore also acted inconsistently with Article 9.3 of the Anti-Dumping Agreement and Article VI:2 of the GATT 1994.

    The Panel upheld Argentina’s claim finding that as it relates to production capacity and capacity utilisation, the EU had acted inconsistently with Articles 3.1 and 3.4 of the Anti-Dumping Agreement. However, the Panel ruled that Argentina’s claims with respect to the EU authorities’ evaluation of return on investments fell outside of the Panel’s terms of reference.

    The Panel concluded that “to the extent that the measures at issue have been
    found to be inconsistent with the Anti-Dumping Agreement and the GATT 1994, they have nullified or impaired benefits accruing to Argentina under these agreements”. Pursuant to Article 19.1 of the DSU, the Panel recommended that the EU bring its measures into conformity with its obligations under the Anti-Dumping Agreement and the GATT 1994.

    Both parties have 60 days in which to file an appeal against the panel’s decision.

    Indonesia, which was also affected by these EU measures, was one of the third parties to this dispute. Indonesia also currently has a dispute pending against the EU on this matter (DS480 :  EU – Anti-dumping measures on biodiesels from Indonesia).

    A summary of the panel report and  the full panel report may be accessed 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.

  • Summary Report of Public Consultation on Future of ACP-EU Relations Released

    Alicia Nicholls

    The African, Caribbean and Pacific (ACP) Group and the European Union (EU) are currently in a period of reflection on the future and form of ACP-EU cooperation post the expiration of the Cotonou Partnership Agreement (CPA) in 2020. The EU launched a public consultation “Towards a New Partnership between the EU and the ACP Countries after 2020” which took place between 6 October to 31 December 2015. Last Monday, the European Commission released its summary report of this public consultation.

    A wide variety of stakeholders submitted responses, including the ACP Young Professionals Network whose response may be viewed here. Public authorities/ international organisations was the largest category of shareholder which sent responses, followed by civil society organisations.

    As part of the ACP group, CARIFORUM countries have enjoyed a privileged relationship with the EU for the past four decades. The EU is a major trade, investment and development partner for CARIFORUM countries and it is in the region’s best interest to ensure that any new framework for EU-ACP engagement takes into account the region’s interests and concerns.

    It is therefore quite unfortunate that there was such poor representation of CARIFORUM stakeholders among those which submitted responses as part of the joint consultation. Of the 103 responses received, only one came from a stakeholder within a CARIFORUM state – Jamaica.  The overwhelming majority of non-EU responses were from entities based in African countries.

    Key points from the Summary Report

    It was noted in the summary report that the major problem highlighted by respondents was “the difficulty to attribute progress or lack thereof specifically to the CPA framework or to EU policy as a whole”.
    Some of the other key points noted in the summary report are that:
    • Respondents were generally of the opinion that the Cotonou Partnership has had a positive contribution to human and social development, including poverty reduction. However, opinions seem divided on its contribution towards sustainable and inclusive economic development.
    • Respondents, however, had a more critical opinion of the CPA’s effectiveness with respect to several other areas, including private sector development and foreign direct investment.
    • Implementation of the Sustainable Development Goals (SDGs) was the main priority put forward in regards to the future of joint ACP-EU relations, with private sector development, improved business environment and business promotion being identified as priorities in the framework of sustainable and inclusive economic growth.
    • With respect to the future form of ACP-EU collaboration, a large majority of respondents favoured a stronger role for civil society actors and the private sector.
    The full summary 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.

  • US President Obama lands in Cuba; US hotel to open in Cuba

    Alicia Nicholls

    According to a CNN news report, United States President Barack Obama landed in Cuba on Sunday. President Obama’s three-day visit to Cuba marks the first time in more than eighty years that a sitting US president has stepped foot on Cuban soil. The US president, who is accompanied by first lady Michelle Obama and daughters Malia and Sasha, was greeted upon arrival by top Cuban officials.

    In related news US hotel chain Starwood has reached an agreement to open the first US hotel in Cuba since the embargo. According to this BBC report, Starwood will renovate and operate three hotels in Havana.

    Rapprochement

    President Obama’s visit is the latest in a series of steps taken by his administration since December 2014 towards normalising relations between the US and Cuba. These steps have involved the progressive removal of some travel and trade restrictions and include:

    • Allowing individual travel by US citizens to Cuba for educational “people to people” purposes, although a general travel ban remains in effect
    • Approval of a ferry service between the US and Cuba
    • Allowing US bank accounts for Cuban nationals
    • Re-opening of US embassy in Havana
    • Lifting of restrictions on export financing
    • Agreement to resume commercial air links between the US and Cuba. Several US airlines have already signed up.

    A full list of the restrictions eased are available in a press release issued by the US Treasury and Commerce Departments.

    However, despite the President’s calls for congress to lift the decades-old embargo, it remains.

    More will be posted as the story develops.

    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.