Blog

Alicia Nicholls

UPDATE: As of November 5, the full text of the Agreement is now online.

Frustration with the snail pace of multilateral trade negotiations has compelled many countries to shift their focus to pursuing bilateral and regional trade agreements. The most notable of these is so-called “mega regional trade agreements” like the Trans-Pacific Partnership (TPP) Agreement which was finally agreed to on October 5, 2015. Agreements like the TPP are considered mega regional trade agreements not just because of the multi-regional scope but in their ambitiousness.

The Ministers released a Joint Statement confirming the successful conclusion of the agreement and noting that:

“In addition to liberalizing trade and investment between us, the agreement addresses the challenges our stakeholders face in the 21st century, while taking into account the diversity of our levels of development.  We expect this historic agreement to promote economic growth, support higher-paying jobs; enhance innovation, productivity and competitiveness; raise living standards; reduce poverty in our countries; and to promote transparency, good governance, and strong labor and environmental protections.”

While some argue regional trade agreements pose a threat to the multilateral system, there is much merit to the school of thought that they can be used as a stepping stone for developing multilateral rules on difficult areas. Additionally as per WTO rules, the TPP will have to be notified to the WTO and will be subject to its provisions and procedures, including review by WTO members.

According to the Summary of the TPP released on the USTR’s site, the framers of the TPP argue it is a 21st century agreement due to five main factors: comprehensive market access, regional approach to commitments, addressing new trade challenges, inclusive trade and a platform for regional integration.

The agreement is contentious particularly in the US and Canada which are currently in the midst of election campaigns. The TPP has received objection from a myriad of civil society groups due to portions of the text leaked by Wikileaks and the secrecy of the negotiations. Among the major objections being made include the potential impact on workers’ rights, environment regulation and the perceived threat investor protections may have on Governments’ policy space and regulatory flexibility.

The official text of the TPP has not yet been released, neither has the US Congress ratified the Agreement as yet. However, we do know that the TPP will be significantly WTO-plus in much of its scope and provisions. The devil is in the details and until an official text is released, a lot of the objections are just conjecture and speculation.

Here are some general facts:

• The Agreement creates a free trade zone comprising 12 Pacific-Rim ( Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, United States, and Vietnam), spanning four continents: North America, South America, Australia and Asia
• The TPP has 30 chapters and was negotiated as a single undertaking encompassing a wide array of issues, including market access for goods,services, labour, intellectual property, technical barriers to trade and textiles, inter alia.
• The Agreement plans to be a modern 21st trade agreement, which provides modern rules for current trade realities. As such, it includes rules on new and emerging trade issues like e-commerce, the environment, telecommunications, financial services, investment, government procurement, state-owned enterprises,small and medium sized enterprises, and competition law.
• The agreement was initially to be completed in 2012 but delays arose due to disagreements around contentious issues.
• There were 19 rounds of formal negotiation rounds followed by TPP Ministers’ meetings and Officials’ meetings.
• The TPP will comprise 40% of global GDP and encompass a population of about 800 million people.

Like everyone in the trade world, I look forward with bated breath to the public release of the official text!

UPDATE: As of November 5, the full text of the Agreement is now online. For more in this TPP Article series, click here.

Alicia Nicholls, B.Sc., M.Sc. is an international trade and development consultant with a keen interest in sustainable development, international law and international relations.

Alicia Nicholls

When we think national security in the region, terrorism and drug trafficking are often the first threats which come to mind. However, if there is anything that the current drought stifling the islands of the Caribbean highlights is that water (in)security has far-reaching security and development implications. While the water (in)security problem is not new nor Caribbean-specific, the small island developing states (SIDS) which make up the majority of Caribbean states are especially vulnerable to changes in precipitation created by El Nino and more widely, climate change. What is undeniable is that water (in)security is a national and regional security problem which requires an enhanced national and regional response.

Water is a fundamental resource, a fact recognised by the UN General Assembly on June 28, 2010 in the Resolution on the Human Right to Water and Sanitation (Resolution 64/262).The most common working definition of “water security” is that provided by UN-Water (2013). The Agency defines water security as “the capacity of a population to safeguard sustainable access to adequate quantities of acceptable quality water for sustaining livelihoods, human well-being, and socio-economic development, for ensuring protection against water-borne pollution and water-related disasters, and for preserving ecosystems in a climate of peace and political stability”.

Water security is inextricably linked to other forms of security as well as to social and economic development. Water access is needed for domestic consumption and is a necessary input in agriculture, tourism and other productive sectors.

Many islands of the Caribbean rank among the most water-stressed and water scarce countries in the world. According to data provided in FAO AQUASTAT, average rainfall in the islands of the Eastern Caribbean ranges from 2350mm in Grenada to as low as 1030mm in Antigua & Barbuda. Unlike in many developing countries where access to clean water is an issue, the main issue for most Caribbean countries is not so much water quality but water scarcity. Caribbean countries have two distinct seasons; dry and rainy (hurricane season), with rain from weather systems during the rainy season being important for recharging surface water and underground aquifers. Experts attribute the longer than normal dry season and relatively ‘quiet’ hurricane season currently being experienced to El Nino, a phenomenon in which above average warming of the Pacific Ocean affects weather patterns.

There is no denying that this current drought affecting the region has been among the most severe in recent years. Some countries like Jamaica, Haiti, the Dominican Republic and Cuba have reportedly suffered crop losses and concomitant drops in agricultural production as a result of the low rainfall. Other countries have reported lower river volumes or dried stream beds. In May, the Government of St Lucia declared a water emergency in light of the drought conditions. In Barbados which depends wholly on freshwater sources, yields from freshwater aquifers are low and the lack of water for days on end in several rural communities has been a hot topic on call-in programmes. Sporadic rains from weather systems have so far not been enough to replenish the region’s diminishing reservoirs and aquifers.

These water resources stresses are not new for Caribbean SIDS. The jury is out on how long this current iteration of El Nino, believed to be one of the most severe on record, is likely to last. Besides EL Nino, the Caribbean is already being challenged by the effects of climate change, which has seen changes in precipitation patterns resulting in longer dry spells and more catastrophic natural disasters. Freshwater aquifers in coastal areas  can be affected by saltwater intrusion if sea levels continue to rise. Aside from this, growing populations, especially in urban corridors, will place increasing demands on an already scarce potable water supply. All of this does not bode well for the region’s fragile water resources.

What is clear is that water (in)security must be on the top of national and regional security agendas in the region not just during drought times but always. How do we in the Caribbean translate water scarcity to water security?  The short-term mitigation strategies currently being employed include water rationing, the installation of temporary standpipes, and the digging of more bore holes. In Barbados the Minister of Agriculture announced there will be community storage tanks placed in communities across the island. Some businesses  and households across the region have temporarily cut back on unnecessary water use, while public service campaigns have been encouraging households to conserve water by eliminating the use of scarce drinking water for activities like washing cars or watering lawns.

Longer term strategies will need to be dealt with both at the national and regional level to address water availability and quality. Past droughts have compelled many Caribbean countries to construct desalination plants. There may be the need to construct more desalination plants or increase the capacity of existing plants. One of the major water governance challenges for water service providers is dealing with aging water supply systems and reducing the high incidence of unaccounted for water. The Barbados Water Authority in Barbados has reported that it has embarked on several initiatives to tackle the current water crisis affecting several parts of the island, including the introduction of metering, investment in an extensive main laying and upgrading program to deal with aging infrastructure and reduce the incidence of unaccounted for water. More sustainable water management practices on both a micro and macro level should mean less leakage.

Contamination of water supplies through pollution also has an impact on water availability and quality. Steeper fines should be put in place for dumping in watersheds and water sources. Better waste disposal practices should be encouraged to prevent contamination by sewage and waste water run off from households and businesses.

Industries such as agriculture, the tourism sector and industry account for a large amount of the water consumed. Farmers should be educated about the use of environmentally sustainable farming practices. Once feasible, tax incentives or credits could be given to encourage the installation of water tanks and the use of rainwater harvesting and waste water recycling.Tourism, including hotels and cruise ships, places huge demands on water resources, much more than domestic consumption. Perhaps more incentives could be put in place for hotels to use more efficient water conservation and management technologies and techniques.

Dealing with the water supply and demand gap is a development and natural security challenge. It is a regional problem which requires the collective minds of regional leaders and civil society, not just in CARICOM but the wider Caribbean. Many of the larger macro solutions aimed at adaptation and mitigation will be challenging for cash-strapped Caribbean states. Continued funding, technical assistance and capacity-building from state and non-state development partners will be key. There is also the increased need for regional standards on sustainable water management and the sharing of water management best practices.  For all our sakes, a water secure Caribbean is a goal we all need to prioritise.

Alicia Nicholls, B.Sc., M.Sc. is an international trade and development consultant with a keen interest in sustainable development, international law and international relations.

Alicia Nicholls

Small states of the Caribbean, which leverage their competitive advantage as low tax jurisdictions to attract international business, are no strangers to the “tax haven” smear. However, the European Commission’s release of a ‘naming and shaming’ list of 30 countries, including 14 Caribbean countries, which its member states view as uncooperative in tax matters (a polite term for “tax haven”), arguably came straight out of left field as we say in our local parlance.

The list was published in tandem with the Commission’s “Action Plan for Fair and Efficient Corporate Taxation”, part of the EU’s crackdown on companies which seek to avoid paying taxes in the EU by diverting their profits to offshore jurisdictions. The catalyst for the European Commission’s crackdown was the Luxembourg Leaks “Luxleaks” scandal in which thousands of leaked documents revealed the millions of dollars major multinational companies were able to save in taxes through tax deals with the Government of the Duchy of Luxembourg. The Commission’s first response was a Tax Transparency Package, a series of transparency measures aiming to boost tax transparency, including a proposed requirement for member states to automatically exchange information about their tax rulings.

In his speech “Corporate Taxation Action Plan”, Commissioner with responsibility for tax, Pierre Moscovini, noted the aim was “to push non-cooperative non-EU jurisdictions to be more cooperative and to adopt international standards, agreed at G20 level for example.” He further stated it was their hope “that all of these jurisdictions will soon adopt the agreed international standards, in particular the exchange of information, to fight against tax evasion. Some have already done so.”

This action by the EU raises several questions, least of which is why have these states been targeted? Firstly, the majority of the states listed are small states, with small populations and equally small GDPs, which pose little to no threat to European countries’ tax receipts. Some small European jurisdictions like Guernsey, Monaco and Liechtenstein are included on the list. Curiously, however, larger states such as Luxembourg, the Netherlands and Ireland which are currently the subject of investigations are conspicuously absent.

Secondly, the criteria used to single out these states as tax havens is sketchy. Each of the states on the list has been blacklisted by at least 10 of the 28 EU countries as tax havens.According to the EC’s website, the criteria for identifying these states include “compliance with transparency and exchange of information standard, absence of harmful tax measures and “other criterion”, whatever that “other criterion” means. This issue of criteria is an important one as several of the states listed currently have signed or are in the process of ratifying tax agreements with states on whose blacklists they appear. Barbados for instance has tax agreements with Italy, Spain, Slovakia and Portugal, while Cayman Islands has agreements with all but one of its accusers. What therefore are the criteria?

This brings us to the big question, why now? In light of the revelation of Luxleaks and the European public’s demand for answers, it behooves the Commission to call for reforms of the community’s tax policy and go after those they believe to be responsible for billions of dollars in lost revenue to member states’ coffers. In such a case, by targeting Caribbean offshore jurisdictions, the EU is off mark. The biggest tax competitors for EU countries are within the EU itself. The right to tax has long been regarded as one of the hallmarks of national sovereignty and is a right states guard jealously. The EU does not as yet have a harmonised tax policy, meaning that member states still compete with each other through tax incentives to attract large companies. The Commission itself recognises this as it seeks to relaunch its proposal for a mandatory Common Consolidated Corporate Tax Base (CCCTB), which will create a common and singular set of rules by which companies calculate their taxable profits in the EU.

Secondly, Caribbean offshore tax jurisdictions have little incentive to be uncooperative in tax matters.  In many countries the international business sector is a major source of corporate profits and foreign exchange, as well as employment. In Barbados it accounts for approximately 60% of corporate revenues. Most Caribbean countries, including Barbados, pride themselves not solely on their low tax rates, but their high levels of transparency, regulation and integrity as offshore domiciles while at the same time offering tax efficient vehicles and a business friendly environment. Moreover, the kinds of legitimate international businesses which Caribbean islands seek to attract often do not wish to be seen as carrying on business in tax havens. Reputation means everything.

This challenge by the EU is just one in the long line of attempts by wealthy countries to crack down on offshore jurisdictions which they blame for taking tax revenues out of their reach. In the late 1990s to the mid-2000s Caribbean countries fought hard, and successfully so, to be taken off the OECD’s blacklists in its Harmful Tax Practices reports. Many states have gone to great pains to be in compliance, including signing Tax Information Exchange Agreements and enacting and updating Anti-money laundering legislation.  Barbados’ strategy has been to go beyond TIEAs and negotiate full double taxation agreements in order to maximise the developmental benefits. By constantly speaking of stamping out “tax avoidance”, there also seems to be a further intentional blurring of the line between tax avoidance, which is perfectly legal, and tax evasion, which is illegal.

The EU’s blacklist has little merit. Several countries, including Barbados, have made clear their intentions to challenge their blacklisting status. Besides the questionable omissions already mentioned, most of the countries which have Caribbean offshore jurisdictions on their national blacklists do little if any business with the Caribbean. In contrast, the UK, with which most Caribbean countries have a treaty, has not named a single jurisdiction as uncooperative which speaks volumes. At least, the OECD’s Global Forum on Transparency and Exchange of Information for Tax Purposes has distanced itself from the list, stating categorically “[a]s the OECD and the Global Forum we would like to confirm that the only agreeable assessment of countries as regards their cooperation is made by the Global Forum and that a number of countries identified in the EU exercise are either fully or largely compliant and have committed to AEOI, sometimes even as early adopters.”

This is but a small consolation at least.  Yet the question cannot helped be asked, when will the attacks on Caribbean offshore jurisdictions end?

Alicia Nicholls is a trade policy specialist and researcher.