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Why the proposed US fee on remittance outflows to LAC makes no sense

Posted on April 30, 2017 by caribbeantradelaw

Photo credit: Pixabay

Alicia Nicholls

The cost of sending remittances from the US to some Latin American and Caribbean countries and dependencies will increase should HR 1813 introduced in the United States (US) House of Representatives on March 30, 2017, be passed. The proposed Bill entitled the “Border Wall Funding Act of 2017”, would amend the Electronic Fund Transfer Act by imposing a two percent fee on the US dollar value of remittances (before any remittance transfer fees) on the countries listed. The bill is sponsored by Representative Mike Rogers, a Republican from Alabama’s third district.

One of President Donald Trump’s most controversial campaign promises was to build a wall along the US’ southern border, which he claimed would be paid for by the Government of Mexico, to deter illegal immigration. The Government of Mexico has consistently and strongly denied that its taxpayers would be paying for the wall. As a result Republican lawmakers have been seeking ways to fund the wall without relying on the US taxpayer. Instead, should this bill become law, it will raise money for the wall on the backs of hardworking Caribbean and Latin American immigrants living in the US, some of which are actually US citizens.

Here are some few reasons why I, respectfully, believe the proposed fee makes no sense:

The wall will still be paid for by some US taxpayers

The two percent fee is to be imposed on the sender of any remittances sent to recipients in the countries identified. Ironically, it would still be funded by some US taxpayers as some remittance senders are either US-born or have acquired US citizenship or have greencard status. Data from the 2015 American Community Survey show that there are an estimated 4 million Caribbean-born immigrants living in the US. Some 58.4% of those became naturalised US citizens, while 41.6% are not yet US citizens according to US Census Bureau 2016 data.

2. The list of ‘foreign countries’ excludes some of the largest sources of illegal immigrants to the US

The affected countries would be: Mexico, Guatemala, Belize, Cuba, the Cayman Islands, Haiti, the Dominican Republic, the Bahamas, Turks and Caicos, Jamaica, El Salvador, Honduras, Nicaragua, Costa Rica, Panama, Colombia, Venezuela, Aruba, Curacao, the British Virgin Islands, Anguilla, Antigua and Barbuda, Saint Kitts and Nevis, Montserrat, Guadeloupe, Dominica, Martinique, Saint Lucia, Saint Vincent and the Grenadines, Barbados, Grenada, Guyana, Suriname, French Guiana, Ecuador, Peru, Brazil, Bolivia, Chile, Paraguay, Uruguay, and Argentina.

This arbitrarily drawn up list raises two main questions. (1) Why were Caribbean countries included in this list? The Caribbean sub-region as a whole only accounts for 2% of the illegal immigrant population in the US, according to Migration Policy Institute analyses. (2) Why were only countries from the Americas targeted when several Asian countries, like China for example, rank among the top sources of illegal immigrants to the US?

3. It is unlikely to raise enough money to pay for the border wall

It is unlikely that the two percent fee will raise enough money to pay for a wall which is estimated by a leaked memo from the US Department of Homeland Security to cost some 21.6 billion dollars, particularly if the monies will be raised mainly on the back of remittances sent to small Central American and Caribbean countries. Moreover, despite the threat of penalties, people will inevitably find ways to evade the fee by increasing their use of informal channels for sending remittances.

4. It could destabilise the US’ backyard which is contrary to US strategic homeland security interests.

With many of the region’s economies already threatened by de-risking, elevated debt levels and high unemployment, this proposed Bill is another worrying development. Although I do not believe the fee will stop the US-based Caribbean diaspora from remitting money to their loved ones, it may make it more difficult for them to do so as frequently as they normally do, which could have social and economic implications for the most remittance-dependent economies.

The Caribbean diaspora community in the US is an important source of remittance flows to the Region. According to a World Bank Migration and Development Brief released this month, stronger US job growth and a stronger US dollar were major reasons why the LAC Region was the only region to register an increase (6.9 percent) in remittance flows, with a total of $73 billion inflows in 2016. This is in contrast to the global landscape where remittances to developing countries in 2016 declined for the second consecutive year in a row.

Haiti and Honduras are the two most remittance dependent countries in the LAC Region and rank among the most remittance-dependent economies in the world, among countries for which data are available. Data provided in the previously mentioned World Bank Report show that in 2016 remittance inflows were equivalent to 27.8% of GDP for Haiti, 18.4% of GDP for Honduras, 17.6% of GDP for Jamaica, 17.2% of GDP for El Salvador, and 8.6% of GDP for Guyana. For Belize it was 5% and Dominica, 4.6% of GDP.

A 2010 Report released by the Bank of Jamaica entitled “Remittances to Jamaica: Findings from a National Survey of Remittance Recipients” revealed that “more than half of the remittances sent back to Jamaica come from the US” and found that “remittances are an essential source of financing to many Jamaican recipients, which is used to supplement household income for necessities such as food, utilities and education”.

Successive US administrations have generally recognised that an economically and socially stable Caribbean region was in the US’ strategic homeland security interests. This is why the US government through its various economic and military aid programmes has poured millions of dollars into assisting Caribbean countries on issues such as crime, border security, among other things.

Besides the hardship that could be caused at the micro-level, a reduction in remittance inflows due to higher costs could have poverty alleviation and crime reduction implications and could have a destabilising effect on those economies and societies which are the most dependent on them. The same Bank of Jamaica report noted that “remittances to Jamaica have become an important source of foreign exchange and balance of payments support”.

Due to the paucity of official remittance data for many Caribbean countries, the importance of remittances to LAC economies is still underestimated and its micro and macro-economic importance to Caribbean economies is likely higher than currently measured.

How should we respond?

The bill has been referred to the House Subcommittee on Crime, Terrorism, Homeland Security and Investigations on April 21, 2017 and will need to be debated and passed by both chambers of Congress before being sent to the President for signature into law.

Latin American and Caribbean governments, along with their diplomatic representatives and the diaspora, should lobby against the passage of this bill by engaging in discussions with Congressional and other officials on the serious economic and social impact any potentially significant decline in remittance inflows could have on remittance-dependent countries in the Region, and the spin-off negative effect this could have on the US homeland.

To view the text of the proposed Bill, please see 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.

French Election 2017: What’s at stake for the world and the Caribbean?

Posted on April 23, 2017 by caribbeantradelaw 3 comments

Photo source: Pixabay

Alicia Nicholls

The results of the first round of voting in the two-round French presidential elections are in! Pro-EU businessman Emmanuel Macron and far-right candidate Marine Le Pen are the two candidates who will face off in the second/final round of voting within a fortnight.

French presidential elections do not normally attract this much fanfare internationally, but the results of the first round of the 2017 race are interesting for two main reasons. The first is that there is a 50% chance that there could be a Le Pen presidency which would add to a growing string of political upsets globally. The second is that neither candidate is from the mainstream political parties in France, a firm rejection by the French people of the entrenched political establishment, not unlike what occurred in the US with the election of Donald Trump.

France has a two-ballot presidential election system which means that in the event of no one candidate winning over 50% of the votes in the first ballot, the two front-runners have to face off against each other in a second ballot. As of the time of this article’s writing, Emmanuel Macron is estimated to have won this first run-off with 23.9% of the vote, while Ms. Le Pen came second with 21.4%, beating the other candidates.

France at the moment is facing lacklustre GDP growth, high unemployment, high debt and an increase in high-profile and deadly terrorist attacks, which means the anti-establishment, anti-business as usual mood comes as no surprise. Incumbent President, Francois Hollande, currently faces low approval ratings and has decided not to seek a second term.

The Two Candidates

While Macron and Le Pen are ‘outsiders’ from the political mainstream, the two candidates represent two diammetrically opposed worldviews. Emmanuel Macron is a former investment banker who has never held elected office, but had worked for Mr. Francois Hollande during the 2012 Presidential Election campaign. He also subsequently served as Minister of Economy, Industry and Digital Affairs under then Prime Minister Manuel Valls in 2014 until August 2016. Mr. Macron founded his own party En Marche! in April 2016 which currently has 253,907 members, according to the Party’s official website. The centrist Mr. Macron is pro- Europe, socially liberal and believes that France’s prosperity can be ensured through pursuing pro-trade and outward-looking policies and through continued membership in the EU.

Marine Le Pen is a lawyer, a Member of the European Parliament since 2009 and the leader of the populist Front National, a far-right party which had been on the dark fringes of French politics until recently. She is the daughter of Front National co-founder, Jean Marie Le Pen, a far-right ethno-nationalist. She sought to distance herself from some of her father’s most extreme views as she sought to broaden the Party’s appeal, and succeeded in having him ousted from the party. Ms. Le Pen, however, has strongly anti-immigrant, anti-EU views and has expressed enthusiastic support of both Brexit in the UK and the election of Donald Trump in the US.

The polarity in the views of the two candidates means that the election of either will have completely opposite global implications.

What’s at stake with the French presidential election?

Although polls are showing a Macron victory, Le Pen still has a chance of winning the final run-off on May 7. A Le Pen victory on May 7th would be the continuation of a nationalist, inward-looking turn in advanced western economies, with both economic and geopolitical implications. Domestically, she has indicated her intention to pursue protectionist economic policies and champion anti-immigration reforms. She is anti-globalisation and anti-free trade. She has vowed that she would pull France from the EU and the eurozone, and the North Atlantic Treaty Organisation (NATO). She has voiced her intention to strengthen relations with Russia and had forcefully condemned the EU decision to extend its sanctions on Russia until mid-2017.

In their forecasts for the global economy and world trade respectively, both the International Monetary Fund (IMF) and the World Trade Organisation (WTO) have forecast higher growth rates but noted the vulnerability of the forecast growth to trade, monetary and other policies pursued by governments. IMF Managing Director, Christine Legarde (who is a former French Minister of Finance) has been reported as stating that a Le Pen presidency could lead to political and economic upheaval.

First, France is the 6th largest economy in the world. A founding member of the EU, it is also the eurozone’s second largest economy. A more isolationist France would impact on the global economy and have implications for western approaches to current global threats and a reshaping of global alliances. Moreover, a French withdrawal from the EU (termed ‘Frexit’), coming on the heels of the UK’s withdrawal from same, could plunge the EU into an existential crisis more so than Brexit would.

Any implications of the French election for the Caribbean?

Will there be any implications of a possible Le Pen presidency for the Caribbean? The specifics of Ms. Le Pen’s policies are still not fleshed out. However, a French withdrawal from the EU would reduce the amount of EU development assistance which the region currently receives under the European Development Fund (EDF).

But what about trade? Thanks to the Economic Partnership Agreement (EPA) signed between the EU and CARIFORUM in 2008, the countries which make up CARIFORUM (CARICOM plus the Dominican Republic) currently enjoy preferential market access for their goods and services to the EU market, including to the French market (and to French Caribbean Outermost Regions, by extension).

However, should France leave the EU, it would no longer be a party to the EPA. On its own, the lack of preferential access to the French market would be unlikely to have any significant economic impact on the anglophone Caribbean trade-wise as the volume of trade between English-speaking Caribbean countries and metropolitan France is limited.

There are, however, small but growing trade links between some CARICOM countries) and the FCORs, which are Martinique, Guadeloupe and French Guiana. Martinique, for example, is one of the most important source markets for tourists to St. Lucia. While there are issues which have inhibited greater CARIFORUM trade with FCORs including the language barrier and the ‘octroi de mer’ (dock dues) charged on all imports into FCORs (despite the EPA), the FCORs are also seen as stepping stones for exporting to continental Europe using the EPA. A French withdrawal from the EU if Ms. Le Pen wins means the latter will not be possible.

It is the democratic right of the French populace to choose which of the two candidates is in their country’s best interests. However, given France’s economic and geopolitical importance globally, and the political upsets of late, the results of the final round on May 7 will reverberate far beyond its borders.

The Trump Presidency – Implications and Opportunities for Caribbean IFCs

Posted on April 21, 2017 by caribbeantradelaw Leave a comment

Alicia Nicholls

On March 31, 2017 I was a panellist representing FRANHENDY ATTORNEYS at the Barbados International Business Association (BIBA) Barbados International Business Forum 2017 entitled “Is the Barbados International Business Sector Under Attack?” held at the Lloyd Erskine Sandiford Centre in Barbados.

I was on the second panel which discussed the topic “The Trump Presidency – Implications and Opportunities for IFCs“. My esteemed fellow panellists were Jeremy Stephen, Economist and UWI Lecturer, Lisa Cummins, Executive Director of UWIConsulting and Cadian Dummond, Attorney at Law. The discussion was expertly moderated by Melanie Jones, Partner at Lex Caribbean Attorneys-At-Law.

I spoke to the possible implications of the Trump Presidency in regards to de-risking, FATCA and visa restrictions.

For those who missed the panel discussion and have expressed interest in my remarks, please find a copy of same in powerpoint form here. Enjoy!

For more on past presentations I have done, please see news and announcements.

Will US Financial Deregulation help mitigate the de-risking phenomenon?

Posted on April 2, 2017 by caribbeantradelaw Leave a comment

Alicia Nicholls

The exigencies of complying with a complex and often confusing maze of overlapping regulations, coupled with steep fines for compliance breaches, have been identified as principle drivers for United States-based global banks’ restriction and termination of correspondent banking relationships with respondent banks in other jurisdictions. As part of his promise to “Make America Great Again”, US President Donald Trump has pledged to cut the regulatory noose argued to be strangling US enterprise and growth. Will this deregulatory push have the unintended spin-off of mitigating the de-risking phenomenon facing several countries around the world, including Caribbean States?

President Trump has been adamant that ‘burdensome’ regulations passed during the Obama administration to avert a repeat of the Global Economic and Financial Crisis of 2008, have been fetters on US business activity and prosperity. While most available data point to the contrary, the Trump Administration and Corporate America posit that Obama-era regulations like the Dodd-Frank Wall Street Reform and Consumer Protection Act (2010) have reduced bank profitability and risk appetite, culminating in dampened bank lending to consumers and businesses.

President Trump has so far signed two executive actions on financial deregulation. The latter, an executive order dated February 3, 2017, sets out seven core principles for regulating the US Financial System. It mandates Treasury Secretary, Steve Mnuchin, to consult with the heads of the member agencies of the Financial Stability Oversight Committee (FSOC) and to submit to the President within 120 days a review of “laws, treaties, regulations, guidance” inter alia, which among other things inhibit regulation in sync with the Core Principles. There has been reportedly a shift towards more ‘pro-business’ regulators. Perhaps most telling, in contrast to his anti-Wall Street rhetoric during the campaign, President Trump has picked several former bankers (notably Goldman Sachs) for key cabinet and administration positions, including for Treasury Secretary.

Stringent compliance burdens and costs, as well as uncertainty about the interpretation of the regulations, are major drivers for banks’ avoiding, rather than managing risks. Will an unintended consequence of financial deregulation in the US be a mitigation of the de-risking phenomenon? While at first blush this conclusion may appear tempting, I respectfully submit that this may be an overly optimistic view, at least at this early stage, for the reasons which I outline below.

Firstly, the Trump Administration has set its cross-hairs firmly on the Dodd Frank Act which President Trump termed a “disaster”. This Act, which is hundreds of pages long, was passed in the aftermath of the Great Recession. It includes, for instance, rules against predatory lending, sets measures to deal with banks which become “too big to fail”, prohibits proprietary trading by banks for their own profit (Volcker Rule), inter alia. While Dodd Frank is not perfect and has been blamed for contributing to de-risking, repealing it would not only create an environment for a resumption of the pre-crisis risky behaviours by banks and other financial institutions. It would set the stage for a repeat of 2008, in much the same way that deregulation during the 1990s to early 2000s, including changes to the (now repealed) Glass-Steagall Act, laid the groundwork for the Great Recession, almost a repeat of the Great Depression of the 1930s.

Secondly, Dodd-Frank is just one aspect of the de-risking problem. There appears to be no indication that the Trump Administration intends to tackle the constellation of other regulations, including international anti-money laundering, countering the financing of terrorism (AML/CFT), tax and banking regulations (Basel III), with which banks, including in the US, must comply.

In the World Bank’s seminal 2015 global survey on the Withdrawal from Correspondent Banking, some 95% of large banks had cited “concerns about money-laundering/terrorism financing risks” as a driver for withdrawing from correspondent banking relationships. However, it is unlikely that the Trump Administration will try to rollback AML/CFT rules. President Trump’s ‘America First’ ethos has a strong national security undertone. Weakening the US’ AML/CFT rules would likely make him appear ‘soft’ on money laundering and countering the financing of terrorism. International pressure is also a factor as the US’ last Financial Action Task Force (FATF) Mutual Evaluation Report (2016) highlighted some AML/CFT weaknesses, including gaps in timely access to beneficial ownership information.

Thirdly, replacing existing regulators with so-called pro-business regulators does not necessarily mean that there will be a more lenient approach to fines imposed on banks for compliance breaches. Unlike popular belief, most of the large banks which have been made to pay record fines had indeed knowingly committed serious AML/CFT breaches.

Fourthly, even if financial deregulation in the US eases the regulatory pressure on US global banks, it does not affect two core problems which appear to be driving the de-risking of regional banks, namely the perceived unprofitability of providing correspondent banking services to indigenous Caribbean banks, and the Caribbean region’s unjustified characterisation as a ‘high risk’ region for conducting financial services. In the previously mentioned World Bank 2015 Survey, some 80% of large banks cited “lack of profitability of certain foreign CBR services/products” as a driver of exiting correspondent banking relationships.

Further to the latter point, Caribbean countries, particularly international financial centres (IFCs) are consistently and unjustifiably placed on US government lists deeming them as money laundering threats, despite the fact that no Caribbean IFC is currently on any CFATF list of ‘high-risk and non-cooperative jurisdictions’. The most notorious example of this unfair practice is the US’ annual International Narcotics Control Strategy Report, the latest edition of which listed 21 Caribbean jurisdictions without providing (as usual) any evidence to support the conclusions drawn.

Caribbean countries are consistently branded as tax havens in spite of the fact that all Caribbean countries have signed intergovernmental agreements (IGAs) with the US Government pursuant to the extra-territorially applied US Foreign Account Tax Compliance Act (FATCA) passed in 2010. Most Caribbean governments have already passed implementing legislation to bring their IGAs into force. In addition, while the US has opted not to be a part of the OECD’s Common Reporting Standard, several Caribbean countries have elected to be early adopters!

Added to this is that compliance officers in overseas banks usually view the Caribbean as a “collective” and not as individual countries; any perceived risks in one country are transposed to the Region as a whole.

Granted, it is still early days of the Trump Administration and the findings of the Treasury Secretary’s report on which regulations may possibly be earmarked for axing would not be known for some time. What does help, however, is where there is clarification of the rules through clearer guidance. For instance, for a long time it was unclear how far banks’ due diligence requirements were to go. In addition to knowing their customer (KYC), there appeared to be a growing consensus that banks were also supposed to know their customer’s customers (KYCC). Definitive guidance through the FATF Guidance in October 2016 showed that KYCC was not required. Turning to the US, that same month the US Office of the Comptroller of the Currency (OCC) released guidance to assist banks in the periodic risk reevaluation of foreign correspondent banking relationships.

However, the Region would be well-advised not to expect any serious mitigation of the de-risking phenomenon stemming from US financial deregulation. Despite being a ‘pro-business’ administration, it should be remembered that the overriding goal of the Trump Administration’s regulatory rollback is to “Make America Great Again”, point blank. Any spill-over positive benefits to the Caribbean from Trumpian financial deregulation would be welcomed but unintended, and it is more likely that the regulatory rollback may perhaps be more harmful than helpful to the region.

There is no panacea for the de-risking phenomenon as it is caused by a multiplicity of factors. Regional governments and private sector stakeholders should continue their lobbying and advocacy efforts, including engagement with key US administration officials, regulators and the banking sector. Given the Trump Administration’s ‘America First’ disposition, lobbying efforts which emphasises the implications that possible derisking-related economic and social destabilisation in the Caribbean may have on the US’ homeland security would be more impactful than pure moral suasion.

These advocacy efforts should also highlight to US officials and to US correspondent banks Caribbean countries’ own efforts at continuously improving their AML/CFT frameworks and the compliance efforts of Caribbean banks. Regional banking stakeholders should also continue to explore the possibility of investing in technologies such as Know Your Customer (KYC) utilities and legal entity identifiers (LEIs) to assist in customer due diligence (CDD) information sharing between themselves and their US correspondents.

These were part of the remarks I gave as a panellist at the Barbados International Business Association (BIBA) International Business Forum 2017.

WTO Trade Facilitation Agreement: Why is it important for Caribbean Small States?

Posted on February 23, 2017 by caribbeantradelaw Leave a comment

Alicia Nicholls

History was made on February 22^nd when the World Trade Organisation (WTO) Trade Facilitation Agreement (TFA) finally came into force. Coming into effect some four years after its conclusion at the WTO’s 9^th Ministerial held in Bali, Indonesia in 2013, the TFA is a momentous achievement for the world, but also a plus for Caribbean small States which, like other developing countries, stand to benefit the most from the Agreement’s full implementation. Indeed, WTO economists estimate that full implementation of the TFA “could reduce [global] trade costs by an average of 14.3% and boost global trade by up to $1 trillion per year.”

Economic growth was one of the three broad themes discussed at the 28^th Intersessional Meeting of the Heads of Government of the Caribbean Community (CARICOM) held in Georgetown, Guyana last week. Trade, both intra- and extra-regional, is an important contributor to economic growth, employment and poverty reduction. CARICOM Secretary-General Irwin Larocque recalled that the Community “has identified the CARICOM Single Market and Economy (CSME) as the best vehicle to promote our overall economic growth and development”.

However, despite trade accounting for between 54-135% of Caribbean countries’ GDP according to World Bank data, the region’s share in global trade has been on a decline. Export performance and investment attraction remain lacklustre. Market and product diversification remain limited. Moreover, according to the last Caribbean Trade and Investment Report published in 2010, although intra-CARICOM merchandise trade was gaining momentum, it still only comprised “a minute portion of total CARICOM trade”.

Trade Facilitation can improve Caribbean trade

There is no one factor which explains the region’s declining trade performance or the still limited intra-CARICOM trade. For instance, a 2015 Compete Caribbean study noted that except for three countries, customs and trade regulations were found not to be a significant obstacle for doing business. With regard to intra-regional trade, high transportation costs remain one of the biggest barriers. However, with regard to extra-regional trade, a 2013 World Bank Report highlighted the low customs performance of Caribbean countries’ despite their high trade openness. Another World Bank report noted that port handling charges in the Caribbean “can be two to three times higher than in similar ports in other regions”.

Unnecessarily burdensome border procedures and costly border fees make it difficult for exporters to access other markets, even where trade agreements or preferential arrangements exist. This is made even more difficult in cases where customs and other administrative procedures are opaque and rely largely on paper-based processes as opposed to electronic payments and e-documents. While large firms can invest the time, human and financial resources in navigating complex border rules and procedures in other markets, small-and medium sized enterprises (SMEs)’s often lack this luxury. Add in a foreign language, and it gets even more complicated. Improving trade facilitation can help boost Caribbean countries’ competitiveness, while facilitating policies and support structures can assist Caribbean firms’ access to regional and international markets. After all, States do not trade, firms do.

The TFA addresses one of the biggest constraints of SMEs seeking to do business internationally through the simplification, harmonisation and modernisation of customs procedures, while also fostering transparency and reducing transaction costs. The TFA includes provisions aimed at facilitating the release and clearance of goods through customs, requires States to publish rules and procedures and to establish contact points for enquiries, facilitates border agency cooperation, provides procedures for appeal and review and disciplines for fees and penalties, inter alia.

Developed countries have committed to implementing all of the provisions of the Agreement upon its entry into force, which means accessing those markets should be easier at least from a customs standpoint. Like other WTO developing country and Least Developed Country (LDC) Member States, Caribbean countries’ implementation of the TFA will be based on their ability to do so. Member States are allowed to schedule their commitments for the Agreement’s provisions into three categories: A, B, C, with category A commitments being those which the Member State can implement upon the Agreement’s entry into force (or within one year of entry into force for an LDC). Importantly for Caribbean countries, they will also have access to the Trade Facilitation Agreement Facility which was established to assist developing countries and LDCs in their implementation efforts.

In a world with increasingly globalised supply chains, the smooth flow of trade across borders is important for improving Caribbean countries’ competitiveness and ability to participate in Global Value Chains (GVCs). Implementing the reforms pursuant to the TFA can also be beneficial for intra-regional trade, through the harmonisation of customs procedures.

Trade facilitation has other benefits as well, as noted in the WTO study on this issue. An improved trade and investment climate increases the attractiveness of a country for foreign direct investors. Moreover, transparent customs procedures reduce the opportunity for customs fraud and corruption, and improves revenue collection. It should be noted that not only are foreign direct investment inflows critical for Caribbean economies, but customs and other import taxes remain an important revenue source for many Caribbean governments.

Trade Facilitation Measures in the Caribbean

The encouraging news is that several Caribbean countries have begun trade facilitation reforms, including improvements in port infrastructure and simplification of customs procedures in recent years. As was noted in the World Bank’s Doing Business Report – 2017, Antigua & Barbuda removed the requirement of a tax compliance certificate for import customs clearance, while Grenada streamlined its import document submission procedures. Haiti has allowed the submission of supporting documents online under its SYDONIA electronic data interchange system.

Trinidad & Tobago was among the first countries to ratify the TFA, while Belize, Guyana, Grenada, Jamaica, St. Kitts & Nevis, St. Lucia and Dominica have also ratified the Agreement. Trinidad & Tobago (in regards to advance rulings) and the Dominican Republic (has not yet ratified the TFA) and Jamaica (authorised traders) are among several countries which have been identified as case studies in the implementation of trade facilitation measures.

With the help of a loan from the Inter-American Development Bank (IDB) Barbados (which has not yet ratified the TFA) has introduced an Electronic Single Window, part of a wider competitiveness programme. Through its Global Logistics Initiative, Jamaica is seeking to take advantage of its location in one of the world’s busiest shipping lanes to become the premier logistics node within the Americas. However, in light of increased competition from other parts of the world, particularly for global investment flows, there is the need for the region to increase the pace of its trade facilitation reforms.

What is next?

Given the benefits that the at-the-border and behind-the-border reforms pursuant to the TFA can have for regional SMEs and for facilitating Caribbean trade, it is hoped that other Caribbean countries will ratify the Agreement. For those which have not yet done so, ratification of the Agreement could serve as a powerful signal to investors of their commitment to trade and business facilitation.

Caribbean countries should move expeditiously to develop and implement national strategies for trade facilitation. This would involve assessing their country’s readiness to implement the various provisions of the TFA through identifying capacity gaps and implementation needs, on which basis they will categorise the provisions and make their notifications. Implementation capacity, of course, varies from one country to another. Caribbean countries should also continue to make use of technical and financial assistance and capacity building support for the implementation of the measures.

Climate Change, the Caribbean and US-Caribbean Strategic Re-engagement (HR4939)

Posted on January 30, 2017 by caribbeantradelaw Leave a comment

Photo credit: Pixabay

Alicia Nicholls

Much of the attention on United States’ President Donald Trump’s chaotic first week in office has been on his temporary, but draconian ban on all refugees and on immigrants and nationals from seven predominantly Muslim countries. However, his actions against the environment are just as concerning, particularly for Caribbean small island developing states (SIDS) which are suffering from the adverse effects of climate change. Lest one mistakenly thinks this is a Caribbean or SIDS problem alone, President Trump’s anti-climate action stance further endangers those communities in the US which are already being threatened by climate change.

In this article I outline some of President Trump’s anti-environmental actions taken within his first full week in office, and argue that Caribbean countries have a good case to make for why it is in the US’ vital national interests for the Trump administration to reverse its potentially disastrous anti-climate action course before it is too late. I also posit that the newly signed US-Caribbean Strategic Engagement Act of 2016 (HR4939) provides a possible mechanism for US-Caribbean climate change action and that the omission of climate change as an identified priority for US-Caribbean cooperation would be inimical to the objectives of the Act.

President Trump’s Anti-Environmental Actions thus far

President Trump sees an inherent incongruity between promoting climate action and fomenting US job creation and energy independence. As warned by a Sierra Club report released during the presidential campaign, the former businessman would be (and currently is) the only world leader to deny the science and seriousness of climate change.

Mr. Trump had even tweeted in November 2012 that the global warming concept was a “hoax invented by the Chinese” to make US manufacturing noncompetitive. While he later claimed the tweet had been a joke, what is not a joke, however, are the several executive actions Mr. Trump has signed just in a week to reverse the climate action policies of his predecessor, now former President Barack Obama. In the US’ Intended Nationally Determined Contribution (INDC) submitted in 2015, President Obama had pledged to cut US emissions by 2025 by 26-28 Percent from 2005 Levels.

During the presidential campaign Mr. Trump had clearly stated his intention to withdraw the US from the Paris Climate Agreement, in which parties aim, inter alia, to “keep a global temperature rise well below 2 degrees Celsius above pre-industrial levels” and (at the insistence of SIDS) to “pursue efforts to limit the temperature increase even further to 1.5 degrees Celsius”. As at the time of writing this article, news reports are stating that Mr. Trump will shortly sign an executive order formally withdrawing the US from the Agreement, which President Obama had ratified in 2016 through executive action.

While withdrawing his country from the Agreement will not be as straightforward as one may think, there are three ways in which Mr. Trump can basically undermine the Agreement’s objectives. Firstly, he can refuse to honour the emissions’ targets set by President Obama by cutting environmental regulations such as mileage and emissions standards for cars, and increasing US domestic fossil fuels drilling. Second, he can refuse to participate in any international climate action through, among other things, avoiding participation in future climate talks and refusing to honour global climate finance commitments made by the previous administration. Thirdly, he can direct that funding be cut for climate research and undermine the work of the Environmental Protection Agency (EPA) in other ways. As the US is the world’s largest greenhouse gas emitter, these actions would be a significant blow to global climate action efforts.

President Trump’s nominee for Energy Secretary, former Texas Governor, Rick Perry, and for EPA Administrator, Scott Pruitt are both climate change deniers. In fact, Mr. Pruitt, had filed 14 law suits against the EPA while serving as Oklahoma’s Attorney-general, while Mr. Perry had once vowed to abolish the same agency he will now lead.

Mr. Obama’s Climate Action Plan had focused, inter alia, on deploying clean energy, cutting US emissions, cutting energy waste in homes and businesses, preparing the US for the impacts of climate change, and leading international action on climate change.Mr. Trump’s America First Energy Plan, which has replaced the Climate Change page on the Whitehouse.gov website, speaks of eliminating President Obama’s Climate Action Plan and Waters of the US Rule, reviving the US’ coal industry, and increasing fossil fuel drilling.

Within the first week of taking office, President Trump has signed executive orders which will make the once considered dead and buried Keystone XL Pipeline and the Dakoka Access Pipeline (DAPL) once more realities, to the chagrin of environmental activists. Mr. Trump has signed presidential memoranda streamlining, permitting and reducing regulatory burdens for domestic manufacturing and also signed an executive order expediting environmental reviews and approvals for high priority infrastructure projects.

Upon his taking office, the climate change page from the Whitehouse.gov website was unceremoniously scrubbed. References to climate change on various other US government sites have been erased. Perhaps more worryingly are the gag orders reportedly placed on employees in various government agencies, including the EPA, from engaging with the Press or the public. A report by the Guardian further states that the Trump administration is now requiring studies or data from EPA scientists to undergo review by political appointees before they can be made public. It has been reported that some scientists have been backing up climate data. US agencies are among some of the most important sources of climate-related data, which are critical for monitoring climate patterns and for formulating evidence-based climate action policies.

Previous US-Caribbean Climate Change Cooperation

Caribbean countries are now faced with a climate-sceptic US president (for the next four years at least) at a time when the window for limiting the global temperature increase to less than 2 degrees Celsius above pre-industrial levels is closing. While there are legitimate criticisms that can be levelled at the Obama Administration over things like its treatment of Caribbean offshore financial centres and its failure to compensate Antigua in its long-running US-Antigua Gambling World Trade Organisation (WTO) dispute, that administration was undoubtedly an important friend for Caribbean countries in the global fight against climate change because the Obama administration understood that the US and the entire planet was at risk.

Not only had US cooperation been crucial in the lead up to, and during the COP21 negotiations, but President Obama’s early ratification of the Paris Agreement by executive action had paved the way for the historic Agreement’s early entry into force. President Obama had also pledged $3 billion to the Green Climate Fund set up by developed countries in 2010 to assist developing countries with their adaptation and mitigation efforts, and from which Caribbean countries also would benefit. He had transferred $500 million last year and transferred an additional $500 million installment ahead of schedule just three days before leaving office. President Trump is unlikely to honour the remaining $2 billion promised.

Caribbean countries also benefited from USAID funding for climate change adaptation projects. The future of such aid is doubtful under President Trump. Indeed, my own personal search of the USAID website, while conducting research for this article, showed that some of the pages on that agency’s climate change funding initiatives have been deleted.

Why should the Trump Administration care about climate change?

President Trump sees climate change action as inimical to US national economic and security interests, but this is not the case for the reasons outlined below:

(a) Climate Change is affecting US communities

The US itself has not been spared the ravages of climate change and Mr. Trump’s inaction on this issue will destroy the very American businesses, jobs and lives he claims he wishes to protect. Many of the US’ major coastal cities, whether it is New York, Miami or Los Angeles, would be ravaged by sea-level rise and by more intense storms. The devastation of Hurricane Katrina (2005) and Super Storm Sandy (2012), for example, caused billions of dollars in damage, destroying lives and infrastructure. There has also been an increase in heat waves, tornadoes and other extreme weather events.

A New York Times article reports on findings of a study which showed that 31 coastal communities in Alaska were at an “imminent risk of destruction”, some of which will be uninhabitable by 2050. It is why some US states, regardless of what is happening at the federal level, have formulated their own climate action plans. California, the most populous and second largest state by land area in the Union, announced that it would “cut emissions 40 percent below 1990 levels by 2030”, an ambitious target.

(b) US losing out on renewable energy and environmental goods market

Moreover, despite Mr. Trump’s predilection for fossil fuels drilling, renewable energy is the way that the world is going. If the stated goal of the Trump administration is “America first” and to promote American jobs and manufacturing, then he should be concerned that the US will be missing out on a growing billion dollar industry. A Bloomberg report notes that not only is solar the fast growing energy sector, but China has overtaken the US and Germany in 2015 as world leader in solar generation. There are also opportunities in trade in environmentally-friendly goods and services, which the US will be missing out on.

(c)Climate Change threatens Stability of US Third Border

Successive US administrations have recognised that a secure and politically and economically stable Caribbean (a region which President George W. Bush had called the US’ ‘Third Border’) serves US national security and geostrategic interests. The impacts of climate change strike at the heart of Caribbean countries’ stability and security, given their vulnerability to weather-related shocks.

The economic effects of climate change on the Caribbean have already been competently outlined by various studies, including a study by Sebastian Acevedo Mejia and published by the International Monetary Fund (IMF) entitled Gone with the Wind which found that “that hurricane damages [in the Caribbean] are considerably underreported…with average damages potentially being three times as large as the reported average of 1.6 percent of GDP per year”. One only needs to recall the devastation inflicted by Hurricane Ivan on Grenada (2004), Tropical Storm Erika on Dominica (2015) or Hurricane Matthew on Haiti (2016) to see that the human and economic toll of climate change is not textbook theory but lived reality.

Suffice it to say, all of the major industries upon which Caribbean economies are based, whether it is tourism, agriculture or manufacturing, are being affected, by climate change in some manner. Therefore, if it is recognised that an economically and socially strong “Third Border” is vital to US national security interests, it will be against the Trump administration’s interests to be aloof to the impact of climate change in the region.

(d) Climate Change Refugees

As someone who has railed against immigration, President Trump should be cognisant that climate change-related disruption, whether through sea level rise or storm devastation, will increase the flow of immigrants to US borders. Concern about the possibility of increased climate refugees was recognised by the Obama administration back in 2016.

The capitals (and economic centres) of most Caribbean countries are coastal cities and towns, while the majority of the populations of many of the small island states is located within 2 miles of the coast. Displacement of these populations as sea levels rise is likely. Caribbean people have long seen the US as a land of opportunity and it is not implausible to think that ‘the land of the free’ will be one of the main destinations for any Caribbean climate refugees.

US-Caribbean Strategic Engagement – HR4939

Fortuitously, thanks to a bipartisan effort in Congress and quick signature by former President Obama, there is a mechanism under which US-Caribbean climate change cooperation may be effected. Recognising that strong US-Caribbean relations are key to US security and other interests, the US-Caribbean Strategic Engagement Act of 2016 (HR4939) declares that it is the policy of the US to increase engagement with the Caribbean through four prongs: Caribbean governments, the Caribbean diaspora community, the private sector and civil society. The Act’s scope is limited to those Caribbean countries which are beneficiaries of the Caribbean Basin Security Initiative.

The Act’s objectives are multifocal and include enhancing diplomatic relations, increasing economic cooperation, supporting regional economic, political and security integration efforts, inter alia. I would submit that for the reasons stated above, any attempt at promoting economic cooperation and development and increasing security in the Caribbean would be incomplete without including climate change as one of the priority areas.

One of the most critical aspects of the Act is that it provides concrete timelines for follow-up action, which is important as there was no indication that the US-Caribbean relationship is a priority for the Trump administration. It mandates the incoming Secretary of State, in coordination with the Administrator of USAID, to submit not later than 180 days after the date of the Act’s enactment a multi-year strategy for US engagement to support interested Caribbean nations. It outlines broad guidelines which must be included in the strategy and I believe Caribbean countries should proactively engage the administration on what they believe to be priorities.

The incoming Secretary of State will be mandated to annually brief the appropriate congressional committees on Department of State on efforts to implement the strategy. President Trump will also be required to submit a report on progress made toward implementing the strategy to the appropriate congressional committees no later than 2 years after the strategy has been submitted.

Naturally, this Act just outlines the broad framework and it will be up to the stakeholders I just mentioned to ensure that the Act achieves its objectives.

Conclusion

US-Caribbean Climate Change Action cooperation is a mutually important imperative and the US-Caribbean Strategic Engagement Act of 2016 provides an opportunity through which to do so. Caribbean leaders, our diplomatic representatives and other allies in Washington DC should consistently make the case that continued US-Caribbean climate change action is key to US-Caribbean strategic re-engagement, and further, that climate change inaction undermines the security and threatens the economic, social and even political stability of the US’ third border, which has national security implications for the US homeland.

The Caribbean diaspora community in the US, one of the four partners recognised under the Act, will be important partners in making this case as many would have been witnesses (whether firsthand or through family members back in the region) of the devastation climate change is having on the region. The Caribbean also has other allies in this fight such as those companies which have made a niche out of renewables and other environmentally-friendly goods and services, and those states like California which recognise the need for continued climate action by the federal government for their own survival.

By no means am I suggesting that convincing the Trump administration that climate change is a threat to be taken seriously will be an easy feat. However, I do believe that both the US and the Caribbean have too much to lose from any climate change inaction for the effort not to be made.

Caribbean Trade & Development Digest – November 20-December 3, 2016

Posted on December 3, 2016 by caribbeantradelaw Leave a comment

Photo source: Pixabay

Caribbean Trade Law & Development is pleased to share some of the major trade and development headlines and analysis across the Caribbean region and the World for the weeks of November 20-December 3, 2016.

For past issues of our weekly Caribbean Trade & Development Digest, please visit here.

To receive these mailings directly to your inbox, please follow our blog.

REGIONAL

Belize Senate criticises Belize-Guyana Trade Pact

7 News Belize: One of the motions which we didn’t get a chance to tell you about, was a resolution tabled by the Government. It authorizes the Barrow Administration to ratify a Framework agreement between the Governments of Belize and Guyana for bilateral cooperation.Read more

IDB Loan will support economic developent and foreign trade in Guyana

Caribbean News Now: Guyana will improve its public infrastructure and promote economic diversification and foreign trade with a US$9 million Inter-American Development Bank (IDB) loan that will help strengthen the economy and stimulate exports and investments. Read more

Guyana seeking to register Demarara as Geographical Indication

Stabroek: The Commercial Registry here has received applications for Demerara Sugar, Demerara Molasses and Demerara Rum. Minister of Foreign Affairs Carl Greenidge said that recapturing the name provides opportunities for producers to obtain market recognition. Read more

ExporTT Chairman: T&T must improve trade with EU

Trinidad Guardian: Incoming chairman of ExporTT Ashmeer Mohammed said the agency is committed to improving trade with the European Union (EU) and arresting the current decline in trade between T&T and the EU. Read more

Region’s exports fall five percent

Trinidad Guardian: The Economic Commission for Latin America and the Caribbean’s (Eclac) annual report Latin America and the Caribbean in the World Economy 2016 shows that the foreign trade dynamics of the region are having their worst performance in eight decades. Read more

Illicit Cigarette Trade Booming

LoopJamaica: The illicit cigarette trade now accounts for a fifth of the local market, according to cigarette distributor Carreras Limited. Read more

Entities partner to grow exports

JIS: Four private- and public-sector bodies have signed a memorandum of understanding (MOU), agreeing to work together to grow national exports to US$2.5 billion by 2020. Read more

Belize and Jamaica squash “beef” over patties

Breaking Belize News: On November 17, Jamaica’s Minister of Industry, Karl Samuda successfully met with Minister of Trade and Commerce, Tracey Panton, in Guyana during the 43rd meeting of CARICOM’s Council for Trade and Development. Read more

Jamaica, EU discuss moving EPA to full implementation

Jamaica Observer: Minister of Foreign Affairs and Foreign Trade Kamina Johnson Smith, in highlighting the concerns of the Jamaica’s private sector about the challenges faced in accessing the European Union markets, said that Jamaica’s strength and advantages in its services sectors would be greatly unlocked if there was a special visa regime between CARIFORUM and European Union (EU) countries. Read more

Kenya: President Roots for Increased Trade between Kenya, Latin America & the Caribbean

allAfrica: President Uhuru Kenyatta has called for increased trade between Kenya, the Latin America and Caribbean regions.Read more

INTERNATIONAL

Maersk Line to Acquire Hamburg Süd

Maersk Line: Maersk Line and the Oetker Group have reached an agreement for Maersk Line to acquire Hamburg Süd, the German container shipping line. The acquisition is subject to final agreement and regulatory approvals. Read more

OPEC Reaches Oil Output Reduction Agreement

Global Trade Magazine: The thirteen members of the Organization of Petroleum Exporting Countries (OPEC) meeting in Vienna, reached an agreement yesterday to reduce oil output by 1.2 million barrels a day beginning next month. Read more

China says its will promote trade deals regardless of TPP, RCEP Direction

Reuters: China said it will actively participate in bilateral and multilateral trade deals, with the goal of deepening reform and opening up its economy, regardless of the direction the Trans Pacific Partnership (TPP) or the China-backed Regional Comprehensive Economic Partnership (RCEP) might take. Read more

Singapore leads global trade ranking for the fifth time

SBR: Its domestic market is rated as world’s most open.Singapore topped the Global Enabling Trade Report 2016 once again. Read more

EU-Georgia Free Trade Deal Boosting Trade Flows

Tax News: Trade flows between Georgia and the EU increased 16 percent in 2015, the first full year since the Deep and Comprehensive Free Trade Area (DCFTA) was provisionally applied.The EU-Georgia Association Agreement, which includes a DCFTA, was provisionally applied from September 2014. It fully entered into force on July 1, 2016. Read more

Sanders to introduce US ‘Outsourcing Tax’ Legislation

Tax News: US Senator Bernie Sanders has stated his intention to introduce legislation into Congress that would impose an “outsourcing tax” on companies moving jobs out of the United States, as well as stripping them of their US tax breaks and benefits. Read more

China urges U.S. to abide by WTO anti-dumping agreement

Reuters: China on Friday urged the United States to abandon a surrogate country approach it uses to calculate anti-dumping measures against Chinese exports, as a related clause in China’s World Trade Organization (WTO) deal is set to expire. Read more

MEPs reject call for Court Review of CETA

Tax News: The European Parliament has rejected a request by 89 Members of European Parliament to refer the EU-Canada Comprehensive Economic and Trade Agreement to the European Court of Justice for an opinion. Read more

China, New Zealand To Upgrade FTA

Tax News: The launch of negotiations to upgrade the existing China-New Zealand free trade agreement (FTA) was announced on November 21, following a meeting between Chinese Commerce Minister Gao Hucheng and New Zealand’s Trade Minister Todd McClay at the Asia-Pacific Economic Cooperation Summit in Lima. Read more

Next Round of RCEP Negotiations in Jakarta Dec 5

Economic Times: The single-tier system of duty relaxation under the proposed mega trade deal RCEP will be the central issue to be discussed at the next round of negotiations of 16 countries, including India and China, in Jakarta from December 5. Read more

WTO chief says no indication Trump wants to take US out of WTO

Reuters: World Trade Organization chief Roberto Azevedo said on Thursday he had no indication that U.S. President-elect Donald Trump wanted to withdraw the United States from the global trading body. Read more

NEW ON CARIBBEAN TRADE LAW & DEVELOPMENT

President-elect Trump’s trade team takes shape: What implications for the Caribbean?

Happy Independence! Tribute to Barbados at 50

Dominica Ratifies WTO Trade Facilitation Agreement

WTO Panel Rules Tax Incentive to Boeing a Prohibited Subsidy

Fidel Castro; Friend to the Caribbean & Anti-Imperialist Hero

TPP: Trump to withdraw from the Agreement on Day One

For past issues of our Caribbean & Trade Development Digest, please visit here. To receive these mailings directly to your inbox, please follow our blog.

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