Caribbean Trade Law and Development

Tag: CBI

  • The rights of Citizenship by Investment beneficiaries as Community Nationals: What Implications for CARICOM Member States?

    Alicia Nicholls

    Citizenship by Investment (CbI) programmes are utilised as a development strategy by five out of the fifteen countries comprising the Caribbean Community. This article explores the rights which CbI beneficiaries are entitled to as nationals of the Community under the Revised Treaty of Chaguaramas and considers the implications these rights  have for CARICOM member states. Particularly, it explores the tension between the right of CbI operating member states to determine their own citizenship policy versus the right of non-CbI member states to control the entry of perceived “undesirable persons” to their borders, particularly in light of the Caribbean Court of Justice’s ruling in Shanique Myrie v Barbados.

    Citizenship by Investment (CbI)

    CbI programmes offer qualifying investors (as well as their spouse and dependents once they meet certain criteria) citizenship in exchange for an investment in a qualifying activity, for instance, in real estate, a special fund or government bonds.  The programmes are aimed at high net worth individuals (HNWIs) with the expectation that they would lead to targeted foreign direct investment inflows to sectors considered to be of national importance (e.g: hospitality and luxury real estate), job creation and the sharing of expertise and skills. In a previous article I discussed the specifics of the programmes in each territory and the pros and cons of CbI programmes.

    Although CbI programmes have existed in the Caribbean since the 1980s, CARICOM countries differ on the desirability of their usage as legitimate development strategies. At present only five of the fifteen CARICOM states currently offer CbI programmes: St. Kitts & Nevis, Grenada, Dominica, Antigua & Barbuda and most recently, St. Lucia. The Bahamas has been discussing the prospect of a CbI programme for some time. Belize scrapped its programme a few years ago, while Grenada had suspended its programme at one point and now operates its programme by invitation only. The current policy positions of the Governments of Barbados and St. Vincent and the Grenadines is that they will not be offering CbI programmes.

    While it is the right of each member state to determine its own citizenship laws, the issue of granting citizenship on a purely economic basis becomes a regional one considering that CbI beneficiaries (the term I use to refer to persons who have successfully obtained citizenship under a member state’s CbI programme) would be considered ‘Community Nationals’ for the purposes of the Revised Treaty of Chaguaramas and would be entitled to all the rights and benefits such nationals enjoy under the Revised Treaty, including the right to travel to, live and work in another member state, subject to exceptions.

    The CbI beneficiary as a ‘Community National’

    In regards to a natural person, Article 32(5) of the Revised Treaty of Chaguaramas defines a Community “national” as:

    (a) a person shall be regarded as a national of a Member State if such person –

    (i) is a citizen of that State;

    (ii) has a connection with that State of a kind which entitles him to be regarded as belonging to or, if it be so expressed, as being a native or resident of the State for the purposes of the laws thereof relating to immigration; or

    A literal interpretation of this clause provides that any natural person, including one who attains citizenship of a CARICOM member state pursuant to its CbI legislation and regulations, is a national of that State and henceforth considered a Community “national” for the purposes of Article 32(5) of the Revised Treaty of Chaguaramas.

    Rights enjoyed by Community nationals

    These rights are fundamentally economic in nature and can be divided between what I term general (non-discrimination and Most Favoured Nation) and specific rights (right of establishment, free movement of persons, services and capital). These rights are not absolute and are thus subject to exceptions.

    • Non-Discrimination and MFN: Article 7 of the Revised Treaty of Chaguaramas prohibits member states from discriminating based only on the grounds of nationality within the scope of the application of the Revised Treaty except where provided for in the Treaty (Article 7). The Most Favoured Nation clause (Article 8) prohibits Member States from according to other Member States treatment less favourable treatment than they accord to a third Member State or third States. It should be noted that in Shanique Myrie v Barbados, the Caribbean Court of Justice noted that the right to MFN treatment “is a right that enures to Member States and, so far as applicable, to their nationals”.
    • Rights of establishment and to work – The right of establishment includes the right to engage in “non-wage earning activities” which are defined by Article 32(2) of the Revisted Treaty as “activities undertaken by self-employed persons”, as well as the right to create and manage economic enterprises as defined under the Revised Treaty. The following categories of Community nationals have the right to seek employment in the jurisdiction of another member state (a) University graduates; (b) media workers; (c) sportspersons; (d) artistes; and (e) musicians, recognised as such by the competent authorities of the receiving Member States. The Certificate of Recognition of CARICOM Skills Qualification assists in this.
    • Capital – Member states are prohibited from introducing any new restrictions on the movement of capital by businesses and individuals. However, as many CARICOM states currently operate currency controls, this still very much remains highly restrictive.
    • Freedom of services – Member States are prohibited from introducing any new restrictions on the provision of services by nationals in the Community through the four modes of services supply: cross-border, consumption abroad, commercial presence and via temporary presence of a natural party in the territory of a Member State.
    • Rights accruing under treaties with third states – This is not covered in the Revised Treaty. However, as Community nationals, CbI beneficiaries have the right to make use of any double taxation agreements, bilateral investment treaties and any other treaties of which their member State is a party, as well as any such agreements of which CARICOM is a party, including the EC-CARIFORUM Economic Partnership Agreement.

    Freedom of movement is a cornerstone of the Caribbean Community and is one of the areas in which Member States have made the least progress in their implementation of reforms and commitments. It entails the right of entry, as well as the right to live and work in another member state.  It should be noted that the Bahamas has not signed on to this aspect.

    Right of Entry

    Community nationals enjoy the right of entry to any member state and to stay therein for a period of up to six months, subject to exceptions. This stems from a decision taken by the Heads of Government at the Twenty-Eighth Heads of Government Meeting in Barbados in July 2007 where they agreed that

    -: “all Community nationals should receive a definite entry of six months upon arrival in a Member State in order to enhance their sense that they belong to, and can move in the Caribbean Community, subject to the rights of Member States to refuse undesirable persons’ entry and to prevent persons from becoming a charge on public funds.”

    A key issue arises in regards to the right of CbI states to determine their own citizenship laws versus the right of other Member States to limit their risk exposure by denying entry to any such persons whom they perceive as “undesirable persons”, particularly persons from “high-risk” countries. This balancing of rights is of greater currency in light of the escalation of global terrorism threats, rising crime and concerns about money laundering.

    Critics of CbI programmes argue that the non-CbI Member states are at the mercy of the robustness of the due diligence checks and vetting process of CbI states to ensure that “undesirable persons” are not granted citizenship. They also argue that the free movement of persons and capital within the Community provides fertile ground for money launderers, terrorists and organised crime participants to carry out such threatening activities across the Region, with concomitant security and reputational implications for the Community as a whole vis-a-vis third States e.g: in regards to visa waivers.

    While these concerns have legitimacy and it is imperative on CbI countries to manage their programmes to the highest possible standard, security concerns apply not just under citizenship granted under a CbI programme but also to citizenship obtained under regular naturalisation laws. It also should be noted that those Community nationals believed to be fighting with ISIS are natural born Community nationals.

    However, the fear of “undesirable persons” obtaining citizenship under its CbI programme and the reputational threats to its own programme are likely the motivation behind St. Kitts & Nevis’ suspension of the eligibility of Syrian nationals to benefit under its programme.

    Under Community Law, to what extent can a CARICOM State deny the right of entry to a Community national based solely on his or her previous or original country of origin?

    The ‘Myrie Effect’

    Community law and the limits it imposes on the Member States must take precedence over national legislation, in any event at the Community level. It follows from the above that a refusal on the basis of “undesirability” may be based on national law and on Community law, with the proviso that where national law does not conform with the parameters laid down by Community law, it will be the latter that ultimately must prevail.

    (paragraph 69 of the CCJ Judgment in Myrie v Barbados)

    The tension between CbI programmes and the rights of States to deny entry to persons perceived to be threats is heightened in light of the CCJ’s ruling in Shanique Myrie v Barbados which interprets several points of laws relating to the right of entry and the denial of the right and which some critics have unfortunately viewed as curtailing a member state’s public policy right to deny entry to “undesirables”.

    The CCJ in its original jurisdiction applies and interprets the Revised Treaty of Chaguaramas.In brief, the landmark Myrie case involved a claim brought by a young Jamaican woman, Miss Shanique Myrie, against Barbados after she claimed she was discriminated against by being denied entry, and being allegedly subjected to bad treatment by Barbadian immigration authorities. For all the controversy which surrounded it, it is a pivotal case in Community Law.

    Firstly, the case established a precedent wherein a natural person (Miss Myrie) was granted leave to bring a claim against a member state before the CCJ’s original jurisdiction. Therefore, it is possible that a CbI beneficiary can be granted leave to bring a claim against a member state if he/she feels her rights under Community Law were violated.

    Secondly, the Court gave a definitive statement on the law relating to the right of entry and under what circumstances a State may successfully invoke any of the exceptions under Articles 225 and 226. At paragraph 65 of its judgement, the Court found that by virtue of the Heads of Government decision previously referenced all Community nationals have the right to be granted definite entry for a period of six months upon arrival in a member state “without harassment or the imposition of impediments”.

    Thirdly, the Court clarified the law on Articles 225 and 226 of the Revised Treaty which provide exceptions to any of the fundamental rights. The Court noted that as exceptions to a fundamental right any exception must be narrowly and strictly interpreted and the burden of proof rests on the member state that seeks to invoke the ground for refusing entry. As the Court stated at paragraph at 83 of the judgment, “Given the above characteristics of the right of entry it would only be in exceptional situations that entry into Member States will be denied to Community nationals.”

    Fourthly, the Court at paragraph 70 defined “Undesirable persons” within the meaning of the 2007 Conference Decision as “those Community nationals who actually pose or can reasonably be expected to pose such a threat”. For the purposes of the case, the Court was not called on to determine or define what would constitute “a threat affecting one of the fundamental interests of society”. However, it held obiter that:

    in the area of public morals, national security and safety, a reasonable test for assessing such a threat is that, as a starting point, it must be shown that the visitor poses a threat to do something prohibited by national law. In practice that threshold will of course be much higher as it also requires that the threat be genuine, present and sufficiently serious.

    Fifthly, the Court held at paragraph 83 that a State which is refusing entry must give the reasons for refusal promptly and in writing and must inform the person denied that he or she has a right to challenge the decision and must allow the refused national the opportunity to consult an attorney or a consular official of their country or a family member. Member States are also required at the national level to provide “an effective and accessible appeal or review procedure with adequate safeguards to protect the rights of the person denied entry”.

    This does not mean, however, that a State’s immigration authorities’ hands are completely tied and that if there is clear evidence or suspicion that a national is a clear threat, entry cannot denied. It however prohibits the arbitrary denial of entry to Community nationals, including on the basis of their original citizenship.

    While there are fears about CbI programmes and whether they will attract “undesirable persons”, it should be noted that there has to date not been any known case of any individual who has been granted citizenship under a Caribbean CbI programme who has been involved in a major organised crime or other illicit activity.

    Because of the lack of publicised data on the operation of the CbI programmes in the region, it is difficult to know for sure how the programmes are operating and which nationalities have been the most active. However, recently released data for Antigua shows that Chinese nationals, followed distantly by Syria, Libya and Italy have been the main beneficiaries. This highlights the fact that the majority of the persons who apply under these CbI programmes are HNWIs who come from countries with restricted passports and are seeking hassle-free travel for business or leisure, or are seeking to escape conflict-ridden countries. Due to confidentiality, it is unknown whether persons who have been denied approval into one member country’s programme have subsequently had their applications approved in others.

    According to the data provided by the Prime Minister, many of the applicants who have been successful under the Antigua CbI programme are also from metropolitan countries like the US, Italy and Germany. CbI programmes can be complementary to regional integration by fostering intra-regional investment and tourism. It is not unusual for foreign nationals who have established a business in one member state to eventually conduct business, either directly or indirectly, in others. Additionally, HNWIs tend to be highly mobile, travelling for business and with their families for leisure, and therefore could be a target market for high end tourism and yachting.

    The EU Experience and Malta

    A similar tension between the right of a State to control its citizenship laws versus the Community interest played out in the European Union in relation to Malta’s introduction of its Individual Investor Programme by amending its Citizenship Act in 2013. Malta is a small island state of the EU with a population of under half a million and not dissimilar in geographic size to many of the small islands of CARICOM.

    Maltese citizenship not only entitles successful CbI applicants to all the rights of natural-born Maltese but also EU rights, such as the right to reside and work in other EU states and the right to visa-free travel within the Schengen area. The EU raised opposition to Malta’s programme, including by adopting a resolution in January 2014 which argued that Malta’s programme put EU citizenship for sale. After engaging in negotiations with the EU Commission, Malta added a residency condition which provided that any applicant is required to prove that they had been residing in Malta for at least twelve months immediately preceding the issuing of the certificate of naturalisation.

    Conclusion

    CbI programmes have co-existed in the Caribbean Community since the 1980s. What is clear is that as community nationals, CbI nationals are entitled to the same rights as all other Community nationals, including the right of entry into other member states.

    There are however potentials for conflict if there is lack of confidence by member states in the due diligence processes of CbI member states. It would appear from the Community law examined that no member state  may arbitrarily deny entry to the national of another member state, including based on his or her previous or dual citizenship, and where entry is denied, must follow the procedure laid out by the Revised Treaty for denial of entry and the denied national is entitled to appeal.

    Member states must be assured of the robustness of the screening and due diligence process of CbI states. In light of increasing threats in regards to crime, terrorism and money laundering and the security and reputational risks which any lapse may cause for non-CbI states in the context of free movement of labour, CbI states have an increased duty to ensure their programmes are highly managed and regulated. In this regard, it would be useful if CbI countries would use the framework for information sharing as mentioned in the Community Stategic Plan to share data on the operation of their programmes for transparency purposes, including their approval and disapproval rates.

    There are also options such as the addition of a residency requirement in order to establish a “genuine” link between the CbI beneficiary and the member state/Community and the exemption from eligibility of nationals from certain “risky” countries. Without doubt, the constant monitoring and review of due diligence and screening procedures is essential.

    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.

     

     

  • St Lucia’s Citizenship by Investment programme officially opens for business

    Alicia Nicholls

    As of January 1st of this year, St. Lucia’s Citizenship by Investment programme is officially open and taking applications by interested investors. Late last year, Prime Minister, The Hon. Dr. Kenny Anthony formally launched the programme at the Global Citizen Forum held in Monaco. St. Lucia joins St. Kitts & Nevis, Grenada, Antigua & Barbuda and Dominica to become the fifth Caribbean State to offer a citizenship by investment programme.

    A citizenship by investment programme (CbI) offers qualifying investors (as well as their spouse and dependents once they meet certain criteria) citizenship in exchange for an investment in a qualifying activity, for instance, investment in real estate, a special fund or government bonds. In a world of dwindling access to financial resources, a growing number of States internationally are currently offering some form of citizenship by investment programme as a way to raise much needed finance, including for development objectives.

    This phenomenon is not limited to developing countries. Several metropolitan countries such as the US and its EB-5 Immigrant Investor Programme, offer some form of citizenship by investment scheme. Other States offer residency by investment programmes, which grant the qualifying investor certain residency benefits. A Caribbean example is Barbados’ Special Entry and Reside Permit (SERP), while Spain’s Golden Visa is an international example.

    The market for second passports is growing and is an attractive option for high net worth individuals (HNWIs), particularly business persons who come from countries  whose passports are subject to visa restrictions, making it difficult to travel to, and conduct business in major markets unimpeded. For HNWIs from those few countries like the US where personal income tax is levied based on nationality as opposed to residency,  renouncing one’s citizenship and obtaining citizenship of another State through a CbI programme is also increasingly seen an attractive option.

    Some quick facts about St. Lucia’s programme

    Basic Eligibility Requirements

    • Age Limit: Under the Citizenship by Investment Act No. 14 of 2015, a person who is 18 years or over may apply for citizenship of St. Lucia.
    • Dependents: Qualifying dependents include a spouse and a child and/or parent of the applicant or of his/her spouse once the child or parent meets certain criteria provided for in the Act.
    • Net worth: The applicant must have financial resources of at least US 3,000,000

    In addition to these basic requirements, the applicant must fill out an application form, accompanied by the requisite information, documentation and fees and is subjected to due diligence checks.

    All of this will be explained by the Authorised Agent. Authorised agents are licensed by the St. Lucia Financial Services Regulatory Authority and are authorised to act on the applicant’s behalf  in relation to the application for citizenship by investment.

    Qualifying Investments: On approval of the application, the potential investor will be required to make the qualifying investment proposed in his or her application. Under Schedule 2 of the Citizenship by Investment Regulations Statutory Instrument No. 89 qualifying investments are:

    • Investment in the St. Lucia National Development Fund, with the level of minimum investment required depending on whether the applicant is applying alone, with a spouse and/or with dependents. For an applicant applying alone, the minimum threshold is US$ 200,000.
    • Investment in an approved real estate project. The minimum threshold is US$300,000.
    • Investment in an approved enterprise project. The minimum investment required depends on whether it is one or more than one applicant investing. For an applicant applying alone, the minimum investment is US$ 3,500,000 (plus no less than 3 permanent jobs).
    • Investment by purchasing Investment by purchase of non interest bearing Government bonds (5 years holding bond). For an applicant applying alone, the minimum threshold is US$ 500,000.

    Benefits of St. Lucia Citizenship

    • St. Lucia allows for dual citizenship which means the investor is not forced to renounce his or her citizenship of another State.
    • The Citizenship by Investment Board is only allowed to grant a maximum of 500 applications annually which adds an element of exclusivity.
    • A St. Lucia passport allows for visa-free travel to over 90 countries, including the Schengen Area (26 European countries), as well as visa-free travel within the Caribbean Community (CARICOM) and the  other rights of which CARICOM nationals benefit under the Revised Treaty of Chaguaramas.

    For further information on St. Lucia’s Citizenship by Investment programme, please contact the St. Lucia Citizenship by Investment Unit.

    For a general overview of CbI programmes across the Caribbean, please feel free to read my earlier article: Economic Citizenship by Investment Programmes in the Eastern Caribbean: A Brief Look.

    DISCLAIMER: Please note that the information presented in this Article is for general information only and is not intended to be, nor should it be construed as, investment or legal advice. The Author is in no way affiliated with the St. Lucia Citizenship by Investment programme or any of the relevant authorities. The information is taken from sources deemed to be accurate at the time of publication and the Author of this article accepts no liability or responsibility for any errors which may be contained herein or any actions suffered as a result of reliance on the information presented.

    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.

     

     

  • Has the Caribbean Basin Initiative Outlived its Usefulness to CARICOM countries?

    Alicia Nicholls

    This September the United States International Trade Commission (USITC) released its biennial report on the operation of the Caribbean Basin Economic and Recovery Act (CBERA), one of the components of the Caribbean Basin Initiative under which CARICOM countries currently enjoy non-reciprocal, preferential access to the US market for most merchandise exports.

    Three years ago I authored an article questioning whether the CBI was still relevant and beneficial to CARICOM countries. In that article I had highlighted that while the CBI still has relevance for CARICOM countries, its structure meant that CARICOM countries have benefited unequally and risk losing any margin of preference if its WTO waiver is not extended. I had concluded that a reform of the CBI would have been a preferred option but that a CARICOM-US FTA which had a trade and development focus could be more beneficial in the long term to CARICOM countries once it allows for special and differential treatment and capacity building assistance.

    The USITC reports that average CBERA utilisation rates fell in 2014 and that the impact, though positive, has been small and again limited to a few exports and a few countries. This prompts two questions: has the CBI outlived its usefulness and is it time for CARICOM countries to negotiate a free trade agreement (FTA) with the US?

    Current CARICOM-US Trading Arrangements

    Most CARICOM countries currently enjoy non-reciprocal duty-free or reduced duty access for most merchandise exports (about 5,700 HTS 8-digit tariff lines) to the US market under the Caribbean Basin Initiative. The CBI is comprised of CBERA (non-expiring) and CBTPA (expiring September 30, 2020). Haiti also enjoys additional preferences under the HOPE Acts (Haitian Hemispheric Opportunity through Partnership Encouragement Acts of 2006 (HOPE I) and of 2008 (HOPE II)) and the Haitian Economic Lift Program (HELP) Act of 2010 which give preferential treatment to Haitian apparel, textiles, and certain other goods.

    The stated goal of the CBI is to contribute to the economic growth and development of beneficiaries. The seventeen Caribbean beneficiary countries and territories are: Antigua and Barbuda, Aruba, The Bahamas, Barbados, Belize, British Virgin Islands, Curaçao, Dominica, Grenada, Guyana, Haiti, Jamaica, Montserrat, St. Kitts and Nevis, St. Lucia, St. Vincent and the Grenadines, and Trinidad and Tobago. Though a CARICOM country, Suriname is not a CBERA beneficiary.

    In May 2013, CARICOM countries signed a Trade and Investment Framework Agreement (TIFA) in Port of Spain, Trinidad following a meeting between CARICOM Heads of Government and US Vice President Joe Biden. The TIFA, an updated agreement to one signed in 1991, is not an FTA. While it outlines several objectives and goals, it does not create binding commitments or market access. It does however create a CARICOM-US Trade and Investment Council which will be charged with executing the agreement. An annex to the Agreement called the Initial Action Agenda sets out priority areas for action. Currently, Grenada, Jamaica and Trinidad & Tobago are the only CARICOM countries which currently have bilateral investment treaties in force with the US.

    Current Level of CARICOM-US Trade

    The US is CARICOM countries’ largest trading partner for goods and services trade and a major tourism source market for CARICOM countries. However, the $8.5 billion USD worth of total US exports from CBERA countries (with and without preferences) only accounted for 0.36% of total US’ imports from the world, and declined from $8.9 billion in 2013 and $12 billion in 2012 (USITC 2015).

    US product imports from CBERA countries are concentrated primarily in the energy and mining and manufacturing sectors (USITC 2015). Trinidad & Tobago, Haiti, The Bahamas, and Guyana jointly accounted for 89.1 percent of the value of US CBERA imports in 2014 (USITC 2015).

    The USITC 2015 reports that CBERA utilisation rates, that is, CBERA imports as a percentage of total US imports from that country, have fluctuated over the past five years and have varied by country. After rising to 26.5% in 2013, average CBERA utilisation rates fell to 23.1% in 2014, although a few countries saw an increase in their utilisation rates during this period. This means that of the CBERA countries’ exports to the US in 2014 ($8.5 billion), only 23.1% ($1.97 billion), or less than a quarter, were done under CBERA. Most CARICOM merchandise exports to the US are therefore not under the CBERA but are either under the Generalised System of Preferences (GSP) or under Most Favoured Nation (MFN) applied rates.

    According to the USITC Report, while Belize had the highest CBERA utilisation rate (62.5%) and was the fifth largest source of US imports under the CBERA in 2014, Trinidad & Tobago was the leading source of US imports under CBERA but registered the 6th highest CBERA utilisation rate for the same period. Trinidad & Tobago which has been the main beneficiary of CBERA due to its energy exports (mainly methanol and crude petroleum) has seen its total imports and utilisation rate decline due to declining US consumption, increased US production of crude oil and maintenance and shutdown of some factories in Trinidad (USITC 2015).

    CBERA is of less importance for smaller islands of the region whose economies are services-based, mostly tourism and financial services. St. Lucia’s utilisation rate dropped from 51.7% in 2010 to just 7.5% in 2014. While Barbados saw its utilisation rate increase from a mere 3.8% in 2013 to 10.6% in 2014, this still is down from its rate of 17% in 2010.

    The good news is that despite my prediction back in 2012, the WTO Council for Trade in Goods considered and approved the US’ waiver request for CBERA again and it is now up to the General Council to adopt it. Additionally, some of the products which are eligible for dutyfree access under the CBERA are not eligible under the GSP. However, more sobering is that the weaknesses of the CBI remain, including the exceptions in its product coverage, the lack of eligibility for services trade and certain stringent product eligibility requirements. Another problem is its unpredictability due to its unilateral nature. A beneficiary’s status may be revoked or the programme discontinued at any time. As an example, the US recently indicated it will suspend South Africa’s benefits under AGOA, a preferential programme for African countries, for allegedly failing to make continual progress towards eliminating barriers to U.S. trade and investment.

    Generalised System of Preferences

    Besides CBI, certain CARICOM countries also currently benefit under the Generalised System of Preferences (GSP), the oldest of the US’ trade preference programmes. Similar to the CBI, the GSP is a unilateral arrangement providing non-reciprocal duty-free access to eligible products originating in qualifying countries. Unlike the CBI which currently applies only to Caribbean countries, according to the USTR Report 2015, as of January 1, 2015, there were 122 designated GSP beneficiary developing countries, of which 43 were LDCs.

    Under the GSP less tariff categories and products benefit from preferences than under the CBERA. However, LDCs, such as Haiti, are entitled to additional product coverage.

    The only CARICOM countries currently eligible for benefits under the US GSP are Belize, Dominica, Grenada, Guyana, Haiti, Montserrat, St. Kitts & Nevis, St. Lucia, Suriname, St. Vincent and the Grenadines. Eligibility of a country for beneficiary status is subject to both economic and political considerations. Among other things, the US President is prohibited by statute from designating any communist countries (with exceptions) or countries which have expropriated, imposed taxes or other measures on US property as GSP beneficiaries.

    If he/she finds that a country is sufficiently competitive or developed, the President may withdraw, suspend or limit the GSP status of any beneficiary country. Antigua & Barbuda, the Bahamas, Barbados, and Trinidad & Tobago are not currently GSP beneficiaries.

    The GSP expired on July 31 2013 and was renewed retroactively on June 29, 2015. It has been extended to December 31, 2017. The future of the GSP beyond December 2017 is uncertain. However, some in the US believe GSP benefits should only be extended to LDCs, in which case only Haiti would benefit among current CARICOM beneficiary countries. Some so-called import sensitive products for the US, especially those in which developing countries have a competitive advantage such as most textiles and apparel, are not eligible. GSP imports are also subject to more stringent rules of origin than those under CBERA.

    Would an FTA with the US be the answer?

    Several former CBERA beneficiaries have concluded FTAs with the US, including five Central American countries (Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua) and the Dominican Republic (CAFTA-DR in 2004) and Panama (US-Panama FTA in 2012). Given the issues outlined with both the CBI and the GSP, should CARICOM countries do the same?

    Since the failure of the CARICOM-Canada negotiations, CARICOM still only has one FTA with a developed partner (the Economic Partnership Agreement with the EU). CARIFORUM’s negotiation position during the EPA negotiations was strengthened by the presence of the Dominican Republic. Such would not be the case in FTA negotiations with the US.
    US FTAs, even those with developing countries such as CAFTA-DR and US-Panama, are generally light on development provisions and strong on those which provide protection for US investors and their investments, and for intellectual property rights.

    For a sense of the US’ negotiation prowess, just take into consideration that with just a few exceptions the Trans-Pacific Partnership (TPP)’s investment chapter agreed to by 11 other negotiating partners is practically a carbon copy of the US’ Model BIT 2012. CARICOM countries will have to be strategic and clear on what they want to achieve and what are their deal breakers.

    Priorities for CARICOM would be recognition of CARICOM countries’ small size and economic vulnerability and asymmetry in the commitments. As such they would likely be lobbying for special and differential treatment, development cooperation provisions, including technical assistance and capacity building to assist them, especially CARICOM lesser developed countries, in taking advantage of the market access opportunities an FTA with the US would open. With regards to services trade, CARICOM countries would likely seek enhanced commitments from the US in regards to (Mode 4) temporary entry for CARICOM natural persons.

    Under the CBI, Caribbean countries are not required to extend duty-free treatment to like US imports into their territories. One of the main drawbacks to an FTA with the US will be the loss of tax revenues from the removal and reduction of tariffs on US imports as would be required under an FTA. One way to mitigate this would be lobbying for asymmetric and phased tariff removal, similar to what was committed to under the CARIFORUM-EPA with the EU. However, US FTAs, including CAFTA-DR are always ambitious in their scope in regards to liberalisation. Under the EPA, CARIFORUM was able to exclude a number of their most sensitive sectors from liberalisation. A deal breaker for any FTA with the US would be the extent to which CARICOM countries are able to protect nationally-important and sensitive industries from the stiff competition and possible death of these sectors and job losses if liberalised to competing US products too quickly. Civil society and industry consultations thus would be crucial to determining which sectors are most sensitive.

    While an FTA with the US will likely increase the volume of US goods into CARICOM, the reverse is not necessarily guaranteed. Most CARICOM merchandise goods exports are already competing with other countries’ exports under normal trade conditions (i.e. at the MFN applied rate), and not under preferences. Therefore, the margin of preference secured for some CARICOM goods under a trade agreement may be negligible.

    Investment treaty practice has evolved since the days when Grenada, Jamaica and Trinidad & Tobago signed their BITs with the US. The investor protections provided by a comprehensive investment chapter in a US-CARICOM FTA, coupled with robust investment promotion provisions, could serve as a signal for greater US investment to the region, while at the same time include development-friendly provisions and provisions which reinforce the right of the State to regulate.

    As CARICOM service providers enjoy no preferential access to the US market, they face competition from service providers of countries which already have FTAs with the US. However, even when market access is created under an FTA for cross border services trade, there will be the need for mutual recognition agreements and visa waiver agreements in order to translate market access into market penetration.

    The US will likely insist on a negative list approach to market access liberalisation of service sectors, the approach used in NAFTA and its subsequent FTAs. The negative list approach requires liberalisation of all sectors unless a reservation is specifically made in a country’s list of reservations. CARICOM countries and other developing countries have preferred to use the positive list approach used under the General Agreement on Trade in Services (GATS). It is a more development friendly approach which means only sectors specifically listed in a country’s schedule of commitments are liberalised and thus allows for the gradual liberalisation of sectors in keeping with each country’s development goals.
    The US will also likely insist on no less favourable treatment than what CARICOM countries had agreed to with the EC under the EPA. CARICOM will also have to bear in mind that given a provision in the MFN clause in the EU-CARIFORUM EPA, the EU can insist on any more favourable treatment given to US than was given the EU under the EPA.

    US treaty practice typically includes binding commitments on non-trade issues, such as labour. It has an on-going claim against Guatemala before the CAFTA-DR dispute settlement body in which it claims Guatemala has failed to meet its obligations under the CAFTA-DR agreement relating to effective enforcement of labour laws.

    There are currently three main trade issues between the US and CARICOM countries which have to be addressed expeditiously even without an FTA. CARICOM rum exports are losing market share in the US market because of large subsidies given to rum producers in two US territories: the USVI and Puerto Rico. Secondly, the US/Antigua & Barbuda cross border gambling services dispute remains unresolved despite a WTO ruling in Antigua & Barbuda’s favour. An FTA will not necessarily resolve these issues as the DR which is a part of CAFTA-DR has complained about the rum issue as well.

    Thirdly, the US has for a long time criticised copyright protection and enforcement in the Caribbean, a possible issue which might trigger disputes under any future US-CARICOM FTA. Caribbean countries constantly feature on the US Watch Lists under its annual Special 301 Report. The 2015 Special 301 Report is no different.

    The Bottom Line

    CARICOM countries should continue to take advantage of the non-reciprocal duty-free access to the US market provided by the CBI for their goods while these benefits last. However, while I do not think the CBI has outlived its usefulness just yet, it has several deficiencies which means it should not be treated as a long term strategy for boosting CARICOM trade with the US.

    As mentioned, CBERA exports as a proportion of total CARICOM exports to the US are small and declining. The beneficial impact on regional exports has been unevenly spread and its unilateral nature, like the GSP, means benefits may be discontinued by the US at any time.

    For the short term, the updated TIFA presents the best opportunity for CARICOM through the US-CARICOM Trade Council to lobby for reform of the CBI, address the long-standing rum and internet gambling disputes, and to negotiate concrete frameworks for increasing trade and investment between the US and CARICOM countries. Success on this front will not be automatic and will require strong regional cooperation, as well as effort on the part of both CARICOM and the US to ensure that concrete initiatives and commitments come out of these efforts.

    However, given the importance of the US market for CARICOM and the growing importance of services-trade to regional economies, CARICOM will at some point  in the future have to consider, albeit cautiously, negotiating an FTA with the US as part of a long term plan to create a more predictable trade framework for US-CARICOM trade.

    I say in the future because negotiations are an expensive and human-resource intensive exercise and require extensive research and stakeholder consultations. At the moment CARICOM countries are still grappling with the lingering effects of the 2008/2009 crisis on their economies and are also still struggling to implement many of the commitments made to the EU under the EPA. Progress on deepening CARICOM integration itself has ground to a halt and it would be easier to formulate a consolidated negotiating position as a more integrated region. I say cautiously because based on its current treaty practice the US is unlikely to extend the same level of special and differential treatment or development assistance which CARIFORUM was able to secure from the EU.

    An interesting space to watch would be the on-going Trans-Atlantic Trade and Investment Partnership (TTIP) negotiations between the US and EU. The EU is currently insisting on the inclusion of certain sustainable development provisions into the agreement. An example is its recently released proposed text for the investment chapter. It would be interesting to see whether these provisions make it into the final TTIP text and that could help make it easier for CARICOM to insist on some of the same provisions in any future FTA with the US.

    For my previous article on the relevance of the CBI, please click here.

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

  • Economic Citizenship Programmes in the Eastern Caribbean: A Brief Look

    Alicia Nicholls

    In a world of eroded preferences for traditional Caribbean exports, the small island states of the Eastern Caribbean have had to find non-traditional ways to bolster their small open economies. There is growing global demand for alternative and second citizenship by mobile High Net Worth Individuals (HNWIs), a phenomenon on which an increasing number of states have sought to capitalise. At the Global Citizen Forum 2015 in Monaco last week, Prime Minister of St. Lucia, the Hon. Dr. Kenny Anthony announced his country’s intention to become the latest Caribbean state to offer economic citizenship. St. Lucia will join four other Caribbean countries: St. Kitts & Nevis, Antigua & Barbuda, Dominica and Grenada which operate direct citizenship by investment programmes. This article explores the current programmes in the Eastern Caribbean and whether the offering of economic citizenship is worth the risks involved.

    The concept of citizenship, that is, the status of holding the nationality of a State, is imbued with a whole package of legal, political and other rights and duties. All states of the English speaking Caribbean have citizenship on a jus soli basis, that is, the right to citizenship by virtue of being born in the territory, as well as citizenship through descent and naturalisation. Those states which offer economic citizenship stretch the notion of citizenship to give qualifying investors the right to full legal citizenship and the right to hold a passport for themselves and their families through making a qualifying investment into the local economy.

    Many of these mobile HNWIs are from China, the Middle East and Russia, seeking economic and political security, a more favourable tax climate, and the benefits of hassle free travel a good second passport could bring. According to The Wealth Report 2015, “it is estimated that 76,200 Chinese millionaires emigrated or acquired alternative citizenship over the 10 years to 2013”. Additionally, the US’ system of nationality based taxation and the onerous reporting requirements under FATCA have caused many Americans living abroad to renounce their American citizenship in record numbers (1,335 in the first quarter of 2015 according to this article).

    Economic citizenship and residency programmes are not unique to the Caribbean. Several countries such as Malta and Cyprus operate direct Citizenship by Investment programmes. Some countries offer Immigrant Investor Programmes which use the prospect of citizenship or permanent residence to attract highly skilled HNWIs. The US’ EB-5 visa is a prime example. Similar programmes are also offered by the United Kingdom, Australia and New Zealand. Outside of this, there is a whole wealth and tax planning industry which has built up around advising HNW clients and their families on how and where they can get the best passport for their buck.

    As countries known for their high standards of living, democratic principles, political stability, respect for the rule of law and healthy reputations internationally, it is little wonder several Eastern Caribbean countries have sought to leverage these pull factors and seek to get their share out of the second passport pie. The expected benefits to the host economy include foreign direct investment through purchasing real estate, funding for infrastructure development and the other economic benefits to be derived from HNWIs and their families spending in the economy.

    The investor must meet the application requirements and go through stringent application procedures and invest in one of the options available which differs by country. In return, investors which take advantage of economic citizenship offered by one of those Eastern Caribbean states gets visa free travel to over 100 countries, a second passport, no requirement for residency, as well as second citizenship for themselves and their spouse and dependents. They also can take advantage of the tax benefits offered by a low tax jurisdiction, including no capital gains, wealth or inheritance taxes.

    Below is a brief description of each programme:

    St Kitts & Nevis – It is the oldest continuously operating citizenship by investment programme and has been in existence since 1984. Two options for investment: (1) making a non-refundable donation to the Sugar Industry Diversification Programme of a minimum of US$250,000 plus processing fees or (2) by investing in an approved real estate project worth at least US$400,000 plus registration and other costs.  While the investment in real estate is recoverable, the investor must hold the property for a minimum of 5 years. The next buyer also qualifies for citizenship. For further info: http://stkitts-citizenship.com/

    Antigua & Barbuda – Three methods of investment: (1) Investment of at least US$400,000 in  an approved real estate project to be held for a period of no less than five years, (2) contribution of at least US$200,000 in the National Development Fund, (3) An investment of a minimum of US$1,500,000 directly into an eligible business as a sole investor or a joint investment involving at least 2 persons in an eligible business totalling at least US$5,000,000 and each of those persons individually invests at least US$400,000. For further info: http://cip.gov.ag/citizenship/

    Dominica – Dominica’s programme requires the smallest minimum investment. Citizenship can be obtained through investment either in the Government Fund or the Real Estate Option. According to the website of the CBIU, the generated funds are utilised for public and private sector projects where a need is identified. To qualify for citizenship under the Government fund there are four investment categories with different contribution amounts, based on the number of dependents included in the application. For a single applicant, there is a non-refundable contribution of US$100,000 required. The contribution required increases where a spouse and dependents are involved. To qualify for citizenship of Dominica under the Real Estate Option under the Citizenship by Investment Program, an applicant must purchase authorized real estate to the minimum value of US$200,000 plus government fees which dependent on whether a spouse is included and number of dependents. For further info: http://cbiu.gov.dm/

    Grenada – After a thirteen year hiatus, Grenada restarted its Citizenship by Investment programme in 2014. Application is by invitation only. Citizenship can be obtained by investment of a minimum of US$ 350,000 in an Approved Real Estate project plus fees and costs. The investment is subject to a minimum holding period of four (4) years. The second option is a non-refundable donation to the Island Transformation Fund which is not yet open. For further info: http://www.citizenship.gd/ 

    St Lucia – St Lucia has indicated its programme will begin from January 2016 and details about the programme are not yet available.  It has stated that they expect significant economic benefits from the programme.

    There is little data publicly available on the success of Caribbean CbI programmes. It would be interesting to know the number of applications received and approved on a yearly basis, the countries from which most applicants have come, and what have been the tangible benefits to the host countries. However, the IMF Staff Report  on St Kitts & Nevis noted the citizenship by investment programme in St. Kitts & Nevis, the region’s most successful CbI programme, is bearing fruit. It notes as follows:

    Continued rapid inflows under the Citizenship-By Investment (CBI) program have led to a surge in construction activity, and supported a large increase in government and Sugar Industry Diversification Fund (SIDF) investments and spending, including on the People Employment Program (PEP). These factors, together with the ongoing recovery in tourist arrivals fueled rapid GDP growth of about 6 percent in 2013 and 2014.

    Entangled in the notion of economic citizenship are a whole set of moral and legal issues. For one, the definition of ‘spouse’ in the legislation of these Caribbean countries still means either of a man or woman who are married to each other. In light of competition from other CbI programmes, will this definition eventually be amended to allow gay HNWIs and their spouses to take advantage of these programmes?

    There are also regulatory and national security implications, including concerns about the potential use of second passports to facilitate money laundering, organised crime and terrorist activity. Of course, there are stringent screening methods, including requirements of police certificates of character. After all, all countries prefer to attract investors of good character who are self-sufficient, and willing to make a significant economic investment to the country in which they are seeking citizenship. Under the Antigua & Barbuda programme for example, a person can be deprived of citizenship in several instances e.g: fraud, conviction or failure to spend at least 35 days in Antigua & Barbuda during the period of five calendar years after his registration. There is the potential for attracting ‘undesirables’, even with a rigorous programme.

    A few countries worldwide have found that the potential investment inflows were not worth the risk or they could not cope with the volume of applications. Canada cancelled its Immigrant by Investor Programme, while Hong Kong has suspended its CIES programme. Barbados has clearly stated that for policy reasons it will not go the route of economic citizenship. It currently offers the Special Entry and Reside Programme (SERP) for qualifying HNWIs and their spouses/dependants. In order to qualify as an HNWI in Barbados, the investor must have assets of at less than US$ 5 million. In spite of this, Eastern Caribbean CbI programmes not only have to compete amongst themselves but also face increased competition globally from potentially more attractive CbI and residency programmes worldwide.

    Moreover, countries which offer economic citizenship programmes do open themselves to reputational risks, especially if other States have doubts about the rigor of their screening procedures. The US Treasury has accused persons obtaining St Kitts & Nevis passports for financial crime  and Canada imposed visa requirements on St. Kitts & Nevis nationals on November 22, 2014. The merits of these actions are debatable. However, these are the kinds of risks which countries operating these programmes face. Moreover, they may result in holders of those passports, including natural born citizens, being blacklisted or subject to more scrutiny by foreign jurisdictions, which may redound to more harm than good for that State and undermine the very programme itself.

    In light of the foregoing, any Caribbean state considering a Citizenship by Investment programme must not only consider the possible investment inflows but weigh them carefully against the potential reputational, security and other risks, as well as the sustainability of such a programme.

    Disclaimer: This article is NOT intended to provide investment advice and the Author is not accountable to anyone who relies on the information in this article. The information was taken from sources deemed to be accurate and correct at the time of publication. For further information on the respective CbI programmes stated above, please contact the relevant authorities in the respective countries.

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