Caribbean Trade Law and Development

Tag: European Union

  • The need for a CARICOM Trade and Development Strategy

    The need for a CARICOM Trade and Development Strategy

    Alicia Nicholls

    Last week the European Union (EU), one of the Caribbean Community (CARICOM)’s largest and key trading partners, released a communication outlining what would be the elements of the EU’s new trade strategy over the medium term.

    This article discusses the elements of the new EU trade strategy, but does so as a backdrop to explain why a similar exercise by CARICOM, as well as a comprehensive review of CARICOM’s existing trade agreements, is long overdue.

    The elements of the new EU trade strategy

    The EU has indicated that in light of new internal and external challenges, which include its more sustainable growth model, it will be formulating a new trade policy. According to the Commission’s communication, the EU needs a new trade policy strategy which “will support achieving its domestic and external policy objectives and promote greater sustainability in line with its commitment of fully implementing the UN Sustainable Development Goals”.

    The new ‘open, sustainable and assertive’ trade policy would be based on what the Commission has termed ‘Open Strategic Autonomy’. This concept is defined in the EU communication as follows: “Open strategic autonomy emphasises the EU’s ability to make its own choices and shape the world around it through leadership and engagement, reflecting its strategic interests and values”.

    The communication outlines the core objectives of what will be the EU’s new trade policy for the medium term. These are (1) supporting the recovery and fundamental transformation of the EU economy in line with its green and digital objectives; (2) shaping global rules for a more sustainable and fairer globalization and (3) increasing the EU’s capacity to pursue its interests and enforce its rights, including autonomously where needed.

    While the document notes that multilateralism and open trade remain central tenets of the EU’s trade strategy, it strongly hints at the possibility of the EU taking unilateral action on enforcing its rights against what it terms ‘unfair trade practices’. It is likely this assertive tone is aimed at China and the US, in particular.

    To deliver on the objectives of its new trade strategy, the Commission has indicated that it would focus on several deliverables, including “reinforcing the EU’s focus on implementing and enforcing trade agreements, and ensuring a level playing field for EU businesses”.

    Considering the EU’s recognition that the majority of global growth is expected to take place outside of the EU in the coming years, it is not surprising that another deliverable for its new trade policy outlined in the communication is “deepening the EU’s partnerships with neighbouring, enlargement countries and Africa”. The Caribbean is not among the regions prioritized. While it could be argued that this is because of the longstanding relationship between the EU and CARIFORUM under the EU-ACP relationship, many African countries are part of the long-standing EU-ACP relationship as well.

    One of the things the African region has over the Caribbean and why so many countries, including China and now those in the Caribbean, are making greater overtures towards the African continent, is that Africa is clearly one of the new hotspots for global growth. Some African countries, like Rwanda for example, are becoming shining examples of post-conflict growth and development. Moreover, Africa’s growth prospects will be boosted with the African Continental Free Trade Agreement (AfCFTA) which came into effect January 1, 2021 and is currently being operationalized. Meanwhile in the Caribbean, with the exception of Guyana which has benefited from its new oil exporter status, growth among our countries remains lacklustre, beset by several shocks, with the COVID-19 pandemic being one of the latest.

    The need for a CARICOM trade and development strategy

    The EU’s announcement of its new trade strategy made me wonder, and not for the first time, does CARICOM have a trade and development strategy? After several inquiries, I am none the wiser as I am yet to see any public document which outlines a comprehensive CARICOM trade and development strategy.

    Some individual CARICOM Member States, for example Belize, Jamaica and Trinidad & Tobago, have clearly outlined and documented trade policy/strategy documents which can be easily found with a simple Google search. But there is a need for a comprehensive and clearly articulated region-wide strategy for trade and development. Why? Quite simply, we are stronger when we are unified. Among the objectives of the Community outlined under Article 6 of the Revised Treaty of Chaguaramas is the enhanced coordination of Member States’ foreign and foreign economic policies. Enhanced coordination does not mean a requirement to consolidate, but it stems from a recognition that the region is stronger on any given matter of a foreign policy or foreign economic policy nature when our approach is unified. In much the same way, a unified approach on a regional trade and development strategy would be beneficial to the region.

    There was a CARICOM Strategic Plan for the period 2015-2019, which was the first of its kind and which outlines a strategy for repositioning CARICOM, including its trade and investment relations. However, there is no publicly available information, as far as I am aware, on whether the goals under this plan have been achieved or whether its operation was even assessed. Will there be another five year strategic plan? One is certainly needed given the changing realities our countries confront.These are questions that should be easily answered by being able to look on CARICOM’s website.

    A comprehensive CARICOM trade and development strategy is especially important now that it is pellucidly clear that the overreliance on a single sector for economic activity, employment and foreign exchange, which is tourism for most of us, remains a perilous development strategy. It has long been recognised that there is a need to not only diversify our trade through higher value-added goods and services, but expand links with non-traditional partners, such as China, African countries, India and countries of the Middle East. How can our existing trade agreements with current major partners be leveraged to support our goals of export diversification and expansion? Do we need trade agreements with some of our newer partners? How can we better utilise economic diplomacy and our diasporas as part of our trade strategy?

    Any CARICOM trade strategy must be clearly undergirded by the region’s strategic development objectives, and logically linked to an industrial policy. It must complement and not be divorced from strategies to promote MSME growth and internationalization or diaspora engagement. Of course, formulating such a strategy would be an involved process and should involve extensive consultations with key stakeholders both at the regional and national levels, including the private sector, civil society and ordinary citizens. Much could be learned from the process of how the EU does its consultations.

    This brings me to another critique, the lack of transparency which remains a problem in our region. It is not good enough that those of us who follow trade know more about what goes on in other regions, especially the EU through its excellent website and other communications infrastructure, than what happens in CARICOM.

    Although CARICOM has introduced some commendable outputs like its use of social media, weekly video summary of what is happening in the Community and its summary of business news across the region, it would also be helpful to see more substantive information on what is discussed in COTED and COFCOR meetings. The issues discussed in these meetings have an impact on the ordinary CARICOM citizen and it is regrettable that often there are no communiques released after these meetings or where there are, the information usually appears generic with little substance.

    Need for review of CARICOM’s trade agreements

    Lastly, there is also the need for a comprehensive evaluation of the region’s trade agreements in much the same way as I called for a review of our existing bilateral investment treaties in a previous article. CARICOM has partial scope agreements with Colombia, Venezuela and Cuba. It has free trade agreements (FTAs) with the Dominican Republic and Costa Rica.  The CARIFORUM-EU Economic Partnership Agreement is CARICOM’s first FTA with a developed country partner, and the CARIFORUM-UK EPA rolls over the provisions of this agreement to cover CARIFORUM-UK trade now that the UK has exited the EU. Most CARICOM countries also benefit from non-reciprocal preferential market access for their goods to the Canadian market through CARIBCAN and to the United States (US) through the Caribbean Basin Initiative. Individual CARICOM countries also have partial scope agreements, often with neighbouring countries in South or Central America.

    Unfortunately, most of the data on the utilization of these agreements are via reports published by our partners, and not through our own publicly available independent studies. In the case of the Caribbean Basin Initiative, we have to rely on the biennial reports published by the United States International Trade Commission (USITC) for data on the operation of that programme.

    In the case of the CARIFORUM-EU EPA, it is through the review reports commissioned by the European Commission . The most recent European Commission report on the monitoring of the EPA, though noting some progress with implementation, highlights several remaining implementation deficits. It also shows that the Agreement remains underutilized and that in some cases, there is limited awareness by firms of the existence of the Agreement and the opportunities thereunder. This is despite the many sensitization workshops, seminars and literature conducted and disseminated on the EPA. Why is this? And how can it be fixed?

    An excellent study by McClean and Khadan of 2014, which was published by the Economic Commission for Latin America and the Caribbean (ECLAC), found that the situation of under-utilisation is endemic with all of the region’s trade agreements. A key paragraph from the study is deserving of particular attention:

    In spite of the various trade agreements negotiated, CARICOM export performance has not
    improved significantly and there has been little movement up the value chain, particularly since
    subregional economies have been unable to transform their production systems in order to take
    advantage of the market access opportunities provided by these trade arrangements. In addition,
    production and exports of Caribbean goods are extremely specialized and along with its services sectors
    have been declining in competitiveness. (McClean & Khadan 2014)

    Is it not time that CARICOM conduct its own public review of the operation of its trade agreements to empirically ascertain the reasons for the poor utilisation by regional firms of its trade agreements, but also whether these agreements are making any contribution to regional development? Larger countries and regions, like the EU and US, do periodic review of their agreements. I see no reason why we should not be doing the same. Moreover, any report from such a review should be made publicly available.

    In summary, the EU’s recognition of the need to rethink its trade strategy in light of changing economic and geopolitical developments and its more sustainable growth model reiterates why a similar exercise is long overdue in CARICOM.

    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. All views herein expressed are her personal views and should not be attributed to any institution with which she may from time to time be affiliated. You can read more of her commentaries and follow her on Twitter @LicyLaw.

  • EU-CARIFORUM EPA Monitoring Report finds five-fold increase in EU FDI to CARIFORUM

    EU-CARIFORUM EPA Monitoring Report finds five-fold increase in EU FDI to CARIFORUM

    Alicia Nicholls

    Foreign Direct Investment (FDI) from the European Union (EU) increased five-fold to CARIFORUM countries on a whole over the period 2013-2017, with the Bahamas and to a lesser extent, Barbados, being the main destinations. This increase, however, was not as a direct result of the EU-CARIFORUM Economic Partnership Agreement (EU-CARIFORUM EPA). These are some of the conclusions emanating from the final report of the study “Ex-post evaluation of the Economic Partnership Agreement (EPA) between the European Union and CARIFORUM” evaluating the implementation of the EPA over the period 2008-2018.

    The EU-CARIFORUM EPA was signed in 2008 and has been provisionally applied since then. It liberalises trade and investment between the EU and CARIFORUM on the basis of asymmetrical reciprocity and provides for development cooperation. It comprises 15 countries on the CARIFORUM side and had included the then 28 EU Member States when the United Kingdom was still an EU member. The first EPA monitoring report of 2014 had found several implementation shortcomings and it appears not much has changed since that first report.

    The current report found overall that implementation of the Agreement has been “mixed”, noting that while “clear progress in implementation has been made, several shortcomings remain.” It revealed implementation shortcomings in a number of categories, namely, liberalisation commitments, regulatory commitments, as well the institutional commitments. It further stated that “while in the EU not many shortcomings in terms of EPA implementation were observed, there are clearly barriers in place which can limit the CARIFORUM countries’ expected benefits under the EPA.” Several implementation shortcomings on the CARIFORUM side have been noted, including regarding commitments on intellectual property rights, electronic commerce and regional preferences.

    Implementation gaps related to the institutional commitments are common to both Parties, according to the report. Ratifications have, however, increased since the last report with 25 out of the (then) 28 EU countries and 10 out of 15 CARIFORUM countries having ratified the agreement.

    It is not lost on the reader that there are some clear assumptions expressed in the report, some of the same assumptions that have resulted in the EU unfairly placing some CARIFORUM countries on its blacklists for tax and anti-money laundering and countering the financing of terrorism (AML/CFT) purposes. For one, with regard to the increase in FDI, the report questioned “to what extent these are productive investments, as they are concentrated in the Bahamas and to a lesser extent Barbados”, which are low tax jurisdictions, and that “in the consultations, no clear champions could be identified”.

    The EU remains the top provider of development assistance to the region. It is, therefore, curious that while the report rightly listed a number of development challenges facing CARIFORUM, including climate change and the COVID-19 pandemic, it unfortunately appears to flippantly note that “the countries do not face these challenges alone, but together with their key partners”. That statement ignores the fact that CARIFORUM countries are primarily small island developing States whose capacity to meet these challenges, is much more circumscribed than that of larger countries. One only needs to look at the fact that CARIFORUM countries face significant challenges in accessing COVID-19 vaccines for their populations on equal terms as larger countries.

    Another interesting finding from the report regarding FDI is that the EPA has had a low impact on EU FDI into the CARIFORUM tourism sector. The EPA, it argued, was rarely among the decisive factors driving FDI to the region and “the level of awareness of the EPA is very low, with even large investors often being unaware of the EPA.”

    It should be noted that the EPA does not include a full investment chapter as the EU Commission at the time only had competence to negotiate investment liberalisation. Investment protection provisions are not included in the EPA’s investment chapter. Investors would have to rely on protections included in the individual BITs existing between various CARIFORUM and EU countries, where available and in force, most of which predate the EPA.

    In sum, the study found that the EPA had occasioned limited changes in overall trade and investment between the EU and CARIFORUM, leading to a conclusion of a lack of a clear impact of the EPA. It also outlines several recommendations.

    The executive summary of the final report may be accessed here.

    Alicia Nicholls, B.Sc., M.Sc., LL.B. is a trade and development consultant with a keen interest in sustainable development, international law and trade. All views herein expressed are her personal views and should not be attributed to any institution with which she may from time to time be affiliated. You can read more of her commentaries and follow her on Twitter @LicyLaw.

  • The EU’s Updated Draft AML/CFT List of High Risk Third Jurisdictions ‘Take Two’: A Critique

    The EU’s Updated Draft AML/CFT List of High Risk Third Jurisdictions ‘Take Two’: A Critique

    Alicia Nicholls

    In the midst of the human and economic challenges wrought by the novel coronavirus (COVID-19) pandemic, another threat looms for three Caribbean countries. The European Commission (the Commission) last week released its draft updated List of High Risk Third Jurisdictions which have strategic deficiencies in their Anti-Money Laundering and Countering the financing of terrorism (AML/CFT) regimes that pose significant threats to the financial system of the 27-nation bloc. Barbados and Jamaica now join The Bahamas on the updated draft EU list.

    Readers would recall that the Commission’s previous draft list of February 13, 2019 was ultimately rejected by the Council of the EU on March 5, 2019, sending the Commission back to the drawing board. Unfortunately, the Commission’s release of the revised draft list has occurred in the middle of the COVID-19 pandemic – widely acknowledged to be the worst economic shock to hit the global economy, including the economies of those Caribbean countries listed.

    While the draft list still requires European Parliament and Council approval, and is set to apply only from October 1 2020, mere inclusion on such a list could still present reputational risks and other financial implications for those countries listed, particularly for Barbados and The Bahamas which are International Financial Centres (IFCs). This article briefly looks at the implications of the updated list for the countries named and possible next steps.

    What is the EU’s AML/CFT List of High Risk Third Countries?

    The EU’s draft AML/CFT List of High Risk Third Countries is completely distinct from its list of non-cooperative jurisdictions for tax purposes. Indeed, this draft list forms part of a suite of measures proposed by the European Commission designed “to further strengthen the EU’s framework to fight against money laundering and terrorist financing”. The EU’s stricter approach to AML/CFT supervision was prompted, in particular, by a number of high-profile money laundering scandals involving European banks over the past few years. The EU has also this week proposed the creation of a Pan-European AML/CFT authority.

    However, despite these threats in its own backyard, the EU has chosen to focus a good part of its attention on purported AML/CFT risks posed by third States. According to the EU’s website, the list “aims to address risks to the EU’s financial system caused by third countries with deficiencies in their anti-money laundering and counter-terrorist financing regimes”. The first EU AML/CFT list of high risk third jurisdictions was drawn up in 2016 based on the Financial Action Task Force (FATF) lists and has been updated regularly by subsequent delegated regulations. In 2017, the EU commenced working on its own methodology for identifying third jurisdictions with strategic deficiencies in their AML/CFT regimes. This new EU methodology, which only uses the FATF lists as a starting point, was adopted in 2018. The now rejected February 13, 2019 list is the first to be drawn up according to this new methodology which was again revised in May 2020.

    Under the EU’s Fourth Anti-Money Laundering Directive (4AMLD), banks and other ‘obliged entities’ in the EU are required to apply enhanced customer due diligence (ECDD) on transactions and business relationships involving those countries listed as high-risk third countries. In other words, transactions originating from or going to those countries will be subject to enhanced scrutiny, which could mean longer wait times for completion and more frequent risk assessment reviews of the relationship.

    Who is included in the updated draft list?

    The EU in its methodology for identifying high risk jurisdictions, indicated that its proposed AML/CFT blacklist would use the FATF lists as its starting point. As such, the Bahamas, which is on the FATF list of jurisdictions under increased monitoring (loosely referred to as the ‘grey list), remains on the updated Commission list. Barbados and Jamaica, which were added to the FATF grey list of February 21, 2020, were added to the new draft EU AML/CFT List of High Risk Third Jurisdictions. Like the other countries on the FATF grey list, The Bahamas, Barbados and Jamaica were identified as having strategic deficiencies in their regimes to counter money laundering, terrorist financing and proliferation financing but have undertaken a high-level political commitment to implement a FATF-agreed action plan to address these deficiencies.

    The other countries included on the EU’s updated draft list are Botswana, Cambodia, Ghana, Mauritius, Mongolia, Myanmar/Burma, Nicaragua, Panama and Zimbabwe, which are also on the FATF grey list of February 2020. However, the draft list does not include Iceland, a non-EU Member Country but part of the European Economic Area, which was also added to the FATF’s grey list.

    Issues with the List

    First, it is unfortunate that the European Commission would release this updated list while these countries’ economies are already suffering the harsh impact from the COVID-19 pandemic and could be further impacted by the reputational fall-out from this unilateral action. Indeed, although this measure is not supposed to take effect until October 1, 2020, the mere mention of these countries’ inclusion could spook investors and clients at a time when these countries’ economies are in a tailspin from COVID-19.

    Second,  like its failed list before, the EU is lumping jurisdictions which are on FATF’s grey list, that is, the list of monitored jurisdictions with an action plan with those which are on the actual FATF blacklist, that is, those countries for which there is a FATF call for action, namely North Korea and Iran. That poses additional reputational risks for named countries. It is incomprehensible to suggest that the AML/CFT risk posed by Barbados, The Bahamas or Jamaica is equivalent to that posed by those two countries for which a FATF call for action exists.  

    Third, as with the list before, the listed countries have complained that they were not given any advance notice of the updated list or any opportunity to query or contest their inclusion. The EU has stated it will provide technical assistance to those countries listed, but what will such assistance involve and how is it different from the assistance offered by the Caribbean Financial Action Task Force, the FATF regional body for the Caribbean?

    Fourth, the EU methodology only uses the FATF lists as the baseline for identification of countries with strategic deficiencies in their AML/CFT regimes. It begs the question why would the Commission, which is a full FATF member, see the need to create a separate list from FATF – the globally recognized standard-setting and monitoring body for AML/CFT matters. Moreover, unlike the FATF which provides detailed country-specific information through the mutual evaluation reports (MERs), the EU did not publish any detailed reasons for the inclusion of each jurisdiction.

    Fifth, the level of due diligence imposed by the EU goes beyond what is expected by FATF for countries listed as having strategic deficiencies in their AML/CFT regimes with an action plan. The FATF does not call for the application of ECDD to jurisdictions with strategic AML/CFT deficiencies with an Action Plan, but encourages its members to take into account the information presented in its risk analysis.

    Sixth, while the EU list does not impose sanctions or any other restrictions on trade, once a country has been listed as high-risk, European banks and other ‘obliged entities’ are required to apply ECDD on any transactions and relationships involving natural persons or legal entities based in such countries. Further, the EU’s Fifth Anti-Money Laundering Directive (5AMLD) provides additional guidance as to the type of ECDD required, which includes obtaining supplementary information on customers and beneficial owners.

    Implications for the Countries Listed

    There are already implications for the Bahamas, Barbados and Jamaica being on the FATF list but they increase with the EU list. The required ECDD on transactions  involving  clients  and  intermediaries from these countries could result in costlier and longer clearance times for transactions.

    The EU says its list is not a “name and shame” exercise, but there are reputational implications of being blacklisted or the threat of being blacklisted, especially in the increased climate of bank de-risking. Many large global banks in their risk rating of countries rely on FATF and other countries’ lists to assess country risk. Increased perceived country risk has implications for a jurisdiction’s attractiveness as an IFC and for its foreign direct investment (FDI) attraction more broadly. Some financial institutions may simply decide the enhanced transaction and business relationship monitoring is too much work and choose to de-risk.

    There are, of course, attendant implications for the ease of doing business, cross-border trade and financial transaction flows, which are the lifeblood of these countries’ economies.

    Next Steps?

    The updated draft list still requires approval by the European Parliament and the Council of the EU. So what can the named countries do in the interim? Since the EU has stated the FATF lists are its starting point, Barbados, The Bahamas and Jamaica have and should continue to prioritise addressing the outstanding issues highlighted by CFATF in order to exit the FATF grey list.

    The Bahamas, Barbados and Jamaica should continue public awareness and outreach activities to local stakeholders, as well as to external stakeholders, on their commitment and progress toward technical and effective compliance with the FATF recommendations.

    Lastly, whenever the EU unjustly and arbitrarily includes our countries on a list such as this, there is a chorus of indignation from our leaders about the morality reprehensibility of such lists. We need to go beyond emotional arguments and present sound empirical research on the impact of blacklisting or the threat of blacklisting on our economies. Perhaps that way we could truly empirically show the negative economic impact of these heavy-handed actions instead of simply appealing to moral suasion.  

    Alicia Nicholls, B.Sc., M.Sc., LL.B is an international trade and development specialist. Read more of her commentaries here or follow her on Twitter @licylaw. All views expressed herein are her personal views and do not necessarily reflect the views of any institution or entity with which she may from time to time be affiliated.

  • EU Commission Launches CARIFORUM-EU EPA Public Consultation

    EU Commission Launches CARIFORUM-EU EPA Public Consultation

    The European Commission on April 17, 2019 launched an evaluation of the CARIFORUM-EU Economic Partnership Agreement (CARIFORUM-EU EPA) which governs trade between the current EU-28 and CARIFORUM countries. The CARIFORUM-EU EPA has been provisionally applied since 2008.

    Part of this evaluation exercise involves a public consultation in which stakeholders both in the EU and CARIFORUM countries, which are directly affected by the Agreement, are encouraged to contribute to the consultation. They can do so by completing a questionnaire online. The deadline for submission of responses to the survey is June 28, 2019, while the evaluation will take place between April 17, 2019- July 10, 2019.

    Stakeholders include businesses, business organisations and chambers of commerce, workers’ representatives and trade unions, citizens/individuals, workers, consumers, public authorities, NGOs and other civil society organisations, academia, research institutions, experts and think tanks from the EU and CARIFORUM.

    For further information and to complete the questionnaire, visit here.