Caribbean Trade Law and Development

Tag: trade agreements

  • 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.

  • TTIP: Joint US-EU State of Play Report Published

    TTIP: Joint US-EU State of Play Report Published

    Source: Pixabay

    Alicia Nicholls

    “The EU and the United States have made considerable progress in negotiating a Transatlantic Trade and Investment Partnership (TTIP) agreement since the negotiations were launched in July 2013”. This is the assessment according to a Joint Report released today January 17, 2016 by EU Trade Commissioner, Cecilia Malmström and outgoing United States Trade Representative (USTR), Michael Froman, which outlined the state of play of negotiations on the TTIP to date.

    In 2013 the US and EU set out to conclude an “ambitious, balanced, comprehensive, and high-standard agreement”. Since then fifteen negotiating rounds have been held between July 2013 and October 2016. The future of the TTIP is currently uncertain given incoming US President Donald Trump’s seeming aversion to mega free trade agreements which he argues could undermine American workers and manufacturing, and his stated preference for bilaterals. While he has railed against the concluded but not yet ratified 12-country Trans-Pacific Partnership (TPP), President-elect Trump has said comparatively little on TTIP and the agreement’s future appears uncertain. It is worth noting though that similar to TPP there has been a significant popular backlash against TTIP. Another spanner in the works is the impending exit of the UK from the EU. President-elect Trump has already indicated an interest in pursuing a US-UK free trade agreement post-Brexit.

    The Joint report reiterated the perceived expected benefits to accrue from TTIP, including increased trade and investment flows, promotion of higher standards in the global economy, and strengthen an already strong trans-Atlantic partnership.

    In explaining the current state of play, the Joint Report noted some of the things on which the EU and US have found common ground:

    • Exchanged offers to eliminate duties on 97% of tariff lines
    • Identified steps to reduce unnecessarily burdensome requirements and delays at borders
    • TTIP must include strong obligations to protect the environment and foundamental labour rights.
    • Negotiated a dedicated chapter focused on small medium-sized enterprises (SMEs)

    However, the report did note that there was still significant work to resolve differences in several important areas. A few of the several areas identified were:

    • how to treat the most sensitive tariff lines on both sides
    • how to expand and lock in market access in key services sectors
    • how to reconcile differences on sanitary and phytosanitary measures; how to encourage the recognition of qualifications to facilitate licensing of experienced professionals
    • how to improve access to each other’s government procurement markets
    • how best to achieve our shared objective of providing strong investor protection while preserving the right of governments to regulate

    In perhaps a last ditch to make the case for TTIP before the Trump administration assumes office on Friday, the report expressed the view that political will and continued engagement by both sides could lead to a successful outcome.

    To this effect, EU Commission’s press release quotes Commissioner Malmström as stating “We have made considerable, tangible progress, as this summary demonstrates. I look forward to engaging with the incoming US administration on the future of transatlantic trade relations.“

    The full report may be read 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.

  • Trans-Pacific Partnership Agreement in Review Part I: The Investment Chapter

    Alicia Nicholls

    The Trans-Pacific Partnership Agreement is the largest regional free trade deal concluded to date, creating a free trade area which encompasses 12 Pacific-rim countries and which accounts for 40% of global GDP. The TPP in its preamble speaks of the goal to establish a comprehensive regional agreement that promotes economic integration to liberalise trade and investment, bring economic growth and social benefits, among other things. However, like NAFTA over two decades ago, the TPP Agreement has been mired in controversy from its embryonic stages, with opinion sharply divided on whether it truly advances global trade or whether it sets the clock back on development issues such as labour rights and the environment. This article attempts a sober look at some of the main provisions of the investment chapter of the TPP and is the first in a series of articles which will examine some of the key aspects of the Agreement.

    Framers of International Investment Agreements (IIAs) have to play a delicate balancing act between protecting the rights of investors while at the same time preserving the right of host states to regulate in the public interest and in the interest of fulfilling policy objectives.

    The TPP’s investment chapter shares many striking but unsurprising similarities with the US Model Bilateral Investment Treaty (BIT) 2012. It includes a long list of definitions followed by substantive provisions detailing investor rights and finally a separate section on procedural provisions providing for Investor-State Dispute Settlement (ISDS).

    Definition of “investment”

    The definition of “investment”  in the TPP Agreement is broad akin to that in the US Model BIT 2012. It defines an investment as “every asset that an investor owns or controls, directly or indirectly, that has the characteristics of an investment, including such characteristics as the commitment of capital or other resources, the expectation of gain or profit, or the assumption of risk”. It outlines some of the forms which an investment for the purposes of the Agreement may take. The definition of “investor” is standard and does not merit much discussion for present purposes.

    Treatment

    The TPP includes national treatment and Most Favoured Nation treatment clauses, which are standard clauses in nearly all IIAs. The National treatment provision (Article 9.4) provides that parties are to accord to investors of another Party and their covered investments treatment no less favourable than that they accord in like circumstances, to their own investors and their investors’ own investments with respect to the establishment, acquisition, expansion, management, conduct, operation, and sale or other disposition of investments in its territory. It establishes pre-establishment rights, which is typical of US BITs and US-modelled IIAs.

    In recent years the inclusion of the Most Favoured Nation clause in IIAs has been controversial as it allows for treaty shopping. Investors who are claimants in disputes have sought to rely on these clauses to benefit from more favourable treatment provided by the respondent state in treaties with third parties. In Maffezini v Spain, a precedent was established where an investor was able to benefit from more favourable dispute settlement provisions in a treaty which the respondent state had entered into with a third party state. As a result, a few IIAs have opted to omit MFN clauses.

    One of the criticisms which have been levelled at the TPP is that the MFN clause potentially negates any progress made on rebalancing the rights of investors with states’ rights to regulate by allowing investors to cherry pick from provisions in older and more investor-friendly agreements.

    To their credit, the drafters of the TPP have sought to build in several safeguards. Firstly, at section 9.5(3) a carve-out is made exempting procedural provisions such as those in Section B (ISDS) from applicability of the MFN clause. Secondly, it uses the qualifier term “in like circumstances”, although a broad interpretation by an arbitration tribunal may still be possible.

    Minimum Standard of Treatment

    The minimum standard of treatment provided for under the TPP is similar to those found in bilateral investment treaties (BITs) and IIAs in general. Per Article 9.6, each Party must accord to covered investments treatment in accordance with applicable customary international law principles, including fair and equitable treatment and full protection and security.

    The FET provision in many BITs has been the cause of headache for many states due to its vagueness. This has made it open to interpretation by tribunals which have tended to expand the scope of FET to encompass rights beyond customary international law standards. The proliferation of FET cases brought by investors under NAFTA’s ISDS prompted the NAFTA Commission to release an interpretative note which declared definitively that fair and equitable standard of treatment was no more than the minimum standard of treatment afforded to aliens under customary international law. This language was also included in the US and Canada model BITs.

    The TPP drafters sought to mitigate this in several ways. Article 9.6(2) clearly states that the concepts of “fair and equitable treatment” and “full protection and security” do not require treatment in addition to or beyond that which is required by that standard, and do not create additional substantive rights. For greater certainty, the framers go further to define what they mean by “FET” and “full protection and security”.

    The framers also go to lengths to define what does not constitute a breach. Article 9.6(3) states that determination of a breach of another Article does not establish a breach of Article 9.6. Furthermore, neither the mere fact that a Party takes or fails to take an action that may be inconsistent with an investor’s expectations nor that a subsidy or grant has not been issued, renewed or maintained, or has been modified or reduced, by a Party, do not constitute breaches of this Article, even if there is loss or damage to the covered investment as a result.

    Expropriation and Compensation

    One of the most pervasive threats posed to foreign investors in a foreign country is direct or indirect expropriation of their investment by the host state without compensation being paid. Similar to standard BITs, the TPP provides that state parties may take measures which directly or indirectly expropriate a covered investment but only in the circumstances outlined under Article 9.7(1) and with compensation.

    Performance Requirements

    In its preamble, the framers of the TPP talk about recognising the differences in the levels of development and diversity of economies of member states. However, how has this been borne out in the provisions? Performance requirements have been typically used by countries to ensure that investors add value to the local economy. These include requirements on the investor to buy local goods and services, set levels of exports of goods and services, technology transfer and domestic content requirements. The TRIMS Agreement prohibits trade-related performance requirements. However, it has been common practice for US-based FTAs to include prohibitions against all performance requirements. The TPP follows this approach. Four of the twelve parties to the TPP are developing countries.  This therefore will have an effect on those developing countries members of the Agreement as their ability to ensure investors make a contribution to their economies through the use of non-trade related performance requirements will be compromised.

    Free Transfer

    One of the basic assurances investors look for is the ability to move their assets, such as repatriated profits, freely and without delay into and out of the host country. A standard provision in BITs, Article 9.8 of the TPP protects this right and is subject to the exceptions in 9.8(4). Of concern is that no exception is included for where the host state is encountering exceptional economic or financial challenges, such as currency and balance of payments difficulties. The omission of an exception for financial and economic difficulties is typical of US treaty practice but some treaties such as some UK BITs allow a carve-out for this. Such a provision would be particularly useful for developing countries which are generally more vulnerable to balance of payments difficulties.

    Special Formalities and Information Requirements

    Article 9.13 of the TPP provides carve-outs from National Treatment and MFN for special formalities and information requirements. It includes a carve-out from the National Treatment provision, allowing a Party to adopt and maintain measures which prescribes special formalities in connection with a covered investment, such as residency requirements for registration and requirements that a covered investment be legally constituted under the laws or regulations of the Party, provided that these formalities do not materially impair the protections afforded by the Party to investors of another Party and covered investments under the Chapter.

    It also makes a carve-out from the National Treatment and MFN provisions allowing a Party to require an investor of another Party or its covered investment to provide information concerning that investment solely for informational or statistical purposes. However, such information is to be kept confidential from any disclosure which would prejudice the competitive position of the investor or the covered investment.

    Carve-outs for Regulatory Objectives

    Investment Agreements are a balancing act between the rights of investors and the rights of host states to regulate in the public interest and in the interest of fulfilling policy objectives. Article 9.15 attempts to make a carve-out by providing that nothing in the Agreement should be construed to prevent a Party from adopting, maintaining or enforcing any measure otherwise consistent with this Chapter that it considers appropriate to ensure that investment activity in its territory is undertaken in a manner sensitive to environmental, health or other regulatory objectives. However, what happens if the measure in question is not consistent with this Chapter. The inclusion of the phrase “otherwise consistent with this Chapter” is a loophole which potentially negates the efficacy of this carve-out.

    Corporate Social Responsibility

    The provision on CSR in Article 9.16 is rather weak; it is drafted in best endeavour language and is not enforceable. It simply reaffirms the importance of each Party to encourage enterprises operating in its territory or subject to its jurisdiction to voluntarily incorporate internationally recognised CSR principles into their internal policies. A stronger CSR provision would have been ideal here, particularly a requirement that investors comply with all applicable laws in the host State, comply with international labour standards and adopt environmentally sustainable practices.

    ISDS

    The most disdain for the TPP’s investment chapter has been targeted at the ISDS provisions. ISDS systems allow an investor to bring a claim directly against the host state. A feature of investment law, they are an innovation in public international law as there is no requirement for the exhaustion of local remedies and the investor can bring the claim directly without having to go through its state of nationality.

    Critics argue that ISDS provisions only serve to give investors the ability to sue host States for introducing public policy legislation deemed to hurt their investment. The truth is that the majority of BITs have ISDS provisions. In this regard the TPP is neither unique nor more onerous. ISDS systems are more efficient, while the use of an arbitration tribunal instead of the local courts ensures that decisions are rendered fairly and free of political bias.

    That withstanding, the ISDS has many well-documented flaws. ISDS cases are a costly exercise and have been a painful experience for those States which have found themselves on the wrong end of an arbitral award. However, UNCTAD data shows that of the 356 known cases concluded, 37 percent were won by the State, 25% by the investor and 28% were settled. Therefore, it is not an automatic case that the investor wins.

    The TPP provides several options of arbitral forum and includes several provisions which attempt to address some of the criticisms made about the ISDS. There is the requirement that the parties to the dispute attempt to resolve the dispute through consultation and negotiation. Claims cannot be made after more than three years and six months have elapsed from the date on which the claimant first acquired, or should have first acquired, knowledge of the breach alleged.

    Lack of transparency has been one of the biggest criticisms leveled at the ISDS system as many arbitral proceedings and awards are not made public. Article 9.23 which deals with transparency in arbitral proceedings, provides that certain documents are to be made public “promptly”. What constitutes “prompt” is not defined and will likely depend on the circumstances. The tribunal is to conduct hearings in public, a marked departure from what is provided in most IIAs. However, Article 9.23(3) makes exceptions for protected information and information that may be withheld under the articles on security exceptions and disclosure of information. The TPP’s ISDS allows for the consolidation of claims arising out of the same set of events or circumstances.

    In determining whether to make an award to the prevailing disputing party of reasonable costs and attorney’s fees incurred in submitting or opposing the objection.is warranted, the TPP provides that the tribunal is to consider whether either the claimant’s claim or the respondent’s objection was frivolous, and is to provide the disputing parties a reasonable opportunity to comment. If the tribunal determines such claims to be frivolous, the tribunal may award to the respondent reasonable costs and attorney’s fees.

    My verdict on the Investment Chapter

    The investment provisions in the TPP are generally no more generous to investors than those found in most standard BITs, including the US Model BIT 2012. Indeed, in several cases the TPP’s framers have attempted to close some of the loopholes which have been so troublesome in older BITs, such as with the FET clause. There are some weaknesses and grey areas in the Agreement. The biggest concern is the MFN clause which if a liberal interpretation by an arbitral tribunal is given may ultimately undo a lot of the improvements made in the TPP by allowing investors to rely on more favourable provisions in other agreements concluded by the host state. While there are some exceptions and additions, the influence of the US model BIT 2012 on the language and content of the TPP’s Investment Chapter is quite strong. The TPP also falls into the same trap many IIAs do in that strong investor protections are not matched by strong obligations on the investor to adhere to local laws, follow environmentally sustainable practices or labour standards. Perhaps the framers missed a chance here to advance investment treaty practice on this. While the TPP is not as development-friendly as one would wish, its investor protections are generally no more generous than most traditional BITs. However, the real test will be in the Treaty’s operation once it comes into force.

    More articles in this TPP article series are available 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 read more of her commentaries and follow her on Twitter @LicyLaw.