Tag Archives: US

President Trump’s Trade Policy Agenda for 2017 Released

Alicia Nicholls

The Office of the United States’ Trade Representative (USTR) today released a preliminary report outlining President Trump’s Trade Policy Agenda for 2017.  It should be noted that this is a preliminary report prepared in order to comply with the statutory deadline for the report’s annual release March 1, but bearing in mind that President Trump’s nominee for USTR, experienced trade lawyer and former deputy USTR under former President Ronald Reagan, Robert Lighthizer, has not yet been confirmed by the Senate. As such, it has been noted in the report that  a more detailed version will be published once the USTR has been confirmed and has had the opportunity to provide input in that report’s development.

As stated in the report, President Trump sees bipartisan support by the American people for a complete overhaul of US trade policy. In order to effect this, the report states that the overarching purpose of the Trumpian trade policy “will be to expand trade in a way that is freer and fairer for all Americans”.

To this effect, the report outlines four priorities identified by the Administration:

(1) defend U.S. national sovereignty over trade policy;

(2) strictly enforce U.S. trade laws;

(3) use all possible sources of leverage to encourage other countries to open their markets to U.S. exports of goods and services, and provide adequate and effective protection and enforcement of U.S. intellectual property rights; and

(4) negotiate new and better trade deals with countries in key markets around the world.”

Several preliminary things stand out from the report:

(1) The report highlighted that the US is not bound by WTO decisions and evinces a policy stance going forward not to accept any adverse rulings from the WTO. The paragraph below taken directly from the report is instructive:

“And, when the WTO adopts interpretations of WTO agreements that undermine the ability of the United States and other WTO Members to respond effectively to these real world unfair trade practices with remedies expressly allowed under WTO rules, those interpretations undermine confidence in the trading system. None of these outcomes is in the interest of the United States or a healthy global economy.”

This is coupled with what appears to be the Trump administration’s plans to make greater use of unilateral remedies.

US disregard for adverse WTO rulings is a troubling prospect for many reasons, but particularly for small island states’ enforcement of their trade interests. It should be noted that the Caribbean island state of Antigua & Barbuda is still awaiting compensation from the US, after many years, since winning the US-Gambling dispute. It remains to be seen whether this will ever be resolved.

(2) Based on the arguments made in this report, I think it likely that Trump’s team will advocate for changes to be made to the WTO’s dispute settlement mechanism for their own interest.

(3) The Administration has stated its intention to not only more aggressively go after countries the US deems to be “engaging in unfair trade practices”, but will also with equal zeal go after countries which do not sufficiently open their markets to US exports. As mentioned previously, the pursuit of countries’ trading practices which are perceived to be inimical to US interests is not new and has been US policy for years. The singling out of China in this regard came as no surprise.

(4) The Trump administration’s criterion for whether a trade agreement is bad or good appears to be based solely on whether the US has a trade (merchandise) deficit with the country in question. This is not just a facile way of assessing the merits of a trade agreement, but also ignores services trade and investment which in many cases the US has a surplus with its trading partners.

(5) While there are references to “free and fairer trade” throughout the report, I believe the term “zero sum” trade may be the more appropriate term to describe these proposals.

The full report may be viewed 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.

 

Advertisements

US eases some restrictions on Cuban imports for personal use

Alicia Nicholls

On October 14, 2016 the United States Department of Treasury’s Office of Foreign Assets Control (OFAC) and the Department of Commerce’s Bureau of Industry and Security (BIS) announced further amendments to the Cuba Sanctions Regulations. These changes became effective today (October 17, 2016) and include not just an ease on restrictions of Cuban imports, including alcohol and cigars, for personal use, but also facilitation of joint Cuba-US medical research and a variety of other trade measures.

Since the early 1960s, successive US governments have imposed an illegal economic, commercial and financial embargo on Cuba which is not only contrary to international law but has hindered the country’s economy development. In December 2014 US President Barack Obama outlined a new direction to normalise Cuba-US relations. Efforts at normalisation since 2014 have included, inter alia, the removal of Cuba from the US State Sponsors of Terrorism List in May 2015, the re-opening of embassies in July 2015 and the progressive relaxation of some sanctions.

However, US congressional action is needed to reverse the embargo. The embargo has been widely condemned by the international community. On October 26th, the UN General Assembly will be called on for the 25th consecutive year to vote on a Cuba-introduced resolution calling for an end to the five-decade long embargo.

Current Amendments to Cuba Sanctions Programme 

The current tranche of amendments to the Cuban Assets Control Regulations (CACR) and the Export Administration Regulations (EAR) cover the following three broad areas:

  • Expanding opportunities for scientific collaboration and access to medical innovations
  • Facilitate increased humanitarian support, grant opportunities and improve Cuban infrastructure
  • Bolster trade and commercial activities and the growth of Cuba’s private sector

Some of the specific amendments are as follows:

  • Authorisation of joint-medical research with Cuban nationals for non-commercial and commercial research
  • Importation , marketing, sale and distribution in the US of FDA-approved Cuba-origin pharmaceuticals
  • Persons who engage in those above activities will be allowed to open and maintain bank accounts in Cuba for use in conducting authorised business
  • Authorisation of grants, scholarships and awards to Cuba or Cuban nationals for scientific research and religious activities
  • Authorisation of persons subject to US jurisdiction to provide services to Cuba or Cuban nationals relating to developing, repairing, maintaining and enhancing certain Cuban infrastructure to directly benefit the Cuban people
  • Removal of monetary value limitations on what authorised travelers may import from Cuba into the US as accompanied luggage. These include Cuban alcohol and cigars. However, the imports must be for personal use and normal limits on duty and tax exemptions will apply.
  • BIS will generally authorise exports of certain consumer goods that are sold online or through other means directly to eligible individuals in Cuba for their personal use
  • Expanded general license by OFAC authorising persons subject to US jurisdiction to enter into certain contingent contracts for transactions currently prohibited by the embargo, subject to conditions.
  • OFAC authorisation of importation into the US or a third country of items previously exported or re-exported to Cuba under a BIS or OFAC authorisation

Comprehensive information on all of the amendments may be obtained via the US Treasury Department’s website 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.

Antigua, Are you ready to Gamble?

Javier Spencer, Guest Contributor 

Javier

Did you know that in 2000, the Antigua and Barbuda’s Online Gaming Industry accounted for 61% of the Global Online Industry?(Global Betting and Gambling Consultants, 2007) This figure declined in 2001 onwards as the United States introduced statutes that limited Antigua’s supply of online gambling services in the US.

The clock has been ticking and the Government of Antigua and Barbuda (Antigua) has now decided to take the necessary actions to retaliate against the United States (US) in its long-simmering case at the World Trade Organization (WTO) (See US Gambling DS285). The US Gambling case is the first case of its kind brought to the WTO in respect of interpreting and applying member states’ commitments under the General Agreement on Trade in Services (GATS). The GATS is a WTO Agreement that emanated from the Uruguay Round of negotiations in January 1995 and much like the General Agreement on Tariffs and Trade (GATT), the GATS’ remit is to substantially reduce barriers to trade within the services sector based on principles of Most Favoured Nation (MFN) and National Treatment (NT).

Background & WTO Findings

Antigua in 2003 filed a complaint to the WTO to challenge domestic legislation in the US that have significantly restricted the ability for service providers of Gambling and betting services in Antigua, to offer their services to customers in the US. The statutes brought into question were: ‘The Wire Act’, ‘The Travel Act’, and the ‘Illegal Gambling Business Act’; all of which Antigua claimed were de facto discriminatory and therefore in breach of the US’ market access commitments (Article XVI (I) GATS). In response, however, the US claimed that it had never made specific GATS commitments on the cross border supply of gambling services and further iterated that the statutes were passed with the main objective of protecting public morals and maintaining public order (Article XIV (a)).

 Much to the surprise of the US, a WTO panel ruled in favour of Antigua in 2004. This ruling was upheld by the Appellate Body in 2005 on the US’ appeal. The ruling found that regardless of the US’ intent to “protect public morals or to maintain public order” the US indeed made specific GATS commitment in respect of the supply of gambling services. Against the backdrop of the chapeau of Article XIV, the US failed to demonstrate that the pieces of legislation did not constitute “arbitrary and unjustifiable discrimination” in respect of the supply of online gaming.

 The US was given the deadline of until April 2006 to amend its legislation to be consistent with WTO law (DSU Article 21.5). Years later, the US has failed to comply with the ruling which prompted Antigua to file an enforcement case at the WTO. Fast forward to 2016 and the U.S. has still failed to comply with the WTO ruling. Therefore the Government of Antigua has recently announced its intention to implement remedies authorised by the WTO.

  The Remedy – Cross Retaliation

In light of the US’ failure to bring its laws in compliance with WTO law, Antigua requested permission to retaliate against the US by suspending obligations under the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). The TRIPS Agreement is another result of the Uruguay Round of negotiations which seeks to “promote effective and adequate protection of intellectual property rights”. Ultimately, of course, the agreement regulates intellectual property rights (IPRs) in a manner that eliminates or reduces any barriers to trade.

Further to Antigua’s request, the WTO granted Antigua (as a compensatory measure) the authorization to retaliate in January 2013. This means that Antigua could withdraw US $21 million worth of concessions in IPRs held by US firms, per annum. This cross retaliation strategy has proven to be the best strategy in getting a developed country to comply with WTO rulings. As a precedent, the WTO granted Ecuador the rights to suspend IPR concession against the European Communities (EC) in EC- Bananas III (See DS27). In the final analysis, Ecuador never suspended its TRIPS obligations, but used it as leverage to quickly negotiate with the EC on a mutually agreed solution. This case signals that suspending IPRs as a retaliatory measure gives developing countries a strengthened negotiating position that will serve as an impetus for the developed country to comply or to quickly negotiate a mutually agreeable settlement.

For Antigua, the cross-retaliation remedy could redound to the greater good of its citizens. For example, pharmaceuticals could be legally produced and distributed in Antigua to fight diseases without paying the remunerations otherwise required under TRIPS.

However, a closer look at the suspension of TRIPS obligations yearns a pertinent question. Does Antigua possess the clout and capacity to retaliate using this method? In order for this remedy to secure a great impact on the U.S., firms in Antigua ought to demonstrate that they have technological capacity for (large scale) domestic production of copies of IPR goods from the U.S. This example is further exacerbated if Antigua’s import of IP goods and services from the U.S. is insignificant.

The suspension of IPRs held by US firms is confined to the borders of Antigua and Barbuda which means that goods that would have been created under the TRIPS suspension regime cannot be exported out of Antigua to any other WTO country. At this juncture, a careful examination of the ‘first sale doctrine’ or ‘international exhaustion’ should be applied.

Additionally, Antigua ought to guard against the risk associated with the authorization to retaliate. For instance, suspending TRIPS obligations may cause Antigua to violate its obligations under the Berne Convention and the Paris Convention. Secondly, the authorisation to suspend TRIPS obligations is only temporary in nature (Article 22.8 DSU), although the authorization set out by the DSB has no time limit to implement. However the broader picture portends that Antigua could only suspend TRIPS obligations until the US has removed or amend laws to become WTO consistent. In this regard, Antigua ought to be mindful of new industries that could emanate from this suspension as it would be highly susceptible to a quick change in US laws. Furthermore, Antigua’s preferences under the Caribbean Basin Economic Recovery Act (CBERA) could be negatively affected as one of the criteria is respect for IPRs.

Conclusion

The US Gambling case is a peculiar case where a WTO ruling has been in favour of the developing country’s complaint against the developed country. In such cases, the authorization of TRIPS obligations as a strategy for a developed country to comply could be highly flawed and wreaks greater havoc for the developing country.  Antigua’s retaliation, as case in point, could be ineffective whereas in comparison to the effect that the US statutes had on the Antiguan economy. There are many risks involved in respect of being in breach of other international treaties. Ultimately, however, the measure is meaningless if developing countries do not have the capacity to implement such an authorization.

After a keen assessment of the economic and political risks associated, what other cards are left for Antigua to play? Perhaps Antigua could consider transferring its rights to suspend its TRIPS obligations to another WTO Member State who has the capacity and the clout to successfully implement such a regime. The uncertainty of the outcome is high as there is no precedent of a developing country who has successfully cross-retaliated through a suspension of their TRIPS obligations. This is truly a gamble and Antigua, are you ready?

Javier Spencer, B.Sc., M.Sc., is an International Business & Trade Professional with a B.Sc. in International Business and a M.Sc. in International Trade Policy. His professional interests include Regional Integration, International Business, Global Diplomacy and International Trade & Development. He may be contacted at javier.spencer at gmail.com.

Race for the White House and US-Caribbean Relations

Alicia Nicholls

US presidential election campaigns are keenly followed in the Caribbean not just for the riveting debates and endless intrigue, but for the important consequences which any change in US domestic and foreign policy will portend for the region. The US is not just the largest trading partner for many Caribbean countries and a valued ally. It is a major tourism source market and is also home to a large and growing Caribbean diaspora.

As of writing, the US presidential race has narrowed down to billionaire business mogul Donald Trump as the presumptive nominee for the Republicans. Former Secretary of State, Hillary Clinton, appears to be mathematically on track to securing the Democratic nomination, despite a continued spirited fight by Vermont senator, Bernie Sanders.

More so  than in any other election season in recent memory, trade policy has been a hot button topic in both the Democratic and Republican presidential primaries. Echoing sentiments long held by some Americans who are fed up with what they see as America getting a raw deal from free trade, the talking points of the presidential candidates have adopted a more protectionist and anti-trade tone than has been seen in recent election cycles. Strong criticisms are being leveled at the recently signed but not yet ratified Trans-Pacific Partnership Agreement with Pacific-Rim countries, as well as the longstanding tri-nation North American Free Trade Area (NAFTA) with Canada and Mexico.

Feeding into the populist, anti-establishment anger, candidates of both major parties have raised concern about the US’ large trade deficits with Mexico and China, the offshoring of US companies to countries with lower labour and production costs, and the consequential loss of American manufacturing jobs. The presumptive Republican nominee, known for his hardline positions on immigration and trade, colourfully equated the US’ deficit with China to rape.

As small island developing states, Caribbean countries have long posited that trade must be fair, foster sustainable development, and not be to the detriment of the local jobs and industries. However, the current tone of the US presidential campaign equates fair trade with trade which supports only US interests. It is maybe fortunate for the region that the Caribbean has not featured in any of the foreign policy discussions or debates during either the Democratic or Republican Primaries, although discussions around tax havens in light of the Panama Papers will have implications for the offshore financial centres in the Region. Anti-immigration rhetoric on the Republic side, while aimed primarily at the anti-immigration lobby’s favourite “villains” like Mexican and Muslim immigrants, could have implications for Caribbean migration to the US as well.

It would be naïve to think that any country would put another’s ahead of the needs of its own people. However, the current “America first” rhetoric raises issues of the future of unilateral preferential arrangements like the Caribbean Basin Initiative which provide beneficiary countries duty-free access to the US market for most originating goods, without the beneficiary country having to confer reciprocal access to US originating goods. Seventeen Caribbean countries and dependencies currently benefit from such status. Perhaps one saving grace is that the programme is seen to be a benefit to the US and the region has a trade deficit with the US. According to the Report to Congress released in December 2015, “[t]he value of U.S. exports to CBERA beneficiary countries grew 2.5 percent in 2014, exceeding the growth rate for total global U.S. exports, which grew 2.1 percent”.

The anti-trade, “America first” message which pervades the current US presidential election campaign brings into question whether there will be any resolution in sight to the long-running US-Caribbean rum dispute. Caribbean rum producing countries have long raised concerns about subsidies given by the US federal government to rum producers in its territories, namely Puerto Rico and the US Virgin Islands. The cover-over programme allows tax revenues raised by the Federal Government from the excise tax on both local and foreign produced rums to be transferred to the “location of production”, that is, the Puerto Rico and US Virgin Islands. The treasuries of both territories depend heavily on these subsidies for revenue to support investments in infrastructure, education and health and it is no surprise that both territories have increased rum production in order to increase their share of these revenues.

However, Caribbean rum producers like Barbados have argued these subsidies amount to unfair competition, by making Caribbean rums less competitive in the US market. The loss of market share not only means the loss of foreign exchange flows to cash-strapped Caribbean countries and a weaker current account position, but it also threatens jobs in the rum sector in Caribbean countries. So far there has not been any real progress on this issue and it is not pessimistic to think that this may very well go the same way as the US-Antigua Gambling case went after the US failed to comply with the World Trade Organisation’s rulings – nowhere.

An issue which is not directly trade-related but which would also have an impact on US-Caribbean trade, investment and remittance flows is that of the loss of correspondent banking relationships due to de-risking practices by US-based banks. Fears of harsh sanctions by US regulators has led several US banks to abandon the risk-based approach by avoiding risk altogether and terminate correspondent banking relationships with banks and money transfer providers in the region. It is an issue which CARICOM, in conjunction with the Caribbean Association of Banks, has been raising at the bilateral, and increasingly the hemispheric and multilateral level. Last week, St. Kitts & Nevis Prime Minister Dr. Timothy Harris led a delegation which raised the issue again with officials from the US State and Treasury Departments at a consultation in Washington DC.

Another key issue is that of climate change. Climate change is a threat to the world, but is an existential threat to the small island developing states of the Caribbean which bear the brunt of the adverse impacts. President Obama’s stance and support for tackling climate change may not be replicated by his successor. As one of the world’s largest emitters of greenhouse gases (GHG), US emission cuts and whether it ratifies the Paris Agreement will have important implications for whether the target of temperature increases of no more than 1.5 degrees or 2 degrees above pre-industrial levels is met.

Historically seen as the US’ backyard, the Caribbean has lost much of its geostrategic importance to US administrations in recent years. Conflicts in the Middle East, Africa, as well as tensions with Russia and China have occupied US foreign engagement. It has opened the door for greater engagement by the Caribbean with China which has expanded its influence in the region. However, there are issues on which the US and Caribbean still share common concerns, including issues of security, energy, combating drug and human trafficking, to name a few. At the U.S.-Caribbean-Central American Energy Summit in Washington DC, chaired by Vice President Joe Biden, the US reaffirmed its commitment to regional energy integration with the Caribbean and Central America.

There does appear to be another nugget of hope. On April 20th, H.R. 4939 – United States-Caribbean Strategic Engagement Act of 2016, a bi-partisan bill sponsored by New York Representative Eliot Engel (Democrat)  won the unanimous consent of the House Foreign Committee. The objective of the bill is “to increase engagement with the governments of the Caribbean region, the Caribbean diaspora community in the United States, and the private sector and civil society in both the United States and the Caribbean, and for other purposes”.

Though still in need of debate and approval by both Houses of Congress, the bill could be a catalyst for constructive re-engagement of US-Caribbean relations. Some of the objectives include increasing US-Caribbean diplomatic relations and economic cooperation, supporting regional economic, political and security integration efforts in the Caribbean, encouraging sustainable economic development , reducing crime and improving energy security, inter alia. Section 3 of the draft Bill provides that a multi-year strategy for US engagement with the Caribbean must be submitted no later than 180 days after the Act’s enactment. Whether this new re-engagement with the Caribbean will fit within the foreign policy agenda of the next president will have to be seen.

The US relationship with the Caribbean is a valued relationship with ties which go beyond trade. Despite these bonds, there is indeed need for deeper constructive dialogue, engagement and cooperation with the US on a number of pressing issues which have sustainable development and macroeconomic implications for the Caribbean. The Caribbean region does have supporters in the DC Beltway. These include members of the Caribbean diaspora who have ascended to positions of influence in Congress and which have been instrumental in lobbying the US government on issues of concern to the region. However, like everything else, the future tone of US-Caribbean trade relations, will depend heavily on who takes the presidential oath of office in January 2017.

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.

WTO Panel rules in US’ Favour in Solar Dispute against India

Alicia Nicholls

A World Trade Organisation (WTO) Dispute Settlement Body panel has issued its report in the dispute  India — Certain Measures Relating to Solar Cells and Solar Modules in which the United States challenged the domestic content requirements imposed by India relating to solar cells and solar modules under the latter’s Jawaharlal Nehru National Solar Mission. The Panel found in favour of the US’ view, holding that India’s domestic content requirements were discriminatory and inconsistent with India’s obligations under Article III:4 of the General Agreement on Tariffs and Trade (GATT) 1994 and Article 2:1 of the Agreement on Trade Related Investment Measures (TRIMs).

The dispute is  one in a growing body of WTO disputes in which one member’s government support programmes for the renewable energy sector (whether local or national) have been challenged by another member as being inconsistent with the former’s obligations under WTO rules. It is therefore not surprising that a long list of countries notified their interests as third parties to this dispute, namely: Brazil, Canada, China, Ecuador, the European Union, Japan, the Republic of Korea, Malaysia,Norway, Russia, Saudi Arabia, Chinese Taipei and Turkey.

Background

The Indian Government launched the National Solar Mission (NSM) in January 11, 2010 as one of the eight national missions under India’s National Action Plan on Climate Change (NAPCC). The NSM has the aim to promote the use of solar energy in India, foster energy security and make India a global leader in solar energy. According to the Indian Ministry of New and Renewable Energy’s website, the NSM’s ambition is “to deploy 20,000 MW of grid connected solar power by 2022” and to reduce the cost of solar power generation in India through four key aspects, including domestic production of critical raw materials, components and products.

At the heart of the dispute, the Indian Government required solar developers (or their successors to the contract) to purchase or use solar cells or solar modules of domestic origin in order to be eligible to enter into and maintain certain power purchase agreements under the NSM.

The US argued that these domestic content requirements mandated by the Indian Government under Phases I and II of the NSM were discriminatory and inconsistent with India’s WTO obligations. Specifically, the US challenged the measures’ consistency with Article III:4 of the GATT 1994 (National Treatment), arguing that they accord less favorable treatment to imported products than to like domestically produced goods.Additionally, the US argued that these domestic content requirements were trade-related investment measures which fell within paragraph 1(a) of the Illustrative List of the TRIMs Agreement’s annex and were therefore inconsistent with Article 2.1 of the TRIMs Agreement.

In its defense, India argued that its domestic content requirements at issue were not inconsistent with Article III:4 of the GATT 1994 or Article 2.1 of the TRIMS Agreement. India also sought to rely on the exceptions in  Article III:8(a), Articles XX(j) and/or XX(d) of GATT 1994 (General Exceptions).

The US requested consultations with India initially in February 2013 and then in relation to Phase II of the NSM in February 2014. A panel was established in May 2014 and the parties agreed to the panel’s composition in September of that same year.

Ruling

In its report circulated today, the Panel found in favour of the US’ view. It held that:

  • India’s domestic content requirements in question were trade-related investment measures for the purposes of the Illustrative List in the TRIMs Agreement’s Annex and were therefore inconsistent with Article 2.1 of the TRIMs Agreement.
  • The Panel also found that the domestic content requirements in question do accord “less favourable treatment” within the meaning of Article III:4 of the GATT 1994

In regards to India’s argument about the government procurement derogation under Article III:8(a) of the GATT 1994, the Panel referred to the Appellate Body’s interpretation of that article in the Canada — Renewable Energy / Feed-In Tariff Program dispute in which the EU had successfully challenged domestic content requirements imposed by the Ontario provincial government in relation to its Feed-In Tariff (FIT) programme. Relying on its interpretation in that dispute, the Panel held that discrimination relating to solar cells and modules under the domestic content measures is not covered by Article III:8(a) of the GATT 1994.

The Panel also argued that India failed to show that the domestic content requirements were justified under the general exceptions, Article XX(j) or Article XX(d) of the GATT 1994.

The big picture

What this dispute and others like it concerning domestic support for renewable energy programmes show is the increasing intersection and conflict between  trade and environmental policy, in particular, trade and climate change policy.It is an issue which is more than moot for small island developing States  like Barbados  (a Caribbean leader in solar energy which aims to become a “green economy”) in regards to how much policy space is available to policy makers to provide support for the advancement of the renewable energy sector in the country without running afoul of the country’s WTO obligations.

The relationship between trade and climate policy is one of the issues which was discussed at length in the E15 Initiative Report entitled “Analysis and Options for Strengthening the Global Trade and Investment System for Sustainable Development”, particularly in this think piece  considering “the costs and benefits  for adjusting WTO rules to provide additional policy space to mitigate climate change and promote renewable energy”.

As countries take more aggressive measures in order to meet their national emissions reduction targets in the spirit of the Paris Agreement’s goal to limit the global temperature increase to no more than 2 percent above pre-industrial levels (with the best endeavour goal of 1.5 percent), there is likely to be more conflict between WTO rules and climate change policies in years to come. WTO members will be forced to address ways in which the WTO rules can be flexed to more adequately accommodate members’ climate change mitigation policies, while at the same time ensuring that they are not used as a guise for protectionism.

For further information on the US-India Solar dispute, please see the  WTO’s case summary and the full Panel Report.

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.

Is the Caribbean Basin Initiative still relevant to CARICOM countries?

Alicia Nicholls

For my latest article on CBI, click here.

In late December of last year, the United States Trade Representative (USTR) released its ninth report to the US Congress on the operation of the Caribbean Basin Initiative (CBI). As the CBI approaches almost thirty years in existence, it is worth pondering on whether the CBI, initially passed during the Cold War, is still relevant to CARICOM countries today.

The Caribbean Basin Initiative refers to the preferential trade concessions extended unilaterally by the United States under several key pieces of legislation to seventeen sovereign countries and dependent territories washed by the Caribbean Basin.  Instituted by the Reagan administration under the Caribbean Basin Economic Recovery Act (CBERA) in 1983, the CBI is said to represent a permanent commitment by the US to encourage the development of strong democratic governments and revitalized economies in the Caribbean Basin. The preferential treatment accorded under the CBERA includes duty-free treatment for most products, and in other cases, tariff rates which are much less than the most favoured nation (MFN) rate. Amendments to the CBERA and the passage of the Caribbean Basin Trade Partnership Act (CBTPA) in 2000 and the Trade Act of 2002 have increased the number of items eligible for preferential treatment and granted NAFTA-parity to some items.  Haiti benefits from additional concessions, primarily for apparel, under the  Haiti Hemispheric Opportunity through Partnership Encouragement (HOPE) Act of 2006,  the HOPE II Act of 2008 and the Haiti Economic Lift Programme (HELP) Act of 2010.

Trade under the CBI

The US is the Caribbean’s main trading partner and trade under the auspices of the CBI accounts for much of the US’ imports from CBI countries.  The USTR report reveals that in 2010 total US imports from CBI countries was $10.1 billion, representing 0.5% share of total US imports from the world. CBI countries were the eighteenth largest market for the US exports to the world. Although there were originally 24 beneficiary countries, five Central American countries plus the Dominican Republic became parties to a free trade agreement with the US (CAFTA-DR), thus losing their beneficiary status. Panama has also recently signed an FTA with the US (Panama-US).

Some challenges

The CBI is a unilateral arrangement. The benefits are granted by the US to certain eligible goods from CBI beneficiary countries without reciprocal treatment being demanded for US goods. The CBI statutes outline several eligibility criteria which must be met before the president can grant such treatment to any beneficiary country. The CBERA was passed during the height of the Cold War and many of the eligibility criteria under the initial act and in subsequent acts have the objective of furthering US national security and foreign policy goals. In some cases, these eligibility criteria do work in the region’s interest. The recognition of internationally recognised workers’ rights and commitments to eliminate the worst forms of child labour, to combat corruption and to  promote the rule of law are things which most CARICOM countries would readily demand of their governments. However, some criteria like the stipulation that no communist country can be a beneficiary country and the requirement of beneficiaries to provide  ‘equitable and reasonable access’  to their markets and basic commodity resources are much less innocuous and could arguably limit policy space and the right of the beneficiary countries to choose their own political and economic path to development without fear of repercussions.

Unilateral preferential arrangements like the CBI also bring with them a measure of uncertainty due to their unilateral nature.  CBI concessions can  be unilaterally limited, suspended or withdrawn in the case of non-compliance by a beneficiary country with the eligibility criteria or where imports from the country or a group of countries is deemed to cause ‘serious’ injury to domestic producers. This uncertainty is heightened by the increased international hostility towards non-reciprocal trading arrangements which has cast a shadow on the future of CBI. Like the African Growth and Opportunity Act (AGOA), the CBERA does not qualify under the WTO’s ‘Enabling Clause’ because it discriminates among developing countries and thus requires a waiver. Although the CBTPA extends the CBI through to September 2020 or until an FTA is signed with the US, the WTO waiver expires in 2014. This means that the  CBI preferences would no longer be legal under the WTO rules after 2014 unless another waiver is obtained.

Besides these inherent structural problems with the arrangement, not all countries in the region have benefited equally from the CBI. Its benefits have tended to be concentrated in a few countries.  Since the inclusion of petroleum products for preferential treatment, Trinidad & Tobago has benefited the most thanks to its resource base and manufacturing capacity.  With the exit of the CAFTA-DR countries, that country is now the leading CBI exporter to the US with petroleum products and methanol now making up the bulk (76%) of CBERA exports (from non-CAFTA-DR countries) to the US market in 2010 and almost all exports of such products come from Trinidad & Tobago.  Another ‘winner’ is Haiti. After Costa Rica joined the CAFTA-DR, Haiti became the second largest exporter to the US under the CBI. According to the USTR report, apparel not only accounts for over 90% of Haitian exports to the US but almost all of Haiti’s apparel imports enter under the CBTPA and the HOPE Acts.

Once a leading exporter of ethanol and apparel to the US under the CBI, Jamaica’s ethanol and apparel exports to the US have declined.  The Bahamas has in fact now superseded Jamaica as the third leading source of US imports under the CBI.  For some countries like Antigua & Barbuda and Barbados, the majority of exports to the US enter under normal trade relations (i.e. at the MFN rate) as opposed to under CBERA or the CBTPA. Not only has there been concentration in the gains from the CBI but the CBI has led to little economic or export diversification in CBI countries. Petroleum products and apparel account for most CBI exports to the US. Moreover, even before the exit of the CAFTA-DR countries, CBI countries’ share of the US import market has been on a downward trend from 3.1% in 1983 to 1984, to just 0.5% in 2010, according to the USITC.

Through their lobbying efforts and the aid of some empathetic members of the US Congress, CBI countries have succeeded in getting some important additional concessions which have helped make the CBI more beneficial. However, the CBI is a goods-only arrangement, meaning that only designated goods exports, as opposed to services exports, benefit from preferential access. Most CARICOM countries are now services-based economies and stand to benefit more from an arrangement which also provides market access for their service providers, particularly through Mode 4 (temporary movement of natural persons).  The CBI’s utilisation by regional exporters and its effectiveness have been limited by stringent rules of origin requirements and conditions, remaining non-tariff barriers to trade and declining margins of preference as the US continues to sign FTAs with other more competitive developing countries.  Some of these challenges were highlighted in a recent report. The argument can also be made that the CBI is based on an outdated school of thought which posits that free trade and increased exports automatically foment development.

Contemporary Relevance ?

Despite its many drawbacks and weaknesses, it is submitted that the CBI still remains relevant for CARICOM countries today even though some countries clearly benefit more than others and the developmental impact has been largely disappointing. It remains relevant because, for all its flaws, the CBI still provides a margin of preference for the region’s exports in a world where such non-reciprocal preferences are quickly shrinking away in favour of greater competition and a more ‘level’ playing field. The majority of the region’s exports which receive preferential treatment in the US market still enter under the CBI, as opposed to the Generalised System of Preferences (GSP) which has less favourable preferences than the CBI. For some countries like Barbados, no exports to the US entered under the GSP for the past few years and exports enter either at the MFN rate or under the CBI. Moreover, the CBI’s continued attractiveness is evidenced by the fact that according to the USTR Report, Suriname has indicated its interest in receiving beneficiary status and is currently in talks with the US to this effect.

Though the extension and reform of the CBI to address the challenges outlined would be the preferred option for the region, it is unlikely that WTO members would be willing to grant another waiver, especially given the opposition that the current waiver encountered. With the Free Trade Agreement of the Americas (FTAA) off the table for the foreseeable future and the US actively engaged in pursuing FTAs, it is inevitable that CARICOM will at some point have to pursue an FTA with the US.  A CARICOM-US FTA which has a trade and development focus could be beneficial to CARICOM countries if it provides market access for the region’s  service providers, allows for special and differential treatment (especially for lesser developed CARICOM States) and includes technical and capacity building assistance to help the region meet its commitments and develop its export capacity to better capitalise on the market access gained. However, given the asymmetry in bargaining power between the US and CARICOM and the US approach to FTAs, it is probably unlikely that CARICOM would be able to gain from the US all of the concessions which it had gained from the EU with the Dominican Republic under the CARIFORUM-EC Economic Partnership Agreement.

For my latest article on CBI, click here.

Alicia Nicholls is a trade policy specialist and law student at the University of the West Indies. You can contact her by email and follow her on Twitter at @licylaw.