Caribbean Trade Law and Development

Tag: WTO

  • WTO Nairobi Ministerial leaves Caribbean Small Vulnerable Economies Empty Handed

    Alicia Nicholls

    The ‘Nairobi Package’ has been hailed as having secured “an historic agreement on a series of trade initiatives”. Without doubt, the delegates of the WTO’s Tenth Ministerial held in December last year in Nairobi, Kenya sought to draw inspiration from the historic conclusion of the Paris Agreement on climate change at COP21 and to capitalise on the euphoria of the first WTO Ministerial on African soil to achieve consensus in the few areas where it was deemed to be possible. However, while there were a few mostly modest achievements, particularly for Least Developed Countries (LDCs), most Caribbean countries would be justified in opining that they came away from Nairobi with very little to show for their efforts.

    Issues for Caribbean SVEs

    Caribbean countries have been strong supporters of the multilateral trading system and of the Doha Development Round. As stated  by Senator Arnold J. Nicholson of Jamaica on behalf of the Caribbean Community (CARICOM) at the Ministerial’s Opening Plenary session, some of the key issues of importance to CARICOM going into Nairobi were:

    • Adoption of decisions relating to the G-90 proposals on Special and Differential treatment provisions including those related to small, vulnerable economies and least developed countries
    • Agricultural issues, including the Special Safeguard Mechanism, which was proposed by the G-33 in November, 2015
    • Fisheries Subsidies
    • Work Programme on Small Economies
    • Special measures for least developed countries

    So what did the Nairobi Ministerial achieve?

    Export Competition in Agriculture: Developed countries have committed to immediately eliminating their remaining scheduled farm export subsidies with some exceptions. It is the first major agricultural agreement to be concluded since the WTO came into being at the conclusion of the Uruguay Round two decades ago. Developing countries have been given until 2018 to eliminate their farm export subsidies and up to 2022 for certain products and groups of products. Least developed countries (LDCs) and the net food importing developing countries have a longer period. Additionally, the decision also includes disciplines on export policies to prevent their use as subsidies in disguise.

    LDC Package: Of benefit to Haiti as the only LDC within the Caribbean, the ‘LDC Package’ includes enhanced preferential rules of origin which build on those in the Bali package and a fifteen year extension of the waiver for preferential treatment of LDC service providers. Developed and developing country Members which have declared themselves in a position to do so have agreed to grant duty-free and quota-free market access for LDC cotton from January 1, 2016, to the extent provided for in their respective preferential trade arrangements. Developing country Members which have declared themselves not in a position to grant duty-free and quota-free market access for cotton produced and exported by LDCs are to consider the possibilities for increased import opportunities for LDC cotton from January 1, 2016. Developed countries are to immediately eliminate export subsidies on cotton, while developing countries have until January 1, 2017 to do so.

    Information Technology Agreement (ITA-II): In the biggest IT trade deal since the Information Technology Agreement was agreed to in 1996, 53 WTO members representing a mix of developed and developing countries (including Mauritius) agreed to eliminate tariffs on 201 information technology goods which account for a reported $1.3 trillion in trade.Tariffs on an estimated 65% of tariff lines will be fully eliminated by July 1 of this year, with the majority of the remaining tariff lines to be gradually phased out in four stages within three years. As the ITA-II was agreed on a Most Favoured Nation (MFN) basis, all WTO members will enjoy duty-free access for those covered goods to the markets of countries which have signed the Agreement.

    WTO Members also adopted the reaffirmed Work Programme on Small Economies. Additionally, two LDC countries, Liberia and Afghanistan, completed their accession negotiations. This shows that despite the stalemate in the multilateral negotiations states still view the WTO as having value.

    Unresolved Issues

    Despite these modest results, the Nairobi Declaration does leave many  issues unresolved and it would not be unfair to say that the Caribbean SVEs left the Ministerial largely empty handed. To date the services negotiations, a key area for the services-dependent economies of the Caribbean, remain deadlocked. No decision was made at Nairobi on the G-90 proposals on special and differential treatment.

    Fisheries Subsidies and IUU: Disappointingly, no agreement was reached on the pressing issue of fisheries subsidies which have led to over-fishing, or on the issue of illegal, unreported and unregulated fishing (IUU). These practices, which serve to shrink already rapidly depleting fish stocks, pose serious threats to coastal states’ food security, employment, income generation and the stability of their rural communities. By extension, they will have consequences for SVEs achievement of the Sustainable Development Goals (SDGs) and their targets.

    SSM & Public Stockholding: Even where decisions were taken, they remain subject to further negotiation. It was agreed that developing countries have the right to an SSM by which they will temporarily be able to increase tariffs in response to import surges. However, the actual details of this mechanism remain to be determined in subsequent negotiations. On the issue of public stockholding, WTO members are no closer to a permanent solution.

    SVEs have also expressed their disillusion with the lack of consideration given to many of their proposals, including the proposal for a development package for Nairobi which had been tabled by the ACP countries.

    Uncertain Future for Doha 

    Critically and most telling, WTO members have been unable to reach any consensus on the future of the Doha Round. This lack of agreement was unprecedentedly mentioned in the Nairobi Ministerial Declaration.

    After fourteen years of negotiations and limited progress to show outside of the Trade Facilitation Agreement concluded at Bali, developed countries have called for Doha to be euthanised.  In a letter penned in the Financial Times , the United States Trade Representative, Michael Froman, strongly stated that “Doha was designed in a different era, for a different era, and much has changed since’. He further asserted that “[f]reeing ourselves from the strictures of Doha would also allow us to explore emerging trade issues”.

    On the contrary, most developing countries, including Caribbean countries, have been vocal in their opposition to any attempt to jettison the Doha Round. Barbados’ representative, the Hon Senator Maxine McClean, in her statement on behalf of the ACP at the Opening Plenary summed up the importance of the Doha Round to Barbados as follows:

    “Barbados places great store in the Doha Development Agenda, as it recognises that need to narrow inequalities in the share of trade between developed countries and in particular the small and the vulnerable economies.”

    While WTO members have committed in the Nairobi Declaration to continuing negotiations on the remaining issues under the Doha Round, the future for the Doha mandate does not look bright, especially since the USTR has already pronounced the Round dead.

    The Question of Emerging Issues

    Another unresolved issue relates to expanding the sphere of negotiations to include emerging trade issues in light of the changing contours of global trade. There is some merit to this view put forward by developed countries. Trade disciplines which were negotiated twenty years ago cannot adequately regulate all of the newer complexities of twenty-first century global trade. Some of the new areas proposed include the long mooted “Singapore issues” of investment, competition policy and transparency in government procurement, as well as newer areas like e-commerce, global value chains, environment and labour.

    This suggestion has been forcefully resisted by developing countries which argue that their limited capacity to engage in negotiations on these new areas puts them at an inherent disadvantage, and instead favour the conclusion of the Doha Round before any new issues are added. Paragraph 34 of the Nairobi Declaration takes this disagreement into account by mandating that any agreement to launch negotiations on new issues must be agreed to by all.

    What next?

    As negotiators resume their work in Geneva on the remaining Doha issues, WTO members will have to decide on the future of the Doha Round. Progress will likely continue on the plurilateral agreements, such as the Environmental Goods Agreement and Trade in Services Agreement. In regards to the issue of regional trade agreements, WTO members have committed to making the provisional Transparency Mechanism a permanent one as was decided by the General Council in 2006. Progress on more contentious issues such as non-agricultural market access (NAMA), anti-dumping, domestic support measures and services will likely to be slower.

    Two points must be noted. Firstly, whether members decide to jettison the Doha Round or adopt a new mandate, the development element must be central to all negotiations. Secondly, the polarisation between developed countries and the majority of developing countries, coupled with the increased heterogeneity of the WTO’s membership, continue to be impediments to any substantive progress. The only way for the stalemate to be broken will be by serious compromise but without jeopardising the development prospects and interests of developing countries.

    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 General Council Agrees Draft Ministerial Decision on Small Economies

    Alicia Nicholls

    On November 30th, the General Council of the World Trade Organisation (WTO) agreed on a draft ministerial decision on small economies which affirms WTO Members’ commitment to the work programme on small economies which was adopted in 2002.

    The Draft Decision

    Under the Draft Decision agreed to this week, WTO members meeting as the General Council have:

    • Affirmed their commitment to the Work Programme on Small Economies
    • Taken note of the work carried out since 2013, including on the challenges and opportunities faced by small economies in linking into global value chains in trade in goods and services
    • Instructed the CTD to continue its work in Dedicated Session under the overall responsibility of the General Council.
    • Instructed the Dedicated Session to consider in further detail the various submissions that have been received to date, examine any additional proposals that Members might wish to submit and, where possible, and within its mandate, make recommendations to the General Council on any of these proposals.
    • Indicated that the General Council will direct relevant subsidiary bodies to frame responses to the trade-related issues identified by the CTD with a view to making recommendations for action.
    • Instructed the WTO Secretariat to provide relevant information and factual analysis for discussion among Members in the CTD’s Dedicated Session
    • Requested the WTO Secretariat to also conduct work on the challenges small economies experience in their efforts to reduce trade costs, particularly in the area of trade facilitation.
    • Mandated the CTD in Dedicated Session to continue monitoring the progress of the small economy proposals in WTO bodies and in negotiating groups

    The Draft Decision has been forwarded to the Ministerial Conference to be held in Nairobi, Kenya later this month for adoption by the WTO ministers.

    Brief background on Small Economies 

    The Small Vulnerable Economies (SVEs) do not form an official sub-category of WTO members but are one of the negotiating coalitions in the WTO which have been active in the negotiations on agriculture, NAMA and fisheries rules.

    These small states, which  account for only a small fraction of world trade, pushed for WTO recognition of the unique  challenges they face in participating in world trade because of their small size, concentration of exports, distance from major markets, lack of economies of scale and limited trade capacity. They also expressed concern about what they saw was an erosion of their policy space.

    The countries which have been spearheading the SVE initiative are small island states in the Caribbean and the Pacific and smaller Central and South America nations like Honduras, El Salvador and Paraguay.

    The Doha Ministerial Declaration of November 20, 2001, which provided the negotiating mandate for the Doha Development Agenda negotiations, provided for a work programme “to examine issues relating to the trade of small economies”. Paragraph 35 of the Declaration states the objective of the work programme is to:

    frame responses to the trade-related issues identified for the fuller integration of small, vulnerable economies into the multilateral trading system, and not to create a sub-category of WTO Members.

    The Work Programme on small states is being done under the auspices of the General Council which instructed the Council on Trade and Development (CTD) in March  2002 to hold dedicated sessions  on the work programme and make periodic progress reports to the General Council, making the work programme on small states an agenda item of the General Council.

    Under paragraph 41 of the Hong Kong Ministerial 2005 a two-pronged track was agreed where the CTD was instructed, under the General Council’s responsibility, to continue the work in the Dedicated Session and to monitor progress of the small economies’ proposals in the negotiating and other bodies. The aim of this was to be able to provide responses to the trade-related issues of small economies.

    So far several Ministerial and General Council decisions have been taken and proposals by SVEs have been made in areas such as agriculture, industrial goods, service trade and trade facilitation. These decisions as well as proposals are routinely compiled by the WTO Secretariat to show what has been achieved under this agenda item so far. The text of the most recent WTO Secretariat compilation paper of October 16, 2015 may be found 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.

     

  • The WTO Trade Facilitation Agreement and Caribbean Small Island Developing States: Challenges and Opportunities

    Alicia Nicholls

    Getting raw sugar from a sugar factory in Guyana or Suriname to supermarkets and kitchens half-way across the world involves many different customs processes and paperwork. The World Trade Organisation’s Trade Facilitation Agreement seeks to cut the red tape and reduce the transaction costs and delays in the movement, release and clearance of goods across borders through the harmonisation, simplification and acceleration of customs procedures.

    Trade facilitation, along with investment, competition policy and government procurement, was one of the four “Singapore Issues” which developing countries were opposed to including in the multilateral negotiation agenda at the 5th WTO Ministerial in Cancun in 2003. However, negotiations on trade facilitation were eventually launched in 2004 (pursuant to Annex D of the July Package) with the “aim to clarify and improve” relevant aspects of trade facilitation articles under the GATT 1994″ in order to speed up the movement, release and clearance of goods, including goods in transit.

    After nearly ten years of negotiations, the TFA was concluded at the 9th WTO Ministerial Conference in Bali, Indonesia in 2013. It is the only multilateral trade agreement to be concluded so far out of the deadlocked Doha Development Round and the first since the WTO was established twenty years ago.  A separate Protocol of Amendment was adopted by WTO members on November 27, 2014 to insert the TFA into Annex 1A of the WTO Agreement.

    The TFA will enter into force once two-thirds of the WTO’s 161 states (as at April 2015) ratifies the agreement. So far of the only 52 countries which have already ratified the agreement, Trinidad & Tobago and Belize are the only countries of the Caribbean Community (CARICOM) to have done so, while Mauritius is the only other SIDS worldwide to have done so. A report published by UNCTAD in September 2014 on the status of implementation revealed that though a priority, trade facilitation is a major challenge for developing countries and least-developed countries (LDCs) and that some of the major barriers to implementation are lack of resources and of legal frameworks.

    Caribbean Economies are trade dependent

    Trade facilitation is important for Caribbean economies which have a high dependence on trade. Limited natural resources and lack of scale make most Caribbean SIDS (with the exception of Trinidad & Tobago) highly dependent on imported food, fuel and medicines, while their export profiles are characterised by a narrow range of exports and export markets. They have limited participation in global value chains and face declining terms of trade.

    Smaller Caribbean SIDS have largely diversified from economic dependence on mono-crop agriculture to services trade, mostly tourism and/or financial services. However, the major commodities exporters in the region (Trinidad & Tobago and the mainland countries of Guyana, Suriname and Belize) rely on exports ranging from oil and natural gas in Trinidad & Tobago and Belize, to aluminium, rice and raw sugar in Guyana and Suriname.

    Importance of Trade Facilitation

    Despite market access opportunities created by trade agreements, a major complaint for Caribbean SIDS exporters, especially small and medium sized enterprises (SMEs), have been the cumbersome hurdles they face when seeking to export to foreign markets. These hurdles include not just complex customs procedures but also stringent sanitary and phyto-sanitary standards (SPS) and technical barriers to trade (TBTs), these latter two are covered in other WTO agreements (i.e. the SPS and TBT Agreements).

    Customs procedures vary by country. By standardising and simplifying customs procedures, reforms pursuant to the TFA can enhance access and predictability for Caribbean SIDS exporters in foreign markets and promote export diversification.

    As the industrial action by customs officials in Barbados earlier this year showed, customs delays can negatively impact businesses and consumers. These delays can stem from the time taken to process applications for obtaining import or export licenses to the length of time for barrels and containers to clear ports.The quicker goods clear customs the quicker they can reach businesses and consumers for use as inputs or as final goods. Efficient customs release and clearance is particularly important for time-sensitive perishable products such as fruit and meats. Loss of perishable goods equals lost revenue to businesses.

    Transparent customs procedures and rules can also limit the opportunity for corruption by officials at checkpoints. Moreover, as import duties are still important revenue sources for Caribbean SIDS, modernisation of customs collection procedures can facilitate increased tariff revenue collection.

    The Agreement

    The TFA is divided into 3 sections: general provisions, special and differential treatment provisions for developing country members and least-developed country members (LDCs) and institutional arrangements and final provisions.

    It provides binding obligations in relation to procedures for pre-arrival processing, electronic payment, procedures allowing the release of goods prior to the final determination of customs duties, taxes, fees and charge, a risk management system for customs control, post-clearance audits, establishment and publication of average release times, procedures to allow expedited release of at least goods entered through air cargo facilities and procedures for releasing perishable goods within the shortest possible time.

    Provisions requiring publication and availability of information (such as applied rates and import/export restrictions) on the internet and for allowing traders and “other interested parties” the opportunity for comment and if necessary consultations before introducing or amending laws of general application to trade in goods, aim to promote transparency. While this latter provision may sound like an invasion of policy space, developing countries should take advantage of this provision to have their say on proposed policies by developed countries which might have an impact on their exporters.

    The Agreement also includes some ‘best endeavour” provisions, such as encouraging members to use relevant international standards in their formalities and procedures and to establish a single window for traders. The Agreement further provides for the establishment of a permanent WTO committee on trade facilitation and member states are required to designate a national committee to facilitate domestic coordination and implementation of the provisions of the Agreement.

    Special and Differential Treatment

    The TFA presents numerous benefits for Caribbean SIDS. However, Caribbean governments’ capacity to implement these trade facilitation reforms varies considerably as evidenced by the difference in their Category A notifications.

    The special and differential treatment provisions in Section II of the Agreement take this into account by linking countries’ commitments to their capacity to implement them. Moreover, LDCs will only be required to undertake commitments to the extent consistent with their individual development, financial and trade needs or their administrative and institutional capabilities.

    These flexibilities are based on the modalities that had been agreed in Annex D of the July 2004 Framework Agreement and paragraph 33 of and Annex E of the Hong Kong Ministerial Declaration. Developing countries and LDCs are to receive assistance and support for capacity building to implement the provisions of the Agreement in accordance with their nature and scope.

    Developing and LDC countries are required to categorise each provision of the Agreement  based on their individual implementation capacity, with Category A being those measures they can implement by the time the Agreement comes into force (or within one year after  for LDCs), Category B being those which they will implement after a transitional period following the Agreement’s entry into force and Category C meaning those which require capacity building support for implementation after a transitional period after the Agreement’s entry into force. Most Caribbean SIDS, including Barbados, have now submitted their Category A notifications.

    Trade Facilitation Facility

    A key developmental element of the TFA, the Trade Facilitation Facility (TFF) was established in July 2014 to provide assistance to developing countries and LDCs to ensure “no WTO member is left behind”. The TFF is to provide assistance in helping them assess their capacity to implement the TFA, by maintaining an information sharing platform to assist with the identification of possible donors , providing guidance on the implementation of the TFA through the development or collection of case studies and training materials,  undertaking donor and recipient match-making activities and providing project preparation and implementation grants related to the implementation of TFA provisions in cases where efforts to attract funding from other sources have failed.

    According to the World Trade Report 2015, once it enters into force, the TFA is expected to reduce total trade costs by up to 15 per cent in developing countries.

    Status of Implementation

    At the recently concluded COTED meeting in Georgetown, Guyana, CARICOM members reported on their status of TFA implementation. However, this status information has not been made public. Despite this, the Organisation for Economic Cooperation and Development (OECD) has a ‘compare your country on trade facilitation performance’ portal which allows for comparing countries on trade facilitation indicators.

    Looking at Barbados’ performance for instance, Barbados “matches or exceeds the average performance of high income countries in the areas of fees and charges and simplification and harmonisation of documents”, with performance improving in appeal procedures and automation. However, some ground was lost in information availability and internal border agency cooperation.

    Implementation Challenges

    Trade facilitation reforms can be beneficial to Caribbean SIDS.  This does not mean however that there will not be significant implementation challenges, particularly the infrastructure costs related to technology and equipment, and administrative, human resource and training costs. There will also be costs associated with raising private sector awareness. These costs are not just one-time costs but are recurring.  In light of competing resource demands and their limited access to concessionary loans these costs will not be easy for cash-trapped Caribbean SIDS which already have high debt to GDP ratios.

    The flexibilities in the Agreement allow states  to implement the provisions in accordance with their capabilities and there are aid for trade initiatives such as the European Development Fund of which Caribbean SIDS have been taking advantage in varying degrees.  Other challenges for implementation include limited human resource capacity and the need to reform existing laws and regulations to give effect to obligations.

    Surveys of developing countries and LDCs conducted by the WTO found that trade facilitation remains a high priority for developing countries. For Caribbean SIDS there certainly has been some interesting developments on this front. The governments of several Caribbean states have openly stated their countries’ firm commitment to trade facilitation and their recognition of its potential for economic growth.

    Trinidad & Tobago was recently approved for a $25 million loan from the Inter-American Development Bank (IDB) to help strengthen the country’s Single Electronic Window for Trade and Business Facilitation Project (TTBizLink). With the aim of becoming a logistics hub, Jamaica has recently established a Trade Facilitation Task Force. Technical assistance and aid for trade facilitation are also included in the EC-CARIFORUM Economic Partnership Agreement, which includes a protocol on mutual administrative assistance in customs matters.Moreover, in Barbados’ latest Trade Policy Review 2014 WTO members noted the considerable progress the country made with respect to the adoption of trade-facilitation measures. Recently, the island  also amended its Customs Act to allow for post-clearance audits.

    Taking full advantage of the technical assistance, aid and capacity building assistance under the TFF will be key for Caribbean SIDS in their implementation efforts.

    The Case of Mauritius 

    As the Indian Ocean island of Mauritius was the first SIDS to ratify the Agreement, it provides useful lessons for Caribbean SIDS. Seizing the opportunity to boost its competitiveness, Mauritius has received assistance from the International Trade Centre and UNCTAD, including for the establishment of the Mauritius National Trade Facilitation Committee. One can read about the Mauritius experience here.

    Conclusions

    Despite the high costs and challenges of implementation, trade facilitation reforms pursuant to the WTO TFA have the potential to bring many benefits to Caribbean SIDS. By streamlining the flow of cross-border trade, the ratification and speedy implementation of the TFA by Caribbean SIDS and their trade partners will allow Caribbean exporters to capitalise on the market access openings available in foreign export markets, thereby boosting Caribbean SIDS’ export competitiveness and GDP growth, with spillovers for income and job creation. However, regional exports will still need to meet SPS and technical standards which for many exporters still remain significant barriers to trade.

    Ratification and full implementation  of the TFA by all CARICOM states could also improve Caribbean regional integration by easing transaction costs of exporting across CARICOM states. Implementing these reforms also send a strong signal to the business community of these countries’ commitment to improving their business environment.

    Full realisation of the benefits of the TFA will not be automatic and the degree will largely be contingent on the pace and depth of implementation of the Agreement by  Caribbean governments and their trading partners and on stakeholder buy-in. Stakeholder holder consultation and strong coordination between public and private actors will be crucial for the formulation of implementation plans and the monitoring and assessment of the impact of the reforms. In this regard, lessons can be learnt from the Mauritius experience. Trinidad & Tobago and Belize have already made the step by ratifying  the Agreement. It is hoped that other Caribbean SIDS will soon follow suit.

    The full text of the Trade Facilitation Agreement is 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. 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.