Caribbean Trade Law and Development

Tag: WTO

  • 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.