Special and Differential Treatment in the WTO: A Caribbean Perspective
Special and Differential Treatment in the WTO: A Caribbean Perspective Author: Special and differential treatment (S&DT), which grants certain preferences and flexibilities to developing countries and Least Developed Countries (LDCs), is a cornerstone of the rules-based multilateral trading system. At present, all WTO developing country members, including those in the Caribbean, benefit from S&DT under the WTO Agreements to assist their integration into the global trading system. However, recent proposals made by some developed country members would significantly overhaul the WTO’s current S&DT approach. The most concrete and far-reaching proposal, which was tabled by the United States (US) in February 2019, proposes certain exclusionary criteria, which if implemented, would deny some SRC Trading Thoughts May 13, 2019 Special and differential treatment (S&DT), which grants certain preferences and flexibilities to developing countries and Least Developed Countries (LDCs), is a cornerstone of the rules-based multilateral trading system. At present, all WTO developing country members, including those in the Caribbean, benefit from S&DT under the WTO Agreements to assist their integration into the global trading system. However, recent proposals made by some developed country members would significantly overhaul the WTO’s current S&DT approach. The most concrete and far-reaching proposal, which was tabled by the United States (US) in February 2019, proposes certain exclusionary criteria, which if implemented, would deny some Caribbean countries eligibility for S&DT in current and future WTO negotiations. In this article, we highlight why the current reform proposals on the table are problematic from the Caribbean’s perspective and we raise some issues for consideration going forward. S&DT: The Status Quo S&DT is premised on the fact that development disparities between developed and developing countries equates, in trade terms, to inequality in their competitive footing. As a result, the trade arena has long accepted that the developing country cohort should not be expected to liberalise its trade at the same pace as developed countries. According to a summary prepared by the WTO Secretariat in 2013, a total of 148 S&DT provisions exist across the WTO Agreements and fall into six main categories: provisions aimed at increasing the trade opportunities of developing countries; provisions under which WTO Members should safeguard the interests of developing countries; flexibility of commitments, of action, and use of policy instruments; transitional time periods; technical assistance, and provisions relating to the LDCs. Eligibility for S&DT is based on a country’s self-designation as a ‘developing country’. Unlike LDCs whose categorization in the WTO is based on the United Nations’ classification, there currently exists no criteria governing WTO Members’ ability to self-designate as a ‘developing country’. As such, there is notable heterogeneity among WTO developing country members, ranging from economic behemoths like China and India, to small island developing States (SIDS) like those in the Caribbean. Current Reform Proposals on S&DT The current WTO S&DT model has been subject to criticism by both developing and developed countries. Developing countries have questioned the efficacy of the current S&DT provisions which are mostly “best endeavor” clauses and are imprecisely articulated. As a result, many of the provisions remain difficult to concretely implement or enforce. Concerns with the form of S&DT led to a commitment by WTO Members in the 2001 Doha Declaration to review S&DT provisions “with a view to strengthening them and making them more precise, effective and operational”. This mandate was furthered at the Bali Ministerial in 2013 with the establishment of a Monitoring Mechanism on Special and Differential Treatment. However, despite several proposals tabled, mainly on agreement-specific S&DT, progress in the discussions has been slow. Developed countries’ disenchantment with the current S&DT model stems from their belief that advanced emerging economies should be making more commitments commensurate with their improved economic fortune and increasing share in global trade. As such, there appears to be growing support among developed countries for greater differentiation among developing countries for S&DT purposes. Specifically, in its Concept Note of September 2018, the EU advocated a move away from what was termed “open-ended block exemptions” towards “a needs-driven and evidence-based approach that will ensure that SDT will be as targeted as possible”. In its discussion paper on WTO reform, Canada also called for “a new approach” which “recognizes the need for flexibility for development purposes while acknowledging that not all countries need or should benefit from the same level of flexibility”. In a communication published in January 2019 entitled “An Undifferentiated WTO: Self-Declared Development Status Risks Institutional Relevance”, the US declared that the current S&DT model based on self-declaration as a ‘developing country’ was no longer feasible and was to blame for the current deadlock in the WTO’s negotiation function. With reference to a slew of mainly macroeconomic and trade indicators, the US argued that several developing countries now surpass developed countries in their levels of development and that the developed/developing country dichotomy was no longer applicable. While the EU and Canada merely dipped their toes in the water in their calls for greater differentiation among developing countries for S&DT purposes, the US swam the whole nine yards in a later communication of February 2019 which proposes to exclude four non-cumulative categories of WTO Members from S&DT in current and future WTO negotiations. These are: “A WTO Member that is a Member of the Organization for Economic Cooperation and Development (OECD), or a WTO Member that has begun the accession process to the OECD; A WTO Member that is a member of the Group of 20 (G20); A WTO Member that is classified as a ‘high income’ country by the World Bank; or A WTO Member that accounts for no less than 0.5 per cent of global merchandise trade (imports and exports).” The most concerning of these proposed criteria for Caribbean countries is the third criterion which seeks to exclude a WTO Member classified as “high income” by the World Bank. This would bar Antigua & Barbuda, Barbados and Trinidad & Tobago from accessing S&DT in current and future WTO negotiations. It would also exclude the Bahamas which is currently in the process of
The Case for Accelerating Gender Mainstreaming in CARICOM Trade Policy
The Case for Accelerating Gender Mainstreaming in CARICOM Trade Policy Author: While we can all agree that trade offers the potential for inclusive and sustainable growth in small Caribbean states, deployment of a successful trade strategy requires recognition and ultimately monitoring of its differentiated impacts on women and men. Despite immense strides made in empowering women, they remain under-represented in global trade and are disproportionately affected by international competition and technological changes. On the occasion of International Women’s Day 2019, we highlight the link between trade and gender and make the case that accelerating gender mainstreaming in trade policies of CARICOM Member States promotes not just gender equality, but inclusive growth SRC Trading Thoughts May 13, 2019 While we can all agree that trade offers the potential for inclusive and sustainable growth in small Caribbean states, deployment of a successful trade strategy requires recognition and ultimately monitoring of its differentiated impacts on women and men. Despite immense strides made in empowering women, they remain under-represented in global trade and are disproportionately affected by international competition and technological changes. On the occasion of International Women’s Day 2019, we highlight the link between trade and gender and make the case that accelerating gender mainstreaming in trade policies of CARICOM Member States promotes not just gender equality, but inclusive growth as well. Gender Equality and Development Nexus Under the United Nations Sustainable Development Goal 5, the international community has committed to achieving gender equality and empowering all women and girls by 2030. Not only is enhancing women’s equality and economic empowerment a human right, but the removal of legal and other barriers to women’s economic inclusion has a multiplier effect in the economy due to women’s dual role as caregivers and economic actors. World Bank research has found that women invest up to 90% of their income in their families, with positive spill-overs for their communities and the economy. A recent Mckinsey Global Institute Report found that advancing women’s equality could add $12 trillion to global GDP by 2025. Despite this compelling data, and although they account for half of the world’s working age population, women remain under-represented in international trade on account of their unequal access to factors of production and inbuilt gender biases. A recently released World Bank Report entitled “Women Business and the Law 2019” found that out of 187 countries globally, women had equal legal rights to men in only 6. Gender and Trade Nexus Trade policies are not necessarily gender neutral: they impact women and men differently at both the country and sectoral levels. Recognizing this, a policy of “gender mainstreaming” aims to promote gender equality by integrating gender considerations in the preparation, design, implementation and monitoring of policies. Trade creates opportunities for women’s empowerment by creating both employment and business opportunities, but it can also alienate them. For example, while e-commerce can improve women’s access to foreign markets, increased competition through trade liberalisation can displace and marginalize women in agriculture. Because they are both caregivers and economic actors, woman often have less time on average than men to engage in entrepreneurial and exporting activities. At the same time, their access to market information is often lower due to fewer networks and lower education levels. Knowing this, ex ante gender-based analysis can assist policymakers to avoid negative gender impacts of policies that they implement. A number of international institutions have developed programmes to increase women’s inclusion in trade. For instance, the International Trade Centre (ITC) has created a She Trades electronic platform; and the World Trade Organization (WTO), at its Buenos Aires Ministerial Conference in 2017, adopted a Joint Declaration on Trade and Women’s Economic Empowerment. Regionally, the Caribbean Export Development Agency’s Women Empowered Through Export (We-Xport) initiative supports Caribbean businesswomen looking to export for the first time or to increase their goods and services exports. But there is still lots to do in CARICOM. Despite the fact that CARICOM Member States are signatory to a plethora of international treaties aimed at the empowerment of women, their trade policies are to a large extent being enacted and maintained in the absence of evidence and data that is timely, comparable and sex-disaggregated. Mainstreaming gender into CARICOM countries’ trade and development policy-making would help to ensure that initiatives under the CARICOM Single Market and Economy (CSME) and CARICOM’s trade negotiations with third parties are gender-sensitive. It is, therefore, a welcome development that Belize’s recently launched National Trade Policy (2019-2030) incorporates gender equality as a cross-cutting issue. Another praiseworthy development is that in February 2019, it was announced that national consultations were underway on a draft CARICOM Regional Gender Equality Strategy to advance gender equality and equity and the empowerment of women and girls in each of the fifteen CARICOM Member States. How can CARICOM Member States promote Gender Mainstreaming in Trade? Based on the above, we recommend the following ways in which CARICOM’s trade policies may be more gender-sensitive: Mainstreaming gender in the design and implementation of National Trade Policies. Belize’s new National Trade Policy can serve as a good model; Gender sensitivity training of key technocrats charged with formulating, implementing and monitoring trade and economic policies and their gendered impact. Gender-based policy making and monitoring will require greater resource allocation to the agencies charged with gender affairs; Enlisting the assistance of civil society and the private sector in designing trade policies and measuring their impact; Increasing specific programmes in Member States’ aimed a promoting women’s entrepreneurship and export activities through capacity-building, improving their access to finance and to trade information; Promoting greater inclusion of gender provisions in CARICOM’s free trade agreements (FTAs). The most far-reaching of these FTAs like the Canada-Chile and Chile-Uruguay FTAs, contain dedicated trade and gender chapters. CARICOM’s trade agreements, however, are generally sparse on gender provisions; Continued lobbying of regional policy makers to honour the commitments they have made both regionally and internationally to promote gender equality, particularly their reporting and gender mainstreaming commitments. International Aid for Trade programming is becoming increasingly gender-focused. With
Can CARIFORUM-UK Trading Relations Survive the Clouds of Uncertainty Hanging over UK-EU Relations?
Can CARIFORUM-UK Trading Relations Survive the Clouds of Uncertainty Hanging over UK-EU Relations? Author: Introduction After almost two years of intense negotiations, a deal between the European Union (EU) and the United Kingdom (UK) giving effect to the will of 17.4 million Britons (51.9% of the vote) to leave the EU remains elusive. Many hoped that the cloud of uncertainty had finally lifted when, in November, negotiators from the UK and Brussels concluded a draft withdrawal agreement setting out the terms for the UK’s withdrawal from the EU (the Draft Withdrawal Agreement). But the Draft Withdrawal Agreement has bumped into strong political headwinds in the past week. In the face of what was a SRC Trading Thoughts May 13, 2019 Introduction After almost two years of intense negotiations, a deal between the European Union (EU) and the United Kingdom (UK) giving effect to the will of 17.4 million Britons (51.9% of the vote) to leave the EU remains elusive. Many hoped that the cloud of uncertainty had finally lifted when, in November, negotiators from the UK and Brussels concluded a draft withdrawal agreement setting out the terms for the UK’s withdrawal from the EU (the Draft Withdrawal Agreement). But the Draft Withdrawal Agreement has bumped into strong political headwinds in the past week. In the face of what was a likely disastrous vote in the House of Commons on 11 December 2018, and having staved off of a “no-confidence” motion by her own party, the UK Prime Minister, Theresa May, will in all likelihood have to return to Brussels to seek more concessions to make her Draft Withdrawal Agreement acceptable to the British Parliament. This article explores the latest in the episodic Brexit saga and what this might mean for future UK-Caribbean trade relations. We consider the possible UK-EU arrangements that could influence the shape of the deal the UK will negotiate with CARIFORUM (CARICOM and the Dominican Republic) if and when Brexit materializes. We begin with a brief overview of CARIFORUM-UK trading relations. CARIFORUM-UK Trading Relations Within the EU bloc, the UK is the main trading partner for most CARIFORUM countries and a major source market for tourism and investment. CARIFORUM’s predominant goods exports are concentrated in bananas, sugar, and oil and gas. Although recent years have seen steady declines in the value of CARIFORUM exports to the UK, especially for goods, CARIFORUM-UK bilateral trade totaled £2.1 billion last year. CARIFORUM and UK traders presently enjoy preferential access to each other’s markets under the CARIFORUM-EU EPA, to which the UK is currently party as an EU member state. In the case of CARIFORUM, for instance, generous market access preferences for bananas and sugar have been granted. While Brexit will not affect the trading regime between CARIFORUM and the remaining 27 EU countries, the UK’s departure from the EU means that preferences negotiated under free trade agreements with third parties, like those provided under the CARIFORUM-EU EPA, will no longer apply to the UK. In an effort to provide some continuity for their traders and businesses, CARIFORUM and the UK are in the process of negotiating a technical “roll-over” of the EPA’s concessions (see below). A deal is reportedly close to being finalized, but details have remained outside of the public sphere. Scenarios for future UK-EU relations and impacts for future CARIFORUM-UK relations Based on the unfolding developments in the UK, we surmise at least four possible scenarios for future UK-EU political relations, each of which will have different ramifications for future CARIFORUM-UK trading relations. These are: Brexit pursuant to the Draft Withdrawal Agreement in its present form Brexit pursuant to a renegotiated Withdrawal Agreement A ‘No Deal’ Brexit No Brexit at All Brexit pursuant to the Draft Withdrawal Agreement in its present form On March 29, 2017, the UK became the first EU member state to make a notification to withdraw from the EU pursuant to Article 50 of the Treaty on European Union (TEU). The UK ceases to be an EU Member State on March 29, 2019 pursuant to the two-year limit set out under Article 50 (unless the European Council and the UK unanimously agree to extend this period) and the UK’s European Union (Withdrawal) Act of 2018. The Draft Withdrawal Agreement provides for a transition period to ensure some semblance of continuity while the UK and EU hammer out the details of their future trading arrangements. Failing such an agreement, UK-EU trading terms would no longer be preferential, but would revert to World Trade Organization (WTO) Most-Favoured Nation (MFN) treatment, which means the re-imposition of (non-preferential) MFN level customs duties on each other’s goods, and only MFN-level access for services trade. The Draft Withdrawal Agreement also contains a Protocol on Ireland and Northern Ireland which contains the controversial “backstop” option: in the event that the EU and UK fail to negotiate an agreement which prevents a ‘hard border’ between Northern Ireland (a country of the UK) and the Republic of Ireland (an EU Member State) within the transition period, the UK will be part of a single UK-EU customs territory until such an agreement is made. Although UK and EU negotiators have stated their intention to conclude an agreement by July 1, 2020, UK Parliamentarians question whether this would actually happen during transition period, and for this reason, have withheld consent for the Draft Withdrawal Agreement. Under the Draft Withdrawal Agreement, the UK remains bound to all EU international agreements, including trade agreements such as the CARIFORUM-EU EPA, to which it is party by virtue of being an EU Member State. However, during the transition period, the UK must not engage in actions deemed “likely prejudicial to EU interests” and its representatives will be barred from participating in the work of any bodies established pursuant to such agreements, unless it does so in its own right or upon invitation by the EU. This would include any bodies, such as the Joint CARIFORUM-EU Council established pursuant to the CARIFORUM-EU EPA. The Draft Withdrawal Agreement does not,
Barbados’ Repeal of its Fiscal Incentives Act: Necessary Evil or Impermissible Imposition?
Barbados’ Repeal of its Fiscal Incentives Act: Necessary Evil or Impermissible Imposition? Author: Amidst much debate, the Barbados Parliament recently voted to repeal the island’s Fiscal Incentives Act (Cap 71A) (FIA) with effect from 2 January, 2019. The ostensible reason was to bring Barbados into conformity with its obligations under the World Trade Organization (WTO), and in particular, the Agreement on Subsidies and Countervailing Measures (SCM Agreement). In short, the SCM Agreement prohibits WTO countries from providing illegal “subsidies” (in the form of grants, incentives, or tax write-offs) to domestic industries. As the FIA was passed to encourage economic development by stimulating the production of locally-manufactured goods for export, its repeal has raised SRC Trading Thoughts May 13, 2019 Amidst much debate, the Barbados Parliament recently voted to repeal the island’s Fiscal Incentives Act (Cap 71A) (FIA) with effect from 2 January, 2019. The ostensible reason was to bring Barbados into conformity with its obligations under the World Trade Organization (WTO), and in particular, the Agreement on Subsidies and Countervailing Measures (SCM Agreement). In short, the SCM Agreement prohibits WTO countries from providing illegal “subsidies” (in the form of grants, incentives, or tax write-offs) to domestic industries. As the FIA was passed to encourage economic development by stimulating the production of locally-manufactured goods for export, its repeal has raised deep concerns about Barbados’ ability to attract investors and the broader implications for the economy. Has the time come for Barbados to do away with incentives like those under the FIA? When the FIA was passed in 1974, it brought into force a CARICOM Agreement on the Harmonisation of Fiscal Incentives to Industry of 1973. Among the objectives of the CARICOM Agreement was harmonization of fiscal incentives to manufacturing industries among CARICOM Member States to avoid a “race-to-the-bottom” in the grant of tax incentives to foreign investors. Under the FIA, Barbados has provided incentives to a number of domestic and foreign companies since the FIA came into effect. These include Caribbean LED Lighting, Preconco, Meridian Caribbean, Deltro, to name a few. The incentives under the FIA however, contained WTO-inconsistent export subsidies (that is, those tied to export performance) as well as domestic content subsidies (that is, those which required the use of domestic inputs to benefit from the subsidy). Although Barbados, like other developing countries, was for a long time exempted from the requirement under the SCM Agreement to remove these illegal subsidies, as of 31 December 2015, it has been required to repeal these subsidies. For as long as it does not do so, Barbados faces a risk of being brought by another WTO Member before the WTO’s dispute settlement body. Barbados’ requirement to remove the illegal subsidies may smack of hypocrisy and imperialism by a multilateral organization. After all, Barbados has a negligible impact on global trade flows, so what harm can assistance it provides to its nascent domestic manufacturing do to the world economy? Moreover, it is well-known that many of the subsidies, now deemed “illegal”, were used with impunity by now industrialised countries to grow their own infant industries. Finally, many of the larger countries in the WTO that use agricultural subsidies are given longer time periods for phasing them out. While the rules do seem skewed, Barbados finds itself today in a financially precarious position. The island recently entered an Extended Fund Facility programme with the International Monetary Fund (IMF) due to its low reserves and high debt to GDP, and funding from the IMF will have to be supplemented given the scale of the macroeconomic challenges. In this climate, the question has to be how best should Barbados position itself to attract foreign investment in a sustainable and effective way? The literature shows that when deciding where to invest, investors are increasingly looking at a host country’s overall investment climate and not just the incentives offered on an ad hoc basis. They want to know about the country’s macroeconomic health, its enabling infrastructure, and the overall ease of doing business. Unfortunately, Barbados has been progressively falling in the World Bank’s Ease of Doing Business indicators and is currently ranked at 132 out of 190 economies in that Organization’s Doing Business Report (2018). Moreover, tax incentives, depending on how they are administered, may not be optimal for attracting sustainable investment. Because they are often granted on a discretionary basis, they often lack transparency and can be costly in terms of revenue foregone to the government’s coffers. According to Barbados’ last policy review at the WTO, revenue foregone under the FIA amounted to BDS$18 million in FY 2010-2011. So, what are the options open to Barbados? Through the anticipated repeal of the FIA in 2019, Barbados appears to be following the lead of CARICOM countries like Antigua and Barbuda, Grenada and St. Lucia, that have already repealed the WTO inconsistencies in their respective Fiscal Incentives Acts. But, Barbados should not stop there. Barbados could create a more investor-friendly environment through tax reform by replacing discretionary and generous tax incentives with a more rules-based system and streamlining tax incentive laws into a single statute to improve transparency and ease of access to this information. It must also undertake targeted measures that make it easier to do business and facilitate greater access to government information and data. One encouraging sign is Barbados’ recent ratification of the WTO’s Trade Facilitation Agreement which aims to improve efficiency in moving goods across borders. In today’s technologically-driven world, a better business environment means access to reliable ICT frameworks and connectivity to the global financial and payment systems. It is these types of deep-seated reforms that attract and keep foreign business invested in a country. 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