C. Ononaiwu - Using Trade Agreements To Explore Investment Opportunities [Slndc Seminar - March 2010]

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  • 1. USING TRADE AGREEMENTS AS TOOLS FOR EXPLORING INVESTMENT OPPORTUNITY Dr Chantal Ononaiwu Trade Policy & Legal Specialist Office of Trade Negotiations, CARICOM Secretariat ST LUCIA NATIONAL DEVELOPMENT CORPORATION SEMINAR “EXPLORING OPPORTUNITIES FOR INVESTMENT GENERATION WITH ST LUCIA’S KEY TRADING PARTNERS” BAY GARDENS HOTEL, ST LUCIA, 30 MARCH 2010
  • 2. TRADE AGREEMENTS: TOOLS FOR EXPLORING INVESTMENT OPPORTUNITY The extent to which trade agreements can be used to generate investment opportunities depends on their scope and content Trade agreements liberalise barriers to the exchange of goods (and services) Preferential access to market of trading partner can attract foreign investors looking to export goods or services to that market Such preferential market access can be part of the host country’s value proposition
  • 3. TRADE AGREEMENTS: TOOLS FOR EXPLORING INVESTMENT OPPORTUNITY Trade agreements offer additional avenues for exploring investment opportunity if they contain provisions aimed at the liberalisation, protection, promotion and facilitation of investment Host country’s commitment to grant market access to investors from the trading partner can signal openness to investment flows Standards of behaviour for host states and access to investor-State dispute settlement can signal a secure and predictable legal framework for investors Such a legal framework can constitute another element of the host state’s value proposition
  • 4. TRADE AGREEMENTS: TOOLS FOR EXPLORING INVESTMENT OPPORTUNITY Transparency provisions can allow investors to access information about host country’s investment regime Trade agreements can provide for mechanisms to promote and facilitate investment flows between trading partners Provision for technical assistance can help to improve the regulatory framework and enhance institutional capacity to attract investment
  • 5. THE CARICOM MARKET AND THE IMPACT OF A CARICOM INVESTMENT CODE
  • 6. INTRA-CARICOM INVESTMENT Emanates largely from a few Member States - Trinidad & Tobago, Barbados and Jamaica. These countries are the primary sources of St Lucia’s intra-regional investment Few firms from the LDCs have cross-border operations Major recipients are Barbados and Jamaica. Includes portfolio and direct investment (joint venture, greenfield, M&A) Led largely by a few financial services firms and conglomerates. Spans several sectors, including banking and other financial services, distribution, food services , tourism, manufacturing.
  • 7. CORE PILLARS OF THE CARICOM SINGLE MARKET In addition to the free movement of goods, the free provision of services and the free movement of skilled labour, the Revised Treaty of Chaguaramas guarantees: The right of establishment, which includes the right to create and manage economic enterprises Enjoyed by CARICOM nationals, i.e. individuals who are nationals of CARICOM Member States firms incorporated in CARICOM that are substantially owned and effectively controlled by CARICOM nationals Free movement of capital
  • 8. RIGHT OF ESTABLISHMENT & FREE MOVEMENT OF CAPITAL The Treaty calls for the absence of restrictions on the right of establishment, including those relating to: Registration of companies throughout the Region Establishing agencies, subsidiaries and branches Access to property Movement of managerial, technical and supervisory staff In addition to the absence of restrictions on the movement of capital and related payments and transfers, the Revised Treaty calls for the abolition of exchange controls and free convertibility of currencies.
  • 9. COMMUNITY INVESTMENT POLICY The Revised Treaty calls for a Community investment policy, including a harmonised system of incentives The draft CARICOM Investment Code (CIC) was developed as part of the process of formulating this Community investment policy framework The draft CIC is an agreement among CARICOM Member States that seeks to create a common regime for the protection, promotion and facilitation of investment in CARICOM A harmonised system of incentives is not a part of the draft CIC
  • 10. DRAFT CARICOM INVESTMENT CODE (CIC): OBJECTIVES Promotion of CARICOM as a single investment location with a single policy space Attraction of investment from investors of CARICOM Member States and third countries Greater cross-border investment within CARICOM Enhancing transparency and predictability in treatment of investment in the Community Reducing transaction costs
  • 11. DRAFT CIC: KEY FEATURES Standards of treatment of investors that host States must observe Measures to promote and facilitate investment flows Expediting investment approval process National IPAs and CARICOM investment promotion strategies Cross-border registration Measures to ensure investment supports economic development promotion of corporate social responsibility of investors Investor-State dispute settlement mechanisms
  • 12. EXPLORING INVESTMENT OPPORTUNITIES IN THE CARICOM MARKET St Lucia has provided an enabling environment for intra-regional investment flows through removing restrictions on the right of establishment and the free movement of capital Reflected in World Bank’s high ranking for ease of doing business Strategy for targeting and promoting desired investments should seek to capitalise on this Liberalisation of restrictions on the right of establishment and the free movement of capital by other CARICOM Member States create opportunities for St Lucian investors seeking to establish cross- border operations.
  • 13. EXPLORING INVESTMENT OPPORTUNITIES IN THE CARICOM MARKET The CIC could further enable cross-border investment activity within CARICOM by enhancing the legal framework for the protection, promotion and facilitation of investment within CARICOM.
  • 14. THE EU MARKET
  • 15. INVESTMENT RELATIONSHIP WITH EU EU is a significant source of FDI inflows for CARIFORUM States Top capital-exporting EU countries include the UK, Belgium, France, Netherlands, Spain Top EU investment destinations in CARIFORUM include The Bahamas, Dominican Republic, Jamaica and Trinidad & Tobago St Lucia has been the recipient of FDI inflows from the EU
  • 16. CARIFORUM-EC ECONOMIC PARTNERSHIP AGREEMENT (EPA) Comprehensive framework for trade and investment between 15 CARIFORUM States and the EC and its 27 Member States. Coverage extends to newer EU Member States and the French Caribbean Outermost Regions of the EU. Provisionally applied since December 2008. Preferential market access for goods, services and investment granted on a reciprocal basis.
  • 17. PREFERENTIAL MARKET ACCESS TO THE EU: SNAPSHOT Duty-free quota free access for most CARIFORUM products Rules of origin allow for use of inputs from EU, Overseas Caribbean Territories, other ACP States, certain Latin American countries CARIFORUM service providers can access EU market on a preferential basis, whether or not they set up a commercial presence Liberalisation of investment in services and non- services activities
  • 18. EPA RULES ON INVESTMENT: SCOPE Commercial presences set up to carry on economic activities Business or professional establishment Includes capital participation with a view to establishing or maintaining lasting economic links (i.e. portfolio investment excluded). Investors setting up a commercial presence EU/CARIFORUM nationals Entities set up under the laws of EU/CARIFORUM State with substantial business operations in EU/CARIFORUM State (i.e. mere shell companies excluded)
  • 19. EPA RULES ON INVESTMENT: SCOPE Excludes investors and commercial presences in certain economic activities, such as audiovisual services and air transport services. The Agreement doesn’t include investor protection provisions (e.g. guarantees against unlawful expropriation) and doesn’t provide for investor-State dispute settlement. However, investors can access more favourable treatment under investment treaties between CARIFORUM and EU countries. St Lucia has bilateral investment treaties with the UK and Germany
  • 20. ST LUCIA'S EPA COMMITMENTS: SECTORS CARIFORUM and EU States undertook commitments to grant each others’ investors and commercial presences market access and national treatment St Lucia committed to grant EU investors market access in a wide range of non-services sectors, including agriculture, fishing, and manufacturing Discretion retained to impose restrictions with respect to production, transmission and distribution of electricity, gas, steam and hot water
  • 21. ST LUCIA'S EPA COMMITMENTS: SECTORS St Lucia also committed to grant market access to EU investors in a host of services sectors, including, professional services (e.g. architectural services, medical and dental services), computer and related services, privately- funded R&D services, real estate services on a fee/contract basis and other business services (e.g. services incidental to manufacturing) telecommunications services environmental services (e.g. noise abatement) financial services (e.g. investment and property unit trust services, reinsurance and retrocession) hospital services tourism (hotels and resorts in excess of 100 rooms, marina services) recreational, cultural and sporting services (rental and leasing of yachts, entertainment services) maritime transport services (cargo handling, storage and warehouse services)
  • 22. ST LUCIA'S EPA COMMITMENTS: RESERVATIONS Certain non-services activities reserved for domestic market unless production for export (e.g. agriculture, certain manufacturing activities) Small business opportunities for nationals in some services and non-services sectors Licensing requirements for foreign landholdings Joint venture requirements (e.g. architectural services, sporting, cultural and other recreational services, real estate services on a fee/contract basis) Economic needs tests (e.g. installation of computer hardware) Percentage of locals to be employed (e.g. data processing services) Transfer of knowledge and technology (e.g. services incidental to manufacturing)
  • 23. ST LUCIA'S EPA COMMITMENTS: TEMPORARY ENTRY OF BUSINESS PERSONS With respect to employees of EU firms setting up a commercial presence, St Lucia committed to allow the temporary entry of key personnel not available locally Business visitors (responsible for setting up commercial presence) Intra-corporate transfers (managers and specialists) Entry subject to work permits and labour market test.
  • 24. ST LUCIA'S EPA COMMITMENTS: OVERVIEW Signal of openness to investment in sectors that St Lucia actively targets for investment Tourism, ICT, manufacturing, agri-business, international insurance Signal of openness to investment in services that support targeted sectors Professional services, services incidental to manufacturing, maritime transport services Reflect investment needs in new areas Hospital services, environmental services Reservations that aim to safeguard business opportunities for domestic players
  • 25. EC COMMITMENTS UNDER THE EPA EC undertook liberal commitments for CARIFORUM investors and commercial presence in a range of economic activities Non-services - agriculture, hunting, forestry; fishing and aquaculture; mining and quarrying; manufacturing; production, transmission and distribution of electricity, gas, steam and hot water Services - professional services, computer and related services, privately funded R&D services, real estate and communications services, construction and related engineering services, privately funded education and health services, tourism, financial, distribution, transport and energy services
  • 26. OTHER EPA RULES ON INVESTMENT Measures to ensure investors are forbidden from bribing public officials, observe core labour and environmental standards and maintain local community liaison processes Investment not to be encouraged by lowering domestic environmental, labour or occupational heath and safety standards Establishment of enquiry points to respond to investors’ requests for information on applicable laws, regulations and other measures in the host state Transparency in processing applications for authorisation for commercial presence and independent review of administrative decisions Technical cooperation and assistance Promotion of investment and joint ventures Enhancing capacities of investment promotion agencies
  • 27. USING THE EPA TO EXPLORE INVESTMENT OPPORTUNITIES Tool for encouraging EU investors to set up commercial presence (incl. through capital participation) in St Lucia Promotional efforts can be targeted at sectors of interest to St Lucia Opportunity to promote St Lucia as a base in CARIFORUM for investors seeking to access the EU market Firms must have substantive business operations in CARIFORUM State(s) Technical assistance available under EPA to enhance capacity in investment promotion
  • 28. THE FRENCH CARIBBEAN OUTERMOST REGIONS
  • 29. CARIFORUM-EC EPA EPA applies to the French Caribbean Outermost Regions (FCORs) of the EU (French Guiana, Guadeloupe and Martinique). The FCORs are covered by the EU’s commitments under the EPA but benefit from EU measures aimed at addressing their special social and structural conditions The Agreement introduces reciprocity between the FCORs and CARIFORUM States with respect to preferential market access for goods (as opposed to the previous unilateral preferences CARIFORUM States enjoyed under the Cotonou Agreement)
  • 30. CARIFORUM-EC EPA Legal trade regime for the FCORs and CARIFORUM States now covers trade in services and investment. The EPA also encourages cooperation between the CARIFORUM States and the FCORs in the areas covered by the Agreement as well as facilitation of trade in goods and services promotion of investment, and encouraging transport and communication links.
  • 31. CARIFORUM/FCOR COOPERATION CARIFORUM/FCOR/Overseas Countries and Territories (OCT) Task Force on Trade and Investment was established in 2006 to implement programmes targeted at increasing levels of trade and investment between CARIFORUM countries and the FCORs. Caribbean Export has commissioned a study on opportunities for doing business between CARIFORUM States and the FCORs Findings and recommendations will be used to formulate strategies and policy responses that are targeted at deepening the level of trade and investment between the regions
  • 32. EXPLORING INVESTMENT OPPORTUNITIES WITH THE FCORS St Lucia is well positioned to explore investment opportunities with the FCORs Existing transportation links to Martinique and Guadeloupe No visa requirements for St Lucian nationals with respect to short stay travel to FCORs Potential for St Lucia to be gateway for investors from the FCORs looking to access the CARICOM market Potential for St Lucia to be gateway for investors (incl. from CARICOM) to access the market in the FCORs
  • 33. EXPLORING INVESTMENT OPPORTUNITIES WITH THE FCORS FCORs present important opportunities for St Lucian investors looking to penetrate the larger EU market Joint ventures Integration into existing supply chains
  • 34. CANADA ON THE HORIZON
  • 35. CARICOM-CANADA INVESTMENT RELATIONSHIP Canada is a significant source of investment for CARICOM The stock of Canadian direct investment in Caribbean economies increased from US$28 billion in 2000 to US$53 billion in 2006 (the bulk of which is in Barbados) CARICOM is also increasing its FDI presence in Canada CARICOM stock of capital in Canada increased from US$531 million in 2000 to US$760 million in 2006 The Bahamas and Barbados have been the major regional investors in Canada
  • 36. CARICOM-CANADA TRADE AND ECONOMIC COOPERATION ARRANGEMENTS 1979 CARICOM-Canada Trade and Economic Cooperation Agreement and its Protocols, including the 1998 Protocol on Rum CARIBCAN grants unilateral duty free access to eligible goods from beneficiary countries in the Commonwealth Caribbean Doesn’t cover services Due to expire in 2011 Only Barbados and Trinidad & Tobago have BITs with Canada
  • 37. CARICOM-CANADA NEGOTIATIONS FOR A TRADE AND DEVELOPMENT AGREEMENT Formally commenced in November 2009 and second round being held in March 2010 CARICOM is seeking a comprehensive agreement covering market access for goods and agriculture, trade in services, investment and a strong development dimension Since St Lucia doesn’t have a BIT with Canada, the Agreement could introduce a legal framework for investment flows between the two countries
  • 38. CARICOM-CANADA NEGOTIATIONS FOR A TRADE AND DEVELOPMENT AGREEMENT In the context of these negotiations, St Lucia must identify: Activities in which investment has been attracted from Canada and in which St Lucian investors have invested in Canada Priority sectors for inward and outward investment Types of investment desired Areas in which St Lucia might want to reserve more favourable treatment for locals Priorities for technical assistance and cooperation
  • 39. THANK YOU chantal.ononaiwu@crnm.org www.crnm.org