Coping with the EPA

Over the strident objections of President Jagdeo the Caribbean countries and the Dominican Republic will sign the Cariforum-EC Economic Partnership Agreement (EPA) some time within the next few weeks. The record will show that Guyana stood alone in its last minute efforts to have the region pause “to scrutinise further the trade services aspects of the deal.” After an unusually strong exchange involving the leaders of Barbados, Jamaica and Guyana, Guyana is in the most isolated state it has ever been for close to forty years. During that period and not least because of the grand vision of Forbes Burnham and the efforts and impact of Sir Shridath Ramphal and a long line of talented foreign ministers, Guyana was among the leaders of not only CARICOM but the Non-Aligned Movement, the commemoration statue of which is proudly displayed at Company Path Gardens in downtown Georgetown. We were respected by the much more powerful ACP group of countries with a generation of outstanding personalities like Mrs Gandhi, Manley and Kaunda, offering hope to the hundreds of millions of their people. And let us not forget at this sombre hour that the very seeds of the Lomé Convention were sown on the lawns of the Prime Minister’s Residence in Guyana in 1972.

The first Lomé Convention (Lomé I) came into force in April 1976 and provided a hard-won framework of cooperation between the then European Community (EC) and developing countries of Africa, the Caribbean and the Pacific regions, in particular former British, Dutch, Belgian and French colonies.

Lomé had two main aspects. It provided for most ACP agricultural and mineral exports to enter the EC free of duty. Preferential access based on a quota system was agreed for products, such as sugar and beef, in competition with EC agriculture. Secondly, the EC committed ECU 3 billion for aid and investment in the ACP countries.

The fiction of free trade
It was not a perfect agreement – General Gowon of Nigeria had earlier told the Heads of the Commonwealth that “it is a fiction to speak of a free trade area between developed and developing countries,”  but for a quarter of a century Lomé remained the cornerstone of trade and aid between Europe and the developing world. It was, however, affected by major developments in the configuration of states and their economies in the European Community  necessitating changes in the economic relationships between the countries of the Europe and those of the ACP.

Another major shift in the world paradigm was the dramatic enlargement of the World Trade Organsation (WTO) which was the club from which all, rich and poor, market based and state-driven, North and South, would consider exclusion akin to being an international pariah. In theory, the WTO is strongly committed to creating a level free-trade playing field, promoting trade without discrimination and fair competition among the countries of the world through rules to prevent unfair behaviour like dumping. If there was a sign of things to come, however, the WTO provided that sign with several major violations by the rich countries in areas where they mattered most to the poor and undeveloped countries. In agriculture, textiles and clothing protectionism, subsidies and unfair practices persisted in the developed countries while the poorer countries were compelled to open their economies in a liberalisation frenzy and remove subsidies on their products.

In 2000, Lomé was finally replaced by a new trade and aid agreement known as the Cotonou Agreement, transforming the previous convention into a system of trade and cooperation pacts with individual nations. The signs were already surfacing that ACP solidarity was being weakened and with the IMF’s influence and dominance, one by one under-developed countries were picked off and brought into the fold of the capitalist world against which they had railed for decades. Even those countries that had shaped their foreign policy along socialist lines soon spent their time and measured their success by how much development assistance they received and the amount of debt write-off they obtained.

Long gestation
How did we in the region and Guyana fare? No question that we should have been better prepared to avoid the embarrassing contretemps earlier this week in Barbados over the EPA. As long ago as 1997, even before Cotonou, CARICOM had set up its Caribbean Regional Negotiating Machinery (RNM) to handle the post-Lomé trade negotiations not only with Europe but with other countries as well. The RNM was initially headed by Sir Shridath who had presciently noted that “we have to be prepared in our minds for a world in which our markets will be open increasingly to competition and not only at the level of goods but also of investment and services.” I am not sure whether President Jagdeo, then Finance Minister was listening, but it is more than passing strange that these are some of the very issues (as well as government procurement) that are now being objected to by him as President and as a leader of CARICOM.

Arguing that it is unlikely that we would be afraid of banks and insurance companies entering our small markets, one  cynic suggested that President Jagdeo’s main objection to any EPA with a services component was in relation to government procurement which as we have seen over the past several weeks is treated as a closed shop by his government. Would an EU pharmaceutical company with a right to bid to supply drugs to the government have sat back as idly and watched the government break the law to help its friends? I doubt it. At the very least therefore President Jagdeo needs to tell the nation exactly what his concerns are, not in politically charged language but in a way the people and the private sector and civil society in particular can understand. He needs to tell us whether the support we receive from the EU as a body and the United Kingdom will come to an end and what might now be the opportunities in the EPA for our own services sector.

The lone national voice
The EPA has been on the table for several years and although President Jagdeo now claims that he has always been opposed to the deal which he will now have to sign “involuntarily” as he puts it, there is nothing in the communiqué coming out of the December 2007 meeting of CARICOM heads at which the decision to sign was made, indicating that he was opposed to signing. His major public rumbling on the EPA was voiced in an exchange with Carl Greenidge of Guyana and the RNM at the GBTI Business Forum 2008 (see Business Page of June 8, 2008, ‘President, scraps and concessions’) but any further discussion had to wait until the Carifesta party was over.

Professor Clive Thomas had for months in his Sunday Stabroek column laid out a compelling case against several features of the EPA but no one in the government took any notice and it was left to a few letter writers to join whatever little debate there has been on this issue which we are now told would affect our country’s very future. A scheduled two days “consultation” that comprised mainly speeches but little information and lasting less than one day was attended by representatives from the private sector and civil society, who clearly knew little or nothing about the EPA on which they were being consulted. The seriousness of the consultation was surely compromised by the PSC which the day before had met with the President and announced their support for his stand. It was no surprise, therefore, that  they along with civil society felt comfortable enough to give Jagdeo the mandate to tell the regional heads that Guyana would only be prepared to sign a “goods only EPA.” The problem for the President was that his mandate was too narrowly defined and it was success or failure – no win-win.

But more ludicrously he could not sign a goods-only agreement simply because none was on the table and the President must have known that.

The years of neglect by the government of the reports coming out of the RNM whose head had ministerial rather than ambassadorial rank, the government’s abandonment of diplomacy as a main tool of regional and international negotiations and its failure to have meaningful consultations both at home and abroad now leave us in perhaps the weakest state we have been in since independence.

Machismo may make good domestic politics but our stance would have caused us some loss of face and respect among colleagues and donors. Whatever may be our views and prejudices, the EU representative did not deserve the discourtesies he received at the consultation, not only because he is a guest of our country but also because the EU is still a big donor to Guyana as successive Budget speeches would testify.

Instead of boasting about standing tall we need to take a serious look – if that is not being too optimistic − at whether our policies and actions are developmental in nature. While abusing the EU our country and economy continue to depend on rice, rum and sugar sales to that region. Our forestry and bauxite resources are exploited by foreigners in uneven investment arrangements and little returns to the country, not even with development assistance from the source countries. We have abandoned the National Development Strategy that embraced increased trade with our South American neighbours and have downgraded our diplomatic efforts to boost trade. Only this week the President announced that he is replacing one of the country’s last career diplomats with another pastured minister of the government in what could and should be our largest trading partner, Brazil. The President pleaded with his regional counterparts to wait until a meeting of the ACP Group of States in Ghana before making a final decision, but undermines the seriousness of that plea by his decision to send a junior minister to that meeting because he has a speaking engagement in China.

Let the consultations begin
If the EPA will be as disastrous for Guyana as President Jagdeo asserts with such passion and certainty, then he needs to tell the nation what steps we can and should take to counter those eventualities. Clearly our relations with CARICOM need to be reviewed and rebuilt and if, as both Jagdeo and Ramphal fear, the CSME is in further jeopardy (there is sufficient and justified uncertainty about the commitment of many of its members), then as a regional country we have to contribute to reducing that danger even as we seek to widen our trade relations with non-EU countries.

A useful framework for ascertaining the views of Guyanese and incorporating such measures would be a new Development Strategy based on the earlier version that is accumulating dust on the shelves. Let the (real) consultations begin.

The President, ‘scraps’ and concessions

It was a week of ‘scraps’ for President Jagdeo, if we count his inexplicable meeting last Monday at State House with the scrap metal dealers, who come under Prime Minister Sam Hinds’ portfolio. There were, however, two others, one involving the country and the other specifically the private sector. At the GBTI Business Forum 2008 on Monday, the President cast aside the expressed hope by the bank’s CEO that the forum rise above the controversy of the net benefits/loss from the CARICOM/EU Economic Partnership Agreement (EPA) and address its opportunities and offerings. The President chose instead to engage in what many in the audience saw as a barely disguised and inappropriately timed attack on the EPA, the Caribbean Regional Negotiating Machinery (CRNM), some of his own regional counterparts and the European Union.

But it was the launch of the new newspaper the Guyana Times where the President really bared his knuckles as he associated leading businessman and entrepreneur Yesu Persaud with ‘ignorance’ and suggested that the entrepreneur and leading private sector spokesperson for scores of years attend a seminar on the tax laws of the country. Mr. Persaud, speaking in his capacity as a private sector representative at the launch had dared to suggest that the concessions which the government had granted to Queens Atlantic Investment, the parent company of the Guyana Times Incorporated be extended to “all Guyanese.” A more transparent and equal treatment for investors has for years been the concern of domestic operators, and indeed the PPP in opposition, as they witnessed foreigners being granted sweetheart deals that effectively doomed local operators as second class in the scheme of things – the wood sector being the most obvious example.

Mr. Persaud was perhaps referring to ongoing concerns that concessions had been offered to the five new businesses of the investor group, instead of some only. The President who admits to being a close personal friend of the investors took umbrage at the call and announced that he had asked Mr Winston Brassington of the Privatisation Unit to hold a seminar on the tax laws, leaving the audience to wonder why not the GRA?

President Jagdeo explained that the concessions were in respect of the pioneering projects of the investors, the antibiotic plant and the textile mill. The problem which many share with Mr. Persaud is that the piecemeal information on the deals has had to be forced out of the government and its spokespersons while the group has remained conspicuously silent, obviously confident that the government would deal with it as a PR exercise and not a disposal of state resources in which all are interested. Perhaps the Guyana Times, which calls itself the Beacon of Truth, would show its editorial independence and commitment to truth and the people of a country that makes it all possible for its investors, to run its own story on what many may consider a steal of a deal.

The truth
All this of course could have been avoided if the government had complied with section 37 of the Investment Act 2004 that requires it to publish in the Gazette information regarding the fiscal incentives granted under section 2 of the Income Tax (In Aid of Industry) Act Cap 81:02. Only then would the nation be able to decide the real truth and how the agreement limits the concessions to the President’s “pioneer” industries.

The President was at pains to justify the as yet undisclosed concessions as having been granted under the authority of Cap 81:02. In fact, the act gives discretionary powers to the minister to grant concessions under two circumstances set out in section 2 as follows:

(a) the activity demonstrably creates new employment in one of the following regions –

(i) Region 1: Barima – Waini

(ii) Region 8: Cuyuni – Mazaruni

(iii) Region 9: Upper Takatu – Upper Essequibo

(iv) Region 10: Upper Demerara – Upper Berbice

(b) the activity is new economic activity in one of the following fields –

(i) Non-traditional agro processing (excluding sugar refining, rice milling and chicken farming);

(ii) Information and communications technology (excluding retail and distribution);

(iii) Petroleum exploration, extraction, or refining;

(iv) Mineral exploration, extraction, or refining;

(v) Tourist hotels or eco-tourist hotels.

But the President should have informed himself that the authority for such concessions seems to be limited by section 6 of the Financial Administration and Audit Act (FAAA) which stipulates as follows:

(1A) Except as provided in subsection (1C) [dealing with the duty of the Minister of Finance to make subsidiary legislation to waive any tax payable due to the taxpayer’s inability to pay such tax because of natural disaster, disability or mental incapacity etc.], no remission, concession, or waiver is valid unless the remission is expressly provided for in a tax Act or subsidiary legislation;

(1B) No remission, concession, or waiver of tax by Order or other subsidiary legislation is valid unless the Act under which the subsidiary legislation is made expressly permits the Minister to provide such a remission, concession, or waiver.

The President and the Minister of Finance, who like the group have been silent on the issue, must now consider whether they were properly advised of the relevant provisions of the law including the limitations under the FAAA, and that section 2 of Cap 81:02 does not recognise the “pioneer industries” referred to by the President.

The Finance Minister Dr. Ashni Singh has an obligation to the nation to indicate whether any cabinet paper submitted under his name recommending the concessions quantified the cost to the country of the concessions granted to the investors. If there was no such paper it would be a serious indictment of the President, the Minister and the entire cabinet.

And the rent
While much attention has been paid to the tax holidays and the government boasts how attractive a deal it won with annual rental of $50 million dollars per year, the government has been careful to avoid the real value of this rent.

Remember that there is a 99 year lease and there is nothing to indicate that there is a rent escalation clause providing for periodic increases in rent based on inflation and other economic factors. This then is how the figures look if we place a time value on the rent the country will earn from this deal and assuming discount rates of 10% and 5%, with the former being the more likely:

Discounted at 10% 5%
by the 10th year $21M $32M
by the 15th year $13M $25M
by the 20th year $8M $20M
by the 25th year $5M $16M
by the 50th year $0.5M $4.6M
by the 75th year $43K $1.4M
by the 99th year $4K $0.4M

In other words, by the half-way stage of the agreement, using a discount factor of 10%, the amount of the rent expressed in today’s dollars will be $39,043 per month! Assuming the unlikely scenario that a discount factor of 5% is justifiable, the monthly rental at the same point would be a princely sum of $381,516.

Now look further down the road to the end of the lease period and see that the rent using a 10% discount factor would be, in today’s prices, $365.85 per month! So just what is this about an option to buy for US$3.5 million in three years time?

Do those who tout the benefits of the deal really believe that the investors are so ‘ignorant’ as to choose to spend US$3.5 million dollars when they are the beneficiary of the giveaway of a century minus one year?

The dilemma we now face is what happens if the government has granted concessions that are not ‘valid,’ as they would appear not to be under the FAAA. Would the taxpayers have to bear for 99 years, the burden of government’s decision?

The President had earlier announced that he left the meeting when the matter was being discussed by cabinet. Perhaps he should have stayed and advised his colleagues about the state of the laws and the limits of their powers.

He may have saved his friends and colleagues from possible embarrassment and the taxpayers of the country the waste of resources.

Still, I hope I am invited to the Privatisation Unit’s Tax Seminar to which I recommend that the members of the cabinet, the President’s advisers and investor friends be invited as well.