CARIFORUM and UK EPA Study

Final Report

Caribbean Forum of African, Caribbean and Pacific States (CARIFORUM) and United Kingdom Economic Partnership Agreement Study

Prepared by: Keisha-Ann Thompson

Table of Contents

Index of Tables ....................................................................................................................... 6 Index of Figures ...................................................................................................................... 8 List of Acronyms ....................................................................................................................10 Acknowledgements ...............................................................................................................12 Executive Summary ...............................................................................................................13 Trade .............................................................................................................................................. 13 i. Challenges................................................................................................................................................ 15 ii. Opportunities........................................................................................................................................... 16 Sectors with potential for growth and best practices for market penetration .................................18 Investment challenges and opportunities between the UK and CARIFORUM ..................................19 i. Challenges................................................................................................................................................ 19 ii. Opportunities........................................................................................................................................... 20 1. Background and Objectives............................................................................................23 1.1 Background...............................................................................................................................23 1.2 Specific Outcomes under the Terms of Reference .....................................................................24 1.3 Global Objective of the Terms of Reference ..............................................................................25 2. Scope of Data Analysis and Specific Sectors...................................................................26 2.1 Time Period of Analysis and Implications for Policy Recommendations.....................................26 2.2 Trade Partners to be Assessed ..................................................................................................27 2.3 Industry/ Sector Scope..............................................................................................................29 2.4 Data Sources and Classification ................................................................................................30 3. Data Analysis, Methods and Analytical Tools .................................................................30

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4. Trade in Goods...............................................................................................................31 4.1 Merchandise Trade ..................................................................................................................31 4.2 CF Exports by Tariff Line............................................................................................................38 4.3 Product Concentration ............................................................................................................39 4.4 Export Diversification ...............................................................................................................43 4.5 Trade Partner Diversification ....................................................................................................46 4.6 UK Trade Trends .......................................................................................................................48 3.7 UK Import Demand ............................................................................................................53 4.8 Global Value Chains and CARIFORUM .......................................................................................54 4.9 Summary of Findings ................................................................................................................59 5. Non-Tariff Barriers .........................................................................................................60 5.1 Summary of Findings ................................................................................................................65 6. Revealed Comparative Advantage .................................................................................67 6.1 Country Data ............................................................................................................................69 6.2 Summary of Findings ................................................................................................................72 7. Trade in Services ............................................................................................................73 7.1 Approved Methodology ............................................................................................................73 7.2 Overview of Global Trade in Services ........................................................................................78 7.3 Status of UK Global Services Trade............................................................................................79 i. UK Trade in Commercial Services ............................................................................................................ 79 ii. UK Global Trends in Total Services Trade ................................................................................................ 80 iii. UK Global Trade in Services by Mode of Supply ...................................................................................... 81 iv. UK Global Imports by Mode of Supply..................................................................................................... 85 7.4 Sectoral analysis of the UK’s Global Trade in Services ...............................................................88

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i. UK Sectoral Exports by Mode of Supply and Potential for Global Export Expansion............................... 89 ii. UK Sectoral Imports by Mode of Supply and Related Market Access Opportunities .............................. 92 7.5 Summary of Sectoral Analysis ...................................................................................................94 7.6 Assessment of CF-UK EPA Services and Investment Framework and Relevant Sector regulations ....................................................................................................................................................... 95 i. CARIFORUM-UK EPA Services and Investment Framework..................................................................... 95 ii. CARIFORUM’s Services and Investment Regulatory Framework under the CARIFORUM-UK EPA .......... 98 iii. The UK’s Services and Investment Regulatory Framework under the CARIFORUM-UK EPA................. 100 iv. The UK’s Global Regulatory Framework and Related Considerations ................................................... 103 v. Summary of the CF-UK Services and Investment Framework and Sector Regulations.......................... 105 7.7 UK’s comparative Advantage in Services Exports: An EU-Wide Comparison ............................107 7.8 UK market attractiveness and competitiveness: An EU-Wide Comparison ..............................109 7.9 CARIFORUM’s International Trade in Services.........................................................................111 i. Cross regional comparison of overall services trade within CARIFORUM ............................................. 111 ii. Analysis of CARIFORUM’s Overall Services Trade Trends ...................................................................... 112 iii. Analysis of CARIFORUM’s Commercial Services Trade Trends .............................................................. 117 7.10 CARIFORUM’s Services Trade and Investment by Modes of Supply .......................................121 7.11 UK Services Exports to CARIFORUM ......................................................................................125 i. Cross country comparison ..................................................................................................................... 125 ii. Sectoral Analysis of UK Services Exports to CARIFORUM ...................................................................... 127 7.12 CARIFORUM Services Exports to the UK ................................................................................129 i. Cross country comparison ..................................................................................................................... 129 ii. Sectoral analysis..................................................................................................................................... 130 7.14 Competitive and comparative advantages in CARIFORUM-UK Services Trade .......................132 i. Summary of Total CARIFORUM-UK Services Trade................................................................................ 132 ii. The UK’s Main Bilateral Trade in Services Partners by Sector ............................................................... 134 iii. Assessment of the Competitiveness of CARIFORUM States vis-a-vis the UK ........................................ 136 iv. Evaluation of the Regional RCA results .................................................................................................. 138 v. Sectoral RRCA analysis................................................................................................................................. 139

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vi. Summary of Sectoral RRCA analysis ........................................................................................................... 145 7.15 Assessment of National Export Competitiveness Across CARIFORUM ...................................148 7.16 Overall Assessment of CARIFORUM’s Sectoral and Domestic Export Competitiveness Performance.................................................................................................................................151 7.17 UK Trade in Value added Services and Opportunities for CARIFORUM ..................................151 i. Background to the Trade in Value Added Services ................................................................................ 151 ii. Assessment of UK Performance on Trade in Value Added Services ...................................................... 153 i. Summary of UK Trade in Value Added Services and Opportunities for CARIFORUM............................ 156 7.18 CARIFORUM-UK Investment Relations ..................................................................................158 i. The UK’s Attractiveness as an Investment Source and FDI Destination ................................................ 160 ii. CARIFORUM Countries Attracting UK Investment ................................................................................. 163 iii. CARIFORUM Countries Investing in the UK: Opportunities and Challenges .......................................... 166 7.19 Potential challenges and constraints to CF-UK Trade in Services and Investment under the new CF-UK EPA ....................................................................................................................................169 7.20 Summary of Findings and Recommendations on the way forward for CF-UK Services and Investment Relations....................................................................................................................171 10. Opportunities and Constraints .......................................................................................181 10.1 Insights from the PCI .............................................................................................................181 10.2 Insights from the Global Competitiveness index....................................................................186 11. Conclusions & Recommendations .............................................................................188 11.1 Trade in Goods......................................................................................................................188 11.2 Trade In Services ...................................................................................................................191 11.3 General Conclusions..............................................................................................................192 References...........................................................................................................................193 Appendix I- The PCI and its Components ..............................................................................197

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Appendix II – The GCI and its Suitability to the Study ...........................................................198 Appendix III – Empirical Framework for Key Regression Variables and Analysis ...................200 Appendix IV - Technical/Empirical Analysis..........................................................................205 Part 1: Variable Description ..........................................................................................................205 Part 2 – Empirical Results .............................................................................................................212 Appendix V- RCA Country Tables..........................................................................................232 Appendix VI - Country Tables - Product Concentration Index by CF Partner .........................238 Appendix VII- Country Tables- Product Diversification Index by CF Partner ..........................240 INDEX OF TABLES Table 1: CF Export Shares 2008 to 2020 ......................................................................................36 Table 2: CF Merchandise Trade Balance with the UK by Partner, current price in £'s million....37 Table 3: Top 3 CF Exporters by Product (SITC) (2020)...............................................................38 Table 4: Main Exports to the UK 2008 to 2020 (US$'000)...........................................................39 Table 5: CI in 2020 ........................................................................................................................41 Table 6: CF-UK EPA Partners DI (2020) .....................................................................................44 Table 7: Top 5 Export Destinations for CARIFORUM Countries................................................47 Table 8: Top 10 Trading Partners of the UK (2020) .....................................................................49 Table 9: UK World Imports by Value 2019 to 2020.....................................................................51 Table 10: UK Top 30 Imports by Value 2019 to Q2 2021............................................................53 Table 11: UK Post Brexit SPS Notifications to the WTO.............................................................66 Table 12: UK Top 10 products with RCA >1 ...............................................................................70 Table 13: CF Exports to the UK> 1 % of ALL Products Exported ( 2008 to 2020).....................71 Table 14: Products of the Top Three CF Exporters (SITC) by Rank (2020) .............................71 Table 15: Proportional allocation of EBOPS categories to modes of supply ( ERUOSTAT) ......76

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Page 7 of 241 Table 16: Mode 1 comparison between Eurostat’s simplified approach and the UK estimates from the International Trade in Services survey, percentage .................................................................77 Table 17: World Exports and Imports for Services (2020 to 2021) ..............................................78 Table 18: UK Global Services Trade (2008-2019) – US$ Millions..............................................81 Table 19: Description of the Modes of Services Supply ...............................................................82 Table 20: UK Global Services Imports and Exports by Mode of Supply (2017) .........................83 Table 21: UK International Trade in Services (2019) ...................................................................88 Table 22: UK STRI by Service Sector (2020)............................................................................103 Table 23: Total services exports to the world (2008-2019) – US$ Millions...............................111 Table 24: CARIFORUM Total Services Imports (2008-2019) – US$ Millions .........................112 Table 25: CARIFORUM’s Total Annual Services Trade (2008-2019) – US$ Millions ............113 Table 26: CARIFORUM Total Annual Services Trade (2008-2019) – US$ Millions ...............116 Table 27: Top Five CARIFORUM Services Markets (2008-2019) – US$ Millions ..................119 Table 28: CARIFORUM Average & % Share of Exports by Mode (2008–2017) .....................121 Table 29: Total Share of Services Exports by Mode of Supply (2008 – 2017) ..........................123 Table 30: Total Services Exports by Mode of Supply (2005 – 2017).........................................124 Table 31: UK Total Services Exports to CARIFORUM by Country (2008-2020).....................125 Table 32: UK Total Services Exports to CARIFORUM by Sector (2008-2020) – US $ Millions ..................................................................................................................................................... 127 Table 33: CARIFORUM Total Services Exports to the UK by Country (2008-2019) – US Million ..................................................................................................................................................... 129 Table 34: CARIFORUM Total Exports to the UK by Sector (2008-2019) – US$ Millions.......130 Table 35: CARIFORUM-UK Total Trade in Services by Sector (2008-2019) – US$ Millions.133 Table 36: UK’s Main CARIFORUM Trade Partners by Sector (2008-2019) ............................134 Table 37: Main Competitors based on RCA Indices Across Sectors ..........................................142 Table 38: Main Competitive Exports by Country based on Regional RCA Indices...................148 Table 39: UK International Trade in Services by Foreign Affiliates (2016-2017) .....................160 Table 40: UK International Exports via Mode 3 (2019) .............................................................162 Table 41: CARIFORUM Investments in the UK by Country .....................................................166

Table 42: UK PCI and Components (2018) ................................................................................183 Table 43: Barbados PCI and Components (2018) .......................................................................183 Table 44:Trinidad and Tobago PCI and Components (2018) .....................................................184 Table 45: Singapore OCI Components (2018) ............................................................................184 Table 46: CF Partner GCI Rank ..................................................................................................187 INDEX OF FIGURES Figure 1: Trend in CF Exports and Imports to the UK 2008 to August 2021 ...............................33 Figure 2:CF Exports as % of UK World Imports..........................................................................34 Figure 3: CF Trade balance with the UK 2008 to August 2021....................................................34 Figure 4: CF Overall Merchandise Trade Balance with the UK ...................................................35 Figure 5: CF Partner Merchandise Trade Balance with the UK 2008 vs 2020 ............................35 Figure 6: Change in Concentration Index 2020 v 2008 ................................................................42 Figure 7: CI Index for CF 2008 to 2020 ........................................................................................42 Figure 8: Change in DI 2008 v 2020 .............................................................................................45 Figure 9: Trend in CF DI 2008 to 2020.........................................................................................45 Figure 10: UK and CF Trends 2008 to 2020 US$ '000 .................................................................49 Figure 11: NTMs by Region..........................................................................................................62 Figure 12: Global Services Trade Performance (2020).................................................................78 Figure 13: UK Global Commercial Services Exports and Imports (2015 – 2020) .......................80 Figure 14: Simplified description of how services are supplied, from country A to B (Based on GATS provisions) .......................................................................................................................... 82 Figure 15: Proportion of British Services Supplied by Mode (2019) ...........................................84 Figure 16: UK Imports by mode of supply from world (2019).....................................................86 Figure 17: Proportion of UK’s Services supplied by Modes ........................................................89 Figure 18: Proportion of UK’s Services Imports by Mode of Supply (2019)...............................92 Figure 19: Summary of Imports and Exports by Mode of Supply ................................................94 Figure 20: Share of modes in services exports to the rest of the world by Country (2017)........107 Figure 21: Share of modes in services exports to non-EU member countries (2017).................108

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Figure 22: Share of modes in services imports from the rest of the world (2017)......................109 Figure 23: Share of modes in services imports from non-EU countries (2017)..........................110 Figure 24: Total Trade in Services (2008-2019) – US$ Millions ...............................................114 Figure 25: Total Trade in Services by the Top 5 CARIFORUM countries ................................115 Figure 26: Major CF Commercial Services Exporters ................................................................117 Figure 27: Major CARIFORUM Commercial Services Importers .............................................118 Figure 28: Total Average and % Share of Exports by Mode (2008-2017) .................................121 Figure 29: Total Share of Exports by Mode of Supply (2008-2017) ..........................................122 Figure 30: Contribution of services to total gross exports, in gross and value-added terms, selected countries, 2015 ............................................................................................................................154 Figure 31: Origin of Services Value Added in UK Gross Exports (2015)..................................155 Figure 32: PCI for Available CF countries 2018.........................................................................185 Figure 33: Overall Productive Capacities Index (PCI) Available CARIFORUM Countries......185 Figure 34: The GCI Framework ..................................................................................................199

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LIST OF ACRONYMS ACP BOM

African, Caribbean and Pacific States Border Operating Model

BPM6

Balance of Payments and International Investment Position Manual

CF CI DI

CARIFORUM

Product Concentration Index Product Diversification Index Department for International Trade Enhanced Balance of Payments System Economic Partnership Agreement

DIT

EBOPS

EPA

EU

European Union

FTA

Free Trade Agreement

GATS

General Agreement on Trade in Services

GCI GCR GDP GVC

Global Competitiveness Index Global Competitiveness Report

Gross Domestic Product Global Value Chains

HMRC

Her Majesty’s Revenue and Customs

HS

Harmonized Commodity Description and Coding Systems World Bank Integrated Trade Intelligence Portal

I-TIP

IoT

Internet of Things

LAC MoS NTB NTM PCI PoA PVI RCA RoW SITC OECD ONS

Latin America and the Caribbean

Mode of Supply Non-Tariff Barrier Non-Tariff Measure

Organisation for Economic Co-operation and Development

Office for National Statistics Productive Capacity Index

Period of Analysis

Productive Capacity Index

Revealed' Comparative Advantage

Rest of the World

Standard International Trade Classification Sanitary and Phytosanitary Measures

SPS

SPS IMS

Sanitary and Phytosanitary Information Management System

STRI

Services Trade Restrictions Index

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TBT TCA ToR

Technical Barriers to Trade

Trade and Cooperation Agreement

Terms of Reference United Kingdom

UK UN

United Nations

UNCTAD

United Nations Conference on Development

VCA WEF WTO

Value Chain Analysis World Economic Forum World Tarde Organisation

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ACKNOWLEDGEMENTS

This Author owes a debt of gratitude to her main collaborators, including those persons at the Caribbean Export Development Agency who took the time to thoroughly review various drafts of this study and make invaluable and detailed comments. Special mention also needs to be made of the assistance provided by the following persons, who contributed their time and expertise on specific sections of this report: • Dr. Richard Brown (Jamaica) • Dr. Christopher Warburton (United States ) Dr. Brown’s knowledge of trade in services and intimate knowledge of CARIFORUM’s trade relations significantly assisted this study in the time available. Dr. Warburton’s facility with empirical models and in particular dealing with small sample sizes and missing data added depth and rigour to this study. The staff at UK Trade in Goods, Global Trade & Investment section in the Office for National Statistics must also be thanked for assisting with the location of the most up-to-date and detailed data to inform the analysis. This Author, however, takes full responsibility for any errors and omissions.

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EXECUTIVE SUMMARY

Under the Caribbean Export Development Agency’s mandate to support the private sector in the CARIFORUM though export promotion and development programmes, it has been pursuing strategies focused on promotion of higher value added in exports as well as leveraging technologies to aid the private sector, in terms of new materials, techniques and business models. A key consideration behind this is sustainability for the region by addressing issues of resilience and, as such, address issues in the blue and green economy. Against this mandate, therefore, it is critical to understand the implications of the CARIFORUM-UK EPA (CF-UK EPA) for trade and private sector development, given the implications of BREXIT, which may not all at once be obvious. Against this background this study was conceived to comprehensively draw on available data and information, not only on bilateral trade flows, but also on specific characteristics of the CARIFORUM partner countries both in terms of their comparative advantage, composition of trade, integration in global value chains and productive capacities to accomplish two main objectives: • Complete a full review of the opportunities and challenges for the CARIFORUM private sector for expanding trade and investment with the UK under the CARIFORUM-UK EPA for both goods and service providers. • Consider how the CARIFORUM-UK EPA can increase sustainable and inclusive trade, noting the barriers that can impede this.

Trade

CARIFORUM goods and services surplus with the UK declined overall over the period. With a positive trade balance in merchandise trade in favour of the UK at the end of 2020. CF, therefore, has been exporting less goods to the UK, than it imports from the UK, to the benefit of UK exporters. Some CF exporters, however, show positive merchandise trade balances with the UK.

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This is against the background that the UK is not a top-five trade partner for most CF countries. While exports of goods to the UK has declined in value terms over the period 2008 to 2020 ( the study’s period of analysis), the region exhibited a greater degree of diversification in its trade partners. The region also exhibited a high degree of concentration in its exports to the UK, with exports being concentrated in eleven (11) tariff lines (at the HS 2-digit level), which accounted for 1% or more of all products exported to the UK over the period of analysis. Additionally, the Product Concentration Index (Import) measures for each country, the degree of concentration of goods imported suggest greater and lesser degrees of integration into the global economy of CF Partners. The Indices confirm that for CF, its exports are concentrated in a small number of products, and while CF countries are relatively open economies, there is not the same degree of integration into the global economy. Continuing with the characteristic of “concentration”, CF exports to the UK are also concentrated in only a few countries. In 2020 three countries accounted for approximately 77% of trade to the UK, being Trinidad and Tobago, the Dominican Republic and Belize. In respect of export diversification, the index utilised in this study assesses the degree to which the structure of exports by product of a given economy or group of economies differs from the world pattern. CF trade exhibits a greater degree of variability for some countries. However, on average the value of the index for CF countries generally tends toward 1 rather than zero, indicating less diversification. On the services side CF trade in services shows a more robust picture with exports of services showing a positive growth trend. This resulted in an overall trade surplus in favour of CF. For the Top Five services traded with the UK, CF only dominated in the area of travel services exports which was also the largest services activity traded between the two, and the area of greatest competitive advantage for the region. This flow was the most valuable between the partners, which accounted for the surplus with the UK. Among the modes of supply, mode 2 and mode 1 dominated total CF export flows to the UK. Commensurately, the supply of exports via Mode 2

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dominates for the majority of individual CF states. The data suggested that there is a high degree of substitutability between modes of supply for all categories of services exports to the UK save for travel and construction services. This high degree of substitutability is largely due to technological advances, which have arisen from the increased “platformisation” and digitisation of services. Therefore, save and except for sectors in which the characteristics were such that it is not technologically feasible, most services activities are able to be supplied via mode 1. This is a distinct advantage for CF given that, in relation to mode 4 ( where under the CF-EU EPA it was anticipated to provide the greatest benefits to the region’s service providers), the UK maintains the most restrictions relative to all other modes. However, as with trade in goods, there are a few economies that dominate the trade in both services and goods. At a regional level of trade with the world, the dominant countries in 2019 were The Dominican Republic, the Bahamas and Haiti. Practical or trade implications and any potential opportunities or challenges that exist i. Challenges From the data reviewed this study highlights three main challenges: 1. Concentration and lack of diversification For the trade in goods we see a concentration of exports from the region in a few tariff lines, and by a few exporters. Though all countries cannot dominate trade, this suggests a high degree of vulnerability within the region. Similarly, on the services side, there was also concentration in a few exporters, services sectors, and modes of supply. 2. Limited integration into global value chains and lack of regional value chains Though specific research is required into Global Value Chains within CARIFORUM, data for Latin America and the Caribbean suggests a low level of integration of the region into GVCswhen compared to other regions. Additionally, no data has been identified that suggests that there are

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regional value chains actively being pursued in the region, though “production integration” remains a core objective of the regional Agenda, specifically for the CARICOM States within CARIFORUM. Research has shown that one of the main reasons for the low level of integration into GVCs in Latin America and the Caribbean may stem from the “Spaghetti bowl” of Preferential Trade Agreements (PTAs) with differing rules of origin requirements. In relation to services, due to the limited number of backward linkages as compared to forward linkages in the UK services sector, given the high degree of integration and regulation, there are less opportunities for CF service suppliers to penetrate UK value chains in the actual production of services. 3. Improving productive capacities and the macroeconomic environment The data shows that while some CF partners score well on some dimensions of productive capacity as measured by the Productive Capacity Index (PCI), as well as at the aggregate level, more work needs to be done to improve the region’s level of productive capacity overall. There is a high degree of correlation between performance on the productive capacity index and GDP growth as well as export diversification. Countries that have higher levels of productive capacity are therefore in a better position to achieve the sustainable development goals. Empirical analysis conducted in this study shows that the PCI is significant and positively correlated with regional trade performance. Therefore CF countries that are unable to improve productive capacity have shown lower levels of trade performance. Different components of the Index are also relevant for different CF partners. However, the results show that human capital is a significant variable for all countries, so that with the comparatively low level of human capital formation that exists at the regional level, there is considerable room for improvement, given the observed lack of diversification in merchandise trade performance. As expected, the levels of liberalization (integration), openness, liquidity, GDP growth, and productive capacity significantly influence changes in the average volume of trade conducted by CF states.

ii.

Opportunities

1. The role of services in goods trade

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The data shows that most of the region’s trade in goods takes place in line with the principle of Comparative Advantage, as estimated by the RCA. This study argues that rather than seeing this trend as a disadvantage, one should go back to first principles, particularly in light of the existing capacity constraints and the time required to overcome these in the short-term. That is, as the Economist David Ricardo indicates, specialise! This specialisation, particularly in Agro-foods production, which involves a significant degree of value added services ties into a strategy of building value chains from the regional to the global level. Studies have shown that the inclusion of services in this mix to address both “how” products are manufactured as well as delivered to export markets, would be one way to diversify the region’s output, as well as add value. Studies have also shown that this approach has been a significant part of the Agro-food processing trade and can potentially deliver significant gains. This is also the same in relation to light manufactures. 2. Regional to Global value Chains Studies posit the significant advantages of integrating into Global Value Chains. This study argues that, while the data is not available, the trade structure and characteristics of CF economies suggest that Regional Value Chains could be used as a stepping stone to Global Value Chains. This will require a concerted effort at a regional level to push for these linkages (integration) to spread the benefits. The CF-UK EPA, with its diagonal cumulation provisions, provides better opportunities to facilitate this, and may in fact create longer value chains than would otherwise be possible under other PTAs. This comports with the available evidence that shows that there are significant investment opportunities for both forward and backward integration into CF and UK value chains, which will lead to greater penetration of GVCs via the UK, as well as through the development of regional value chains within CF. 3. Standards The study further argues that, given the market access concessions made by the UK, the proactive CF states and entities may have to seek to gain “first mover” advantages within the preferential margins that have been made available, by seeking to build the capacity to meet the higher or

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more robust regulatory requirements coming into play post BREXIT This would appear unusual, and it is often felt, as this study has shown, that these regulatory requirements can become non tariff measures and limit the advantages conferred by greater market access or indeed the effectiveness of that access. Notwithstanding, these circumstances also represent an opportunity, if, as a region, CF can be among the “first movers” within the UK marketplace. That is, by ensuring that they meet the UK standards, and also take into account environmental issues, as well as sustainable agricultural practices. This, however, will require significant capacity building, business process reform, production re-engineering and the prioritisation of those areas that must be addressed in the CF States, where public resources may be limited and there are competing interests.

Sectors with potential for growth and best practices for market penetration

The data reviewed in this study largely supports a focus on the priority sectors examined namely:

Tangible goods producing sectors • Agro-Processing (including Nutraceuticals) • Light Manufacturing • Green Economy • Blue Entrepreneurship

Non-Tourism Linked Services • Education Services

• Business and Professional Services • Information Communication Services • Creative and Cultural Services

Investment

• Renewable Energy

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• Agricultural Technology (AgriTech) • Business Process Outsourcing • Hotel and Resort Development

The study, however, finds that greater emphasis needs to be placed on the role of services in the tangible goods producing sectors, and most notably in relation to Agro-food exports and manufacturing. Which are among the top products demanded by the UK from CF. Given what this study has argued in terms of the environment and standards, then it is also critical to emphasise green activities, as well as further harnessing the region’s natural advantages. In particular, the study has found that the greatest value can come from the non-tourism linked services highlighted in this study, such as transport, trade (retail), financial services and business services to complement Agro-Food production. . Incorporating services will add further value to the region’s productive output, but at the same time it should be recognised that while a smaller share of the export dollar will go to producers, the overall gains would increase and be distributed throughout the regional value chain.. This “de-commodification” or “servicification” of output, therefore, should be an explicit strategy in boosting the regions exports.

Investment challenges and opportunities between the UK and CARIFORUM

i.

Challenges

Though the CF-UK EPA in effect carries forward or continues the UK’s commitments into a new agreement, there are certain intangible elements, which CARIFORUM States would have come to rely on as part of the mechanism for the trade in services and investment that will no longer be available to CARIFORUM States, at least not in the previous form. These are:

1. Issues related to the free circulation of the tools of trade for CARIFORUM’s Mode 4 services providers moving back and forth between commercially established CF firms in

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the UK and the EU, and which is likely to be disrupted due to the new customs rules and border disruptions as a result of Brexit. 2. Another consideration relates to Mode 1 cross border supply of services by CARIFORUM firms, which are established in the EU under Mode 3, and which seek to supply services to the UK. These firms may or may not enjoy the same level of preferential access available under either CF-UK EPA, given the provisions of the TCA. 3. The Free circulation/movement of Mode 4 services suppliers employed to commercially established CF firms will also be impacted due to potentially differing or more onerous visa regimes for any given category of temporary entrant, where movement occurs cross border between the UK and the EU. 4. There will also be need for the negotiation of new or separate Mutual Recognition Agreements (MRAs) between UK and CARIFORUM regulators to ensure continuation of the trade in services, so that the flow of service suppliers employed by commercially established CF firms is not disrupted. 5. Consideration will also need to be given to issues surrounding cross-border data transfers between the UK and the EU by commercially established CARIFORUM services providers and the related implications of the EU’s General Data Protection Regulations (GDPR) for Mode 1 trade in services. 6. Issues related to taxation for CARIFORUM firms established in the EU and whether they may need to restructure commercial establishments (ownership/legal form and management requirements) will also be a potential challenge.

ii.

Opportunities

The UK’s strong outward investment orientation is a significant opportunity for CF. CF countries will need to address any structural issues and incentives that are needed for attracting these investment flows. As is consistent with the analysis throughout this report, green investments, and the greening of investments in light of the issues of sustainability and environmental concern has to also be addressed. To date the author is only aware that one CF country has specifically started

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to develop a green investment strategy, that focuses on defining green investments, and the concept of “greening” as well as setting operational criteria for what is a “green investment”. At the same time , the data from the Services Trade Restrictiveness Index suggests that the UK is one of the least onerous jurisdictions as regards regulation, when compared to its OECD counterparts, thus making it a potentially more open and welcoming investment destination. The main opportunities that could be targeted for investment promotion activities, not only taking account of the UK’s interests but CF’s needs (for example in attracting investment in the service sector to complement agro-food exports and manufacturing), are as follows: 1. Mode 3 outward-oriented investment in the Other Business Services and Financial Services sectors, Telecommunications, Computer and Information services, Transport services and Distribution services sectors. 2. The establishment of UK foreign affiliates for the provision of non-tourism linked services, Transport, Distribution, Maintenance and Repair, Financial services, Construction, and Other Business Services as CARIFORUM countries would likely be attractive investment destinations for the provision of these services through forward linkages as well as for creating backward linkages into the UK’s Value Chains (services and manufacturing). 3. Based on RSTI data for the UK, mode 3 commercial establishment in the Legal services and Broadcasting services sectors are among the more accessible to CARIFORUM Services providers. This is due to the relatively lower regulatory hurdles as compared to the OECD countries. These therefore offer real and tangible opportunities for the region’s effective penetration of the UK services market through Mode 3 commercial establishment, subject of course to professional and other requirements. Though opportunities for CF to invest in the UK services sector exist there are still some hurdles, particularly in areas where the region has a comparative advantage, due to the regulatory requirements and limitations for participating in certain sectors. These relate, for example, to legal form and other market access and national treatment limitations for Mode 3 provision of Banking

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and Financial services, Maritime (i.e., passenger and freight) Transportation services, Medical services, Sales and Marketing services, and the operation of Computer Reservation Systems.

While on the tangibles side, there are likely to be challenges in relation to making direct investments in mining and quarrying activities, the manufacturing of refined petroleum products, the production, transmission/distribution of electricity, the manufacture and distribution of gas and gaseous fuels, and the production and distribution of steam and hot water in which a few countries within the region may hold some amount of comparative advantage.

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1. BACKGROUND AND OBJECTIVES

1.1 Background

On January 31, 2020, the United Kingdom (UK) formally exited the European Union (EU) and entered into a transition period, which ended at 11:00 p.m. on December 31, 2020. During that period, a new trade deal was finalized between the UK and the EU, which came into effect on January 1, 2021. Leading up to the UK’s departure from the EU, it was recognised that EU trade agreements with non-EU countries would no longer be legally binding on the UK, and it was, therefore, necessary for the UK to negotiate so-called “roll-over” or “continuity agreements” with those non-EU partners in order to preserve those trade and development related partnerships. This resulted in the CARIFORUM-UK Economic Partnership Agreement (CF-UK EPA) being entered into between the CARIFORUM (CF) States, being CARICOM and the Dominican Republic on the one part, and Great Britain1 and Northern Ireland (UK) on the other part. The resulting new Agreement is an enhanced Free Trade Agreement (FTA) which involves a strong development assistance component but effectively on a bilateral basis with the UK. 2 This Study, thus, seeks to address certain specific questions with regard to ascertaining the trade and development impact of this arrangement. Specifically, the Study seeks to provide an assessment of the trade situation by reviewing relevant trade data and statistics, as well as existing regulatory and other policy related measures, to also critically assess the areas in the trade in goods and services that could be of potentially greater benefit to the CARIFORUM region and how the Agreement could support this. The Study also seeks to address the long-term and sustainability issues that have arisen or are likely to arise under the CF-UK EPA. Importantly, the Study must

1 England, Scotland, and Wales. 2 Though it must be considered that the four countries comprising the UK trade with the CF to varying degrees, it is a single customs territory for the purpose of goods entering and exiting with modifications because of the implications of the Northern Ireland protocol.

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also seek to address any impediments to the attainment of the maximum benefits to be derived under the trade agreement. In assessing issues of sustainability, this Study also directly address issues of competitiveness, capacity, and the possibility of the trade diversionary and/or trade creating effects of the CF-UK EPA. All this is in the context of a post-Brexit and Covid-19 world.

1.2 Specific Outcomes under the Terms of Reference

The Study in addressing the specific deliverables under the Terms of Reference draws on a number of indicators to derive the appropriate answers. There is an examination of a range of data and indicators that are relevant, as well as the exploration of various empirical and analytical approaches. These, however, have been done with consistent reference to the specific outcomes required from the Study, as outlined in the Terms of Reference, and which are reproduced below for completeness. Given the limited time available and the risks associated with this, as highlighted in the ToR, it is critical that the Study be directed and focused on the attainment of the following specific activities and their related deliverables: 1. Analyse the trade (goods and services) and investment framework between CARIFORUM and the United Kingdom in light of the current CARIFORUM-UK EPA; 2. Consider how the CARIFORUM-UK EPA can increase sustainable and inclusive trade, including the areas of value addition/value chains and the relevant barriers to achieving this; 3. Recognising this new agreement is termed a ‘continuity agreement’ as a result of the UK’s departure from the European Union, identify the differences between the two agreements, articulating the practical or trade implications of those differences, any potential opportunities or challenges that exist; 4. Conduct desk research on the export of goods and services from CARIFORUM to the United Kingdom, identifying those sectors with potential for growth and best practices for market penetration; As far as practicable, research should consider the evidence-based

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