New US legislation eroding Caribbean exports

Certain pieces of legislation coming out of the United States are potentially erosive to the Caribbean Basin Initiative (CBI), through which the Caribbean exports to the US, said T&T’s Ambassador to the US Dr Neil Parsan. Indicating his statements were based on his observations of late, Parsan said, “One, for sure, is ethanol exports.” Ethanol is an alcohol fuel produced from the fermentation of simple sugars. While it is a very complex issue, Parsan said, the export of ethanol from the Caribbean to the US has dwindled to nothing. According to the US International Trade Commission, roughly one-half of all fuel ethanol imports to the US came from CBI countries between 1999 and 2003. Today, imports play only a small role in the US ethanol market. After the US Congress did not renew a non-tariff condition for the CBI, ethanol exports to the US have gone to zero. He was delivering the feature address at the CEO Back to School Series, at the Arthur Lok Jack Graduate School of Business in Mt Hope on May 24.

 

 

Parsan said the US was not offering a level playing field in its rum industry. He said while the Caribbean once led the rum industry, new investments in a US Virgin Islands-based rum factory, with more than the combined capacity of all Caribbean distilleries, have stunted US-destined Caribbean rum exports. He said this does not augur well for the likes of El Dorado from Guyana, Appleton from Jamaica, 1919 from Trinidad, Mount Gay from Barbados and others. In June 2008, Governor John P de Jongh, Jr, and Diageo USVI jointly announced a public-private initiative for the construction and operation of a high capacity rum distillery on St Croix, USVI. The aim was “to provide a major economic stimulus for the entire territory of the US Virgin Islands,” Diageo says on its Web site. Today, all rum used to make Captain Morgan-branded products for the US market comes from the USVI, thanks to the innovative public-private US$265 million initiative between the USVI government and Diageo USVI. Parsan said this made Caribbean rum more expensive and less profitable because although all rum is taxed on entering the US, the USVI gets money back for “teritorial development.” The T&T diplomat said the US Foreign Account Tax Compliance Act (FATCA) is “prohibitive to foreign US direct investment to any country.”

 

 

This legislation now requires Caribbean banks to find any American account holders and disclose their balances, receipts, and withdrawals to the US Internal Revenue Service (IRS), or be subject to a 30 per cent withholding tax on income from US financial assets held by the banks. Parsan said he knew of cases where Americans gave up their citizenship because the law penalises them for having large investments in the Caribbean. Under the law, American owners of these foreign-held assets must report them on a new Form 8938, along with US tax returns, if they are valued more than US$50,000; a higher reporting threshold applies to overseas residents. Americans caught with financial assets in countries like T&T they have not disclosed to the IRS would be subject to a 40 per cent penalty for understatement of income. Speaking on other challenges US investors face when they look to T&T, Parsan said, “The industrial relations climate distracts foreign direct investment.”

 

 

T&T’s transparency rating and crime were other investor deterrents. A doctor of veterinary medicine and a Master of Business Administration, Parsan told the gathering of mainly fellow UWI Lok Jack GSB alumni, “There’s a yearning to contribute to the development of T&T.”  Commenting on effects on US-bound exports from the region on Tuesday, Prof Anthony Bryan, former director of the Institute of International Relations,University of the West Indies, said, “Caribbean countries do not have the same advantages they had before. “Ethanol producers are facing severe competition from the domestic (US) market as this country is now producing large amounts of ethanol coming out of canefields in Florida and cornfields in the (US) midwest.” Bryan said the tide was changing for US-Caribbean trade. He cited the liquefied natural gas (LNG) market as another example of T&T ceding market share to the US in the energy industry. The US is becoming an exporter of LNG, and T&T’s revenue from LNG exports to the US will continue to decline, he said.