I.                   INTRODUCTION

1.                   St. Vincent and the Grenadines is an archipelago of 32 islands and cays that are situated in the Eastern Caribbean, and form part of the Windward Islands.  St. Vincent, 18 miles long from North to South, and 11miles at its widest, has an area of 133 square miles, and the largest of the group.

2.                   The chain of smaller Grenadine islands, most of which are no longer than a few miles, lies south west of St. Vincent.  The largest include Bequia, Mustique, Canouan, Palm, Petit St. Vincent, Mayreau and Union.  The population is estimated at 100,745, 72.8 percent of whom are of African descent, while the remaining 27.2 percent are a mix of descendants of East Indians, European and indigenous people.

3.                   St. Vincent and the Grenadines attained political independence from Great Britain on October 27, 1979 and inherited a Westminster Parliamentary Democracy System of Government.  It holds membership in a number of regional and international organizations and is a founding member of the Organization of Eastern Caribbean States (OECS).  The OECS comprises six (6) independent member states:  Antigua and Barbuda, the Commonwealth of Dominica, Grenada, the Federation of St. Christopher and Nevis, St. Lucia and St. Vincent and the Grenadines;  and three (3) British dependencies:  Montserrat, Anguilla and British Virgin Islands.  The eight (8) member countries of the OECS share a common currency, the EC dollar.

4.                   SVG is a small open economy susceptible to external economic shocks and natural disasters and dependence on international trade.  The susceptibility of SVG to a variety of natural disasters, principally hurricanes and flooding is well known.  The limited availability of social safety nets for rapid responses to economic adjustments has contributed to economic and social dislocations, particularly within rural communities.  Due to both external and internal challenges, the GoSVG has to continuously, redefined developmental policies.  The downturn of the economy was partly due to a declining productive sector, rising import bill and a trade deficit ratio of 7:1.  This situation was further exacerbated as a result of the exigencies of international trade, the reduction of trade preferences in the agricultural sector and the impact of natural disasters. This has led to high public sector debt, fiscal imbalances and persistent unemployment and poverty.

5.                   The Government pursues a policy of main - stream social democracy adapted to the prevailing national condition. Policies and programmes are intended to be people–centered and summons up collective solidarity and individual responsibility.

6.                   During the short to medium term, the Government of SVG (GoSVG) plans to focus on the following:  Accelerating economic growth; Building up the human –resource base;  Poverty reduction/rural transformation and Export-led growth and development.  The macro –economic policy of the GoSVG, and indeed the private sector, reflects a commitment to the revitalization of the main productive sectors and the creation of jobs for the unemployed.  The expansion, diversification and restructuring of the economy in addition to the supportive mechanisms, facilitate the process of sustainable development.  The long term goal of the government is to achieve sustainable balanced growth by transforming the economic base of the country into an export-led economy.

7.                   Overall, the current policy initiatives provide a continuing programme of reform to assist in meeting the national objectives.  The draft 2020 National Social and Economic Development Plan and the National Export Strategy Paper are intended to build on this foundation.  The services sector (Tourism) is growing in significance and has been accorded priority in the new thrust.  Non - banana agriculture and fisheries, financial services, information technology, and the creative industries have also been targeted as new growth areas in the formulation of a National Export Strategy.  Government has also emphasized universal education, as part of its human resource development programme.  Food security and rural transformation have been identified as vehicles in poverty reduction.  These measures are deemed as critical elements in facilitating Government’s vision of a modern competitive post colonial economy.

II.                MACROECONOMIC AND TRADE PERFORMANCE

(i)                 Overview of macroeconomic performance in the 2000s

8.                   The economy of St. Vincent and the Grenadines recorded positive growth in all years over the past decade, with the exception of a small fall in 2001, following the general decline in global growth and the September 11th bombings.  Growth has been achieved despite considerable changes in the factors of production, declining levels of development assistance as well as changes in market access arrangements for key products.

Table 1.1:  GDP growth per annum at constant prices, 1996-2006

Source:    Statistical Office, Ministry of Finance and Planning, SVG.

9.                   Whilst annual performance has varied considerably, over the longer period, growth has been relatively stable at around 3% per annum.  Growth in 2006 was estimated at 6.90% (prel).  Real per capita GDP during this period increased from approximately US$2,639 in 2001 to US$3,526 in 2005.

(ii)               Trade and sectoral patterns

10.               During the last five years, there has been a significant increase in the contribution of services to GDP, while the contributions of agriculture and manufacturing have declined.  The services sector accounted for 75% of GDP at basic prices in 2006; within services, the main activities include wholesale and retail trade, government services, and transportation.  Table 1.2 below shows the differences in economic contribution to GDP in 2005 relative to 1996 for those significant economic activities where the differences are greater than 30% in terms of contribution.

Table 1.2:  Major falls and rises in % contribution to GDP (constant prices) 1996-2005

a              Preliminary.

Source:    Statistical Office, Ministry of Finance and Planning, SVG.

11.               The change in relative contribution to GDP has been more dramatic in relation to bananas largely reflecting the terms of access to EU markets with consequent impact on volumes and prices of exports.  Manufacturing has also suffered from a lack of competitiveness due to the large disparity in energy costs across the region and steady rise in the price of fossil fuels on the global market (sub US$20 per barrel in 2001 to almost US$70 per barrel in 2006). The largest absolute increase in contribution to GDP was reflected in the wholesale and retail sectors, with communications and electricity and water also revealing significant increases.

12.               The impact of Tourism is not directly apparent from the above classification.  Tourism impacts in various ways in terms of construction, wholesale and retail and use of services in addition to the direct contribution of hotels and restaurants.  The development of a major signature resort in Canouan, as well as the filming of the Pirates of the Caribbean in 2004 -2005 has been part of an increase in the overall tourism contribution.  Stay over visitors have risen from 70, 689 in 2001 to 95,505 in 2005, indicating the increasing importance of the sector (though the overall number of visitors is broadly unaltered due to a fall in other visitor numbers in yachting and cruises).  Hotels and restaurant (proxy for tourism) contribution to GDP remained on average about 2.4 percent during the decade.  Notwithstanding the above, gross tourism receipts increased from an estimated EC$216.5 million in 2001 to EC$280.5 in 2005, surpassing bananas as the single largest income generating activity in the economy.  The Services Sector as a group grew in excess of an average of 5 percent per annum over the last ten years, mirroring the trend of the growing dominance of trade in services in the international economy.

13.               The Agricultural sector in 2006 contributed 9.3 % of GDP, down from 14.8 in 2001.  However, agricultural exports grew in 2005 by 0.2% over 2004 figures, as the decline in banana was counterbalanced by the exports in non- banana agriculture, especially root crops which recorded export earnings of EC$10.2 million and which exceeded export earnings from root crops in 2004 by EC$2.22 million in 2005.  Within agriculture, SVG has continued to diversify from the production of bananas, and their contribution to GDP has declined from 3.5% in 2000 to 1.3 % in 2006.  Construction accounted for 10.4% of GDP in 2006, up from 9.5% in 2001, while manufacturing accounted for 5.4%, and water and electricity for 7.2%.

14.               The current account of the Balance of Payments has consistently shown a deficit, reflecting largely the deficit in merchandise trade.  (Tables 1.3 and 1.4).  The decline in agriculture has significantly contributed to export levels with export value in 2005 being lower than in 1996, even in nominal terms.  Import levels have generally increased leading to the further deterioration in the balance of trade in goods.  A strong service sector, derived largely from tourism, helps to offset this variance by reducing the current account deficit.

Table 1.3: Balance of Payments Current Account EC$M

a              Preliminary.

Source:     The Statistical Office – Ministry of Finance & Planning.

15.               Most of St. Vincent and the Grenadines’ external trade takes place under preferential conditions.  Agricultural exports account for some 75% of total exports.  Other agricultural exports include flour and rice, sweet potatoes, eddoes, and dasheen, arrowroot, coconuts and plantains.  Exports of manufacturers accounted for 24% of total exports in 2005; the main items were machinery and equipment and iron and steel products.  Re- exports, mainly of equipment and machinery, closely tied to the completion of large investment projects, represented some 9.6% of total exports in 2005.

16.               The value of the top ten domestic exports has been declining.  In 2000 the top ten domestic exports generated EC $94.5 million but in 2005 figure showed a decline to EC $72.5 million.  This represents 67.33% of total exports for that year.  Bananas continue to be the most significant export product at 29.8% of total exports in 2005, notwithstanding the challenges to this industry.  This is followed by Flour;  an Article 164 product of the Revised CARICOM Treaty of Chaguaramas which makes up 12.57% of total exports and then dasheens, at 4.87%.  Overall exports in 2006 further declined by 4.45% from EC$107,676,585 in 2005 to EC$102,888,968 in 2006. (see Table 1.4)

Table:  1.4 - Trade Balance 1998-2006 SVG goods.

Source:    Statistical department, Ministry of Finance and Planning, 2007.

17.               Merchandise Imports expanded by 34% over 2001-05, or at an average annual rate of 6 %.  The strong Construction activity linked to the Tourism industry and other infrastructure projects have been in a great part behind this growth.  The main imports are food, manufactured goods and machinery and transport equipment.  Over 60% of imports in 2005 were manufactured goods, particularly machinery and transport equipment (22.7%), semi manufactures (14%) and other consumer good (10% of total imports).  Food and beverage accounted for 21.5% of total imports and the rest was accounted for by, fuels, crude materials, chemicals, oils and fats.  At the end of 2006, the ratio of imports to exports stood at (7:1) with import values soaring at EC$733,018,778.00 in 2006, an increase of 12.87% over EC$649,426,771.00 in 2005.

18.               The main trading partners are the United Kingdom, the United States, and other CARICOM member countries, which accounted for more than 97% of exports and 76% of imports in 2005.  Over half of total exports are destined for the CARICOM area.  The United States is the main supplier, with 33.3% of the total;  other important individual suppliers are Trinidad and Tobago (23.6%) and the United Kingdom (9.4%).  The remaining suppliers accounted for less than five (5%) each.

19.               Since 2001, the trade shares of SVG’s main trading partners have remained unchanged on the import side;  imports from the United Kingdom peaked at EC$63.8M in 2004 and currently stands at EC$51.8M in 2006.  The import figures for the United States had been consistently increasing and stood at EC$235.9M in 2006.  Imports between SVG and other CARICOM states have risen considerable over the years from EC$125.9M in 2000 to EC$165.1M in 2004 and approximately EC$300.0M in 2006. In 2006, Trinidad and Tobago accounted for approximately 73% of total CARICOM exports into SVG, followed by Jamaica in second place with 11% and Barbados 9.7%, respectively.

20.               Exports to Europe and the United Kingdom in particular have contracted by almost half in 2006.  For the North American region, SVG continues to run a substantial and widening trade deficit:  Between 2001 and 2006, imports have increased from EC$188.0M to EC$263.0M, while exports have decreased from the already low value of EC$4.0M to 2.2M(120:1), respectively.  Exports from SVG to other CARICOM states have declined significantly approximating EC$62.0M in 2006 to reflect a trade deficit ratio of 4:1 (imports to exports).  Exports/import ratios from Guyana (21:1), Trinidad and Tobago (14:1) and Jamaica (12:1) are significant.  However, SVG trade with the OECS shows a positive trade balance, where exports from SVG have consistently exceeded imports from the OECS during the period.

21.               The export sector in SVG faces increasingly fierce competition from other regional and international exporters.  For bananas the dismantling of preferential market access arrangements in Europe has led to increasing competition from Latin American banana producers and an erosion of the share of SVG/WIBDECO banana exports.  SVG also faces competition for flour, malt beverages and poultry feeds from Grenada, Trinidad and Barbados, Guyana and Jamaica.  Competition for packaging materials is mainly from St. Lucia and Trinidad and Tobago.  Competition for Dasheen, eddoes and plantains comes from Grenada, Dominica and St. Lucia.  The competition for zinc-coated roofing comes mainly from Grenada, Trinidad, Antigua and St. Lucia. 

22.               Monetary and exchange rate policy is determined by the Monetary Council of the Eastern Caribbean Central Bank which has responsibility for monetary policy for the OECS area since 1976.  During the period under review the EC dollar continued to be pegged to the US dollar at a rate of EC$2.70/US$1.  This has remained stable for the last 30 years.  The EC dollar depreciated in real effective terms during 2001-2006.  Both narrow money and the (M1) and quasi money have been expanding rapidly due to strong expansion in private demand deposits (for M1) and expansion in savings by business and individuals.

Domestic credit has also been expanding in both public and private sectors.  Liquidity in the commercial banking sector remained at high levels 2005/6.  Evidence of this can be seen in the ratio of loans and advances to total deposits which stood at 72.9% in 2006.  Commercial interest rates remained unchanged:  i) Savings deposits (3.0-4.5%);  ii) Time deposits (2.5-3.8%) and iii) Prime lending rates (9.0-11.00%).

23.               In relation to government finances, during the period 2002 to 2006, the overall balance declined to a deficit on average of - 3.6% per annum; and - 4.5% in 2006 reflecting higher levels of locally financed capital spending.  The cost of servicing the public sector debt continues to grow and has begun to crowd out other areas of spending.  Debt servicing cost in 2006 stood at 24% of the total current revenue, compared to 2002, when 16.7% of the revenue was used to cover debt charges.

24.               Inflation has been relatively low, averaging 2.2 percent per annum during the period 2001-2006.  However, consumer prices rose by 4.8% in 2006, compare to 3.9% in 2005.  The faster rate of growth reflected price increases in the group “food”, particularly for vegetables, fruits and baby formula.  Hikes in the international price for fuel were also a contributing factor.

25.               Outlook:  The impact of the declining growth rates, trade balance combined with the response of expansionary fiscal policies has yielded unfavourable macroeconomic outcomes in the current period compared with a decade ago.  The current challenge facing the country is how to stimulate production and reinvigorate growth in export to reverse the high import propensity and external dependency of the country; thereby restoring fiscal and debt sustainability in a more competitive global environment.

III.             TRADE POLICY and institutional FRAMEWORK

26.               During the period under review, the country remained an independent parliamentary democracy within the Commonwealth of Nations.  The political system continues to follow the Westminster model of parliamentary government.  The executive branch of government comprises the Prime Minister and his Cabinet of Ministers, who are responsible for concluding and signing international treaties and agreements, including trade-related agreements.  The Cabinet is however collectively responsible to the House of Assembly for its decisions.  The minority leader and senators form the other component of the National Assembly while the Judiciary is guaranteed constitutional independence. St. Vincent and the Grenadines is a full member of the United Nations, the Organization of American States, the International Labor Organization, CARICOM, and the Organization of Eastern Caribbean States.  

27.               On December 7th 2005 the political mandate of the ruling government was renewed, following success at the poll for a second term of office.  This renewed mandate set the stage for the continuity of policies and programmes already embarked upon to strategically transform the economy from an inward looking model of import substitution to a more outward looking export promotion approach.  Despite the lack of coherence between the investment strategies and the industrial development policy framework, Government has continued to strengthen and enhance the regulatory environment in conformity with its Medium -Term Strategy Paper 2002-2004.  Government is also formulating a three (3) year National Export Strategy and a 2020 vision enshrined in a National Economic & Social Development Plan.  These efforts are complementary to the accelerated efforts to create an export- led economy.

(i)                 Trade policy formulation and implementation

28.               The Ministry of Foreign Affairs, Commerce and Trade was merged and this has placed responsibilities for the co-ordination and formulation of Trade and Commerce policies within the ambit of a single government entity.  The department of Trade is the division responsible for advising the Government on trade policies and strategies, and trade –related negotiations.

29.               The Ministry of Legal Affairs is responsible for matters pertaining to intellectual property rights and the legislative drafting of trade agreements.  The Commerce and Intellectual Property Office (CIPO), under this Ministry, is responsible for granting commercial rights to the ownership of intellectual property.

30.               The Ministry of Finance and Planning has responsibilities for tariff policy, fiscal policy and tender procedures.  This ministry also regulates the on – shore and off-shore banking and insurance services sector, in collaboration with the Eastern Caribbean Central Bank.

31.               The Ministry of Agriculture and Fisheries has responsibilities for the administration of the phytosanitary and sanitary measures in agriculture, livestock and crops, including import and export restrictions and inspections, under the Plant Protection Act, No. 15 of 2005.

32.               The Ministry of Health and the Environment is responsible for matters as it relates to general health and food safety standards in the country.

33.               The St Vincent and the Grenadines Bureau of Standards is the entry point for the adaptation and development of standards, technical regulations, certifications and conformity assessment procedures and metrological services in the country;  in keeping with the Standards Act No. 70 of 1992 (amended by Act No. 28 of 2001).  The SVGBS is entitled to declare and review internationally recognized standards, ensures that imports are of the highest quality and that the health and safety of consumers are not compromised. It also has a duty to adequately protect the environment.

34.               The Ministry of Telecommunications, Science, Technology and Industry has responsibility for the development of the ICT and oversight for the regulatory framework through the operations of the National Telecommunications Regulatory Commission (NTRC) and the Eastern Caribbean Telecommunications (ECTEL);  and the implementation of fiscal incentives for the manufacturing and trades sub sectors.  The Telecommunications Act No. 1 of 2001, and the Telecommunications (Tariff) Regulations, No. 23 of 2004 are key legislations governing the operations of this industry.

35.               The Ministry of Tourism, Youth and Sports formulates policy guidelines and monitor the regulatory authorities for industry standard setting within the tourism sector for the various service providers.

36.               Economic policy formulation, including trade policy, begins in the various Government Ministries.  These policies are presented as corporate plans for which expenditures are approved, before they are incorporated in the National Annual Budget.  Details of these plans are found in national policy planning instruments in the respective Ministries and in the Medium Term Economic Strategy Plan.

37.               Economic policy formulation, including trade policy formulation is also informed by agreed obligations ratified by Heads of Government at CARICOM and OECS Council Meetings.  The integration of trade policy into overall economic policy at national level is achieved through these processes.  Since 2001 St. Vincent and the Grenadines’ trade policy harmonization has been through the following institutional mechanisms:

38.               In addition, to the various statutory bodies and institutions that promote and regulate trade policy interventions, there are various committees which oversee the trade policy and support network framework, in addition to the normal Cabinet and Parliamentary oversight.  These include:

• A Tripartite Committee on the Economy.(TCE) constituting a social partnership between the Government, the Private Sector and Labour – Trade Unions, which is composed of the government and civil society and functions as a forum for discussion of the economy. 
• A National Economic and Social  Development Council (NESDEC),  a broad base statutory body which is comprised government officials and civil society (Private Sector officials, NGO’s and labour unions) charged with overseeing and providing advice on the Government poverty initiatives, the national economic and social development plan , and other economic and social matters.  This group is expected to act as the prime movers in the economic transformation process under a social contract.
• A Cabinet Committee on the Economy (PSIP) has been established comprising subject Ministers and Technical experts from the main economic growth sectors.  From this committee overall direction would be provided to the transformation programme.
• A National Export Council (NEC) is also being established comprising stakeholders within a private –public partnership arrangement with oversight for the coordination and monitoring of the soon to be launched National Export Strategic Plan of the country.

39.               The engagement of civil society through specific forums and committees has intensified over the past few years. It is also the case where the role of these bodies is still evolving and the long term impact on trade policy development and implementation is yet to be realised.  This institutional framework would allow for greater private sector participation, initiative and innovativeness in the national effort to achieve international competitiveness, especially in those areas that can serve as catalysts for the diversification of the production and export base and the modernization of the economy.  In this respect, WTO matters would be accorded the highest priority for special attention.

The Inter-ministerial Committee

40.               The Inter-ministerial Council discusses all important trade issues from all negotiating spheres and meetings of the CARICOM Council on Trade and Economic Development (COTED) as well as implementation issues related to the CARICOM Single Market and Economy (CSME).  The composition of the Inter-ministerial Council includes Government Ministries and Statutory Agencies and Private Sector Trade and Commerce related organizations.

OECS Technical Mission

41.               The establishment of the OECS Technical Mission and its permanent presence in Geneva has enabled and ensured that St. Vincent and the Grenadines and the other OECS Member States have greater and more visible representation at WTO meetings.  The critical role of this mission cannot be overstated.  Since its inception, GoSVG have observed a significant improvement in the dissemination of information, networking between capital and Geneva has been enhanced, enabling the country to better table national positions on important matters and to actively engage in the negotiations process along with other alliance groupings on multilateral issues.

(ii)               Elements of trade and foreign investment developments

42.               During the period under review the GoSVG endeavored to reorient the economy from production based on import substitution, to one based on competitive export development.  Attempts to focus on providing parity in the incentives offered for the development of services exports was also undertaken.

43.               The regulatory environment for trade and investment was enhanced by undertaking the WTO Trade Policy Review in 2001.  This was coupled with a national programme for compliance with WTO and CARICOM obligations.  The introduction of important legislations to ensure that the international financial services sector jurisdiction was reformed in keeping with international best practices was a major step forward for the sustainability of the sector.  The establishment of regulatory agencies such as the Finance Intelligence Unit, the Commerce and Intellectual Property Office (CIPO), and the National Telecommunications Regulatory Commission (NTRC) are important elements of this effort.

44.               Programmes in youth entrepreneurial development through the Youth Empowerment Service (YES) initiatives, the Adult Literacy Crusade as well as Island wide delivery of Tech-Voc and ICT training at Multi- Purpose Centers (MPCs) and the National Institute of Technology (NIT) have been established to address critical human capital development needs on an ongoing basis.

45.               To stimulate increase in exports, programmes for small and medium enterprise development have been undertaken through the micro-credit programme at the National Commercial Bank, National Development Foundation and the Centre for Enterprise Development.  The commercial banks and credit unions also play an important role in this regard.

46.               To attract Foreign Direct Investment (FDI) the National Investment Promotions Inc (NIPI) was established and operationalised in 2003 as the link between the host country St. Vincent and the Grenadines and the Investor.

47.               These programmes have been bolstered by an aggressive public sector investment programme in development of physical infrastructure including construction of roads and ports as well as water, sanitation, electricity and low income homes.  A 2020 vision plan for National Economic and Social Development is in its drafting stages.

48.               Other export incentive programmes include consumption tax credit for SMEs which export and the corporate tax rebates for exporters to the OECS, the wider CARICOM and to third country markets.

49.               Concomitantly, the GoSVG further recognises that the service delivery network in the trade sector continues to be challenged by limited human, financial and technical resources.  The Ministry of Foreign Affairs, Trade and Commerce, The Ministry of Legal Affairs (CIPO) and the Bureau of Standards are key institutions within the trade support network to be strengthened to take on the urgent task of transforming the export sector into a dynamic, diversified and sustainable contributor to national development.  The competitiveness constraints in the implementation of the national export strategy should therefore be accorded the highest priority, as part of a comprehensive strategic approach.

50.               Foreign investment regulations have undergone significant changes both in policy direction and institutional arrangements.  Prior to 2001, the now defunct Development Corporation (DEVCO) performed the role of an industrial development corporation, wielding a mandate to steer economic development through foreign direct investments in industrial estate management, while promoting the country as an attractive location.

51.               Following the Financial Action Task Force blacklisting in 2001, the GoSVG embarked on a policy of transparency and good governance in order to establish the standards necessary for the sustainability of the sector.  A number of innovative, regulatory and law reform measures were enforced, aimed at separating both the regulatory/enforcement functions from that of the marketing of investment promotion.  This move manifested itself in the establishment of three (3) distinct institutions mandated to carry out these complementary portfolios.

52.               These institutions were the i) Financial Intelligence Unit(FIU) established by Act No. 38 of 2001 to regulate the international financial sector by collecting, analyzing and disseminating information of suspicious transactions to competent authorities; ii) the International Financial Services Authority (IFSA), established by Act No. 28 of 2003 to supervise, examine and issue licenses to offshore banks.  This function is executed in collaboration with the Eastern Caribbean Central Bank which serves to provide technical support and acts in an advisory capacity in the supervision and licensing of offshore banks;  and iii) the National Investment Promotions Inc. (NIPI) established by decree in October of 2003 as the central institutional pillar in the state administration to promote and attract direct private foreign investment to St. Vincent and the Grenadines, particularly in the areas of hotels and tourism, international financial services, information technology and related services and physical infrastructure.  The portfolio of this statutory body falls under the mandate of the Office of the Prime Minister.

53.               Among the legislative reforms undertaken by St. Vincent and the Grenadines to strengthen the regulatory framework for good clean business were the following enactment of the below-mentioned laws:

i)                    The Development Corporation (DEVCO) was dissolved by Act, No. 24 of 2003.

ii)                   The Confidential Relationship Preservation (International Finance) Act No. 17 of 1996 was repealed by section 9 of the Exchange of Information Act No. 29 of 2002.

iii)                 The International Trust Acts, No. 20 of 1996 was passed to provide for the registration and regulation of the International Trust sector in St. Vincent and the Grenadines. (Regulations No. 30 of 2002)

iv)                 The St. Vincent and the Grenadines Trust Act  was repealed by Section 11 of the St. Vincent and the Grenadines Offshore Finance Authority Act, No. 16 of 1996 (later renamed the St. Vincent and the Grenadines International Financial Services Authority Act, No. 28 of 2003).  A reconstituted body of the St. Vincent and the Grenadines Trust Authority Limited replaced it.

v)                  The Proceeds of Crime Act, No. 12 of 1997 was repealed with savings by the Proceeds of Crime and Money Laundering (Prevention)Act, No. 39 of 2001 (as amended in 2002 and 2006).

54.               During the period under review, the investment climate was further liberalized with the introduction of:  a new insurance act to capture the needs of the captive market;  a new mutual funds act that will recognize foreign fund managers/administrators and allow for a seamless process of licensing of funds;  a new International Business Company (IBCs) act which served to strengthen hallmark ‘hybrid company’ as well as allow IBCs to own land in St. Vincent and the Grenadines.  Further steps have been taken to liberalise its foreign exchange regime by removing the previous limit of EC$250,000.00 on foreign exchange transactions.  There are presently no exchange controls restrictions in place.  These were removed through revisions to the International Banks Act No. 40 of 2004 and with the establishment of the Financial Intelligence Unit (FIU) in May 2002, as called for in the terms of the Financial Intelligence Unit Act #38 of 2001.  Therefore, access to foreign exchange is not restricted, neither are taxes placed on dividends.

(iii)             Trade policy negotiations

55.               St. Vincent and the Grenadines fully recognises the importance of the WTO trade policy and negotiation process, however, the country is severely constrained by the limited human, technical and financial resources.  While concrete steps have been taken by the UWI, EU, USAID to train and expose a cadre of local trade officers in the various negotiating theatres, it is premature to evaluate the impact of these measures taken consistently over the last four years.

56.               In the interest of regional harmonization, GOSVG trade arrangements are conducted within the framework of the Caribbean Common Market (CARICOM).  In terms of its trade agreements GoSVG through its membership in the Organization of Eastern Caribbean States (OECS), Caribbean Common Market (CARICOM) and the ACP group of countries participates in a number of bilateral and multilateral agreements.  More specifically, St. Vincent and the Grenadines currently participates in four (4) preferential trade agreements one with each of its principal trading partners: 

a.      CARIBCAN with Canada

b.         The Caribbean Basin Trade Partnership Act (CBTPA) which replaced the CBI agreement with the United States of America

c.      The Cotonou Agreement with EU (U.K.)

d.      CARICOM

57.               Given that the Cotonou agreement allows for the negotiation and establishment of WTO-compatible trade arrangements, Saint Vincent and the Grenadines is currently engaged in negotiating an Economic Partnership Agreement (EPA) with the EU in conjunction with the other CARIFORUM Member States.  Generally, most of the country’s trade negotiations are facilitated through CARICOM (COTED) and through the Caribbean Regional Negotiating Machinery.

IV.              REGIONAL INTEGRATION:  THE ESTABLISHMENT OF THE CARICOM   SINGLE MARKET AND ECONOMY

58.               On 11^th March, 2005 by Act No. 5 of 2005, St. Vincent and the Grenadines enacted the Revised Treaty of Chaguaramas into domestic law, establishing the ground work for the creation of the CSME, signifying Saint Lucia’s firm commitment to regional integration and the Caribbean Community.  As early as 1999, Saint Lucia had implemented Phase 4 of the Common External Tariff (CET).

59.               To give effect to the provisions of the treaty, St. Vincent and the Grenadines also enacted the Caribbean Movement of Factors Bill No. 21 of 2006, The Caribbean Regional Organization of Standards and Quality Bill No. 20 of 2005, Double Taxation Agreement S.I. 195 of 2000, among others.

60.               As at July 1, 2006, The CARICOM Single Market became operational with the Common Economy expected to be in place during 2008.  However to give full effect to the treaty the Harmonization of certain laws and the legislation of regulations, such as; Competition Policy, Customs Regulations, Consumer Protection, Banking and Securities and Sanitary and Phytosanitary Measures, are still to be enacted.

61.               Transition however appears to be seamless, despite the absence of administrative structures and procedures in some important areas, particularly accreditation and the free movement of natural persons, and competition policy.

Organisation of Eastern Caribbean States(OECS) Economic Union

62.               With the signing of the Treaty of Basseterre in 1968, OECS member states have been able to collectively pool resources and work in the interest of citizens on several fronts, evidenced by a common judiciary, a regional central bank, a regional civil aviation authority, a pharmaceutical procurement body, an electrical and a telecommunications authority.

63.               The survival of small disjointed, vulnerable island states in the global market is very challenging in the absence of economies of scale, inadequate marine and air transport and renewable energy policies and programmes.  If the member states of the OECS are to maintain a competitive edge in those disciplines where synergy already exist, it is essential that steps be taken to strengthen existing alliances by deepening the already existing relationship, with the other member states of Organization of Eastern Caribbean States, (OECS).

64.               After thirty-nine years, plans are in an advance stage to forge a closer relationship through an Economic Union between our member states.  By the last quarter of 2007, a draft treaty will be put before the citizens of the sub-region for consultation.  Hopefully, the process will not be unduly protracted and the Union will come into being before our next Trade Policy Review.

V.                 BILATERAL/HEMISPHERIC AND PREFERENTIAL TRADE ARRANGEMENTS

65.               St. Vincent and the Grenadines is a member of the Caribbean Community and Common Market and has to date concluded five (5) bilateral Trade agreements:

CARICOM-Costa Rica:  A Free Trade Agreement was signed on March 2004.The agreement provides for free trade or preferential access for a wide range of products.  Some sensitive products have been excluded.  A special list of products will be granted differentiated market access between Costa Rica and each of the CARICOM More Developed Countries (MDCs).  In keeping with the 1995 decision of the CARICOM Heads of Government (16^th Conference), the GoSVG being a CARICOM LDC, does not have to reciprocate.

CARICOM-Dominican Republic:  The CARICOM-Dominican Republic Agreement provisionally entered into force in December 2001.  The Agreement between CARICOM and the Dominican Republic is based on reciprocity with the five CARICOM MDCs and non-reciprocity with the LDCs until 2005, renewable every five (5) years.  It provides for the asymmetrical application of the reciprocity principle as CARICOM LDCs are not required to reciprocate treatment.  While the Free Trade agreement focuses on trade in goods, provisions have also been made for investment and trades in services to be negotiated.

CARICOM-Cuba:  The 7th Meeting of the CARICOM-Cuba Joint Commission held on March 3-4, 2005, approved the consolidated text of Annexes I-V of the CARICOM-Cuba Agreement, reflecting amendments set out in the protocol implementing the agreement and thereby giving them legal effect as the list of products in Article V of the Agreement.  The Revised Product Lists dated August 2001 therefore replace Annexes I-V of the Agreement signed in July 2000.  St. Vincent and the Grenadines is yet to complete internal procedures to give effect to this agreement.

CARICOM–Colombia:  A Trade, Economic and Technical cooperation agreement signed July 24^th 1994.  The Colombia agreement provides reciprocal duty free treatment for select products.  As currently structured, these agreements are not comprehensive in their coverage of services trade.  Additionally, exporters complain of excessive product registration requirements which prohibit market penetration.

CARICOM-Venezuela:  A one way partial scope agreement in favour of CARICOM;  signed October 13^th 1992.  In 1998, Venezuela requested CARICOM to provide reciprocal preferential access similar to that granted to Columbia.  While the two-sides continue to discuss problems encountered by CARICOM exporters, consultation continues between the parties on possible products from Venezuela for which it would be prepared to grant reciprocal preferential access.

CARICOM-Canada (CARIBCAN):  A multilateral preferential scheme between Canada and the Commonwealth Caribbean.  Beginning June 15, 1986, the Commonwealth Caribbean enjoyed duty free access to the Canadian market for most commodities originating in the Commonwealth Caribbean.  This agreement was subject to WTO waiver, expiring in December 2006.  The Canadian Government has secured an extension which will now expire in 2011.  Discussions towards the negotiation of a Free Trade Agreement between Canada and CARICOM have been ongoing since 2001.

Cotonou Agreement:  St. Vincent and the Grenadines is a beneficiary to the commitments of the Lomé convention and its subsequent updates and modifications.  Lomé expired in February 2000 but was replaced with the Cotonou Agreement (CA) which was ratified by GoSVG in January 2000.  The CA has a life span of twenty years and contains a clause for revision every 5 years.  The trade preferences under Cotonou are however contingent on a WTO waiver scheduled to expire December 31, 2007.  The Cotonou Agreement therefore provides for the entry into force of Economic Partnership Agreements with the European Communities by January 1, 2008. Accordingly, St. Vincent and the Grenadines is currently negotiating the EPA with the EC as part of the CARIFORUM region.

VI.              MULTILATERAL FRAMEWORK – THE WTO AND THE URUGUAY ROUND

(i)                 Implementation of the Uruguay Round Agreements

66.               St. Vincent and the Grenadines has no specific Uruguay Round legislation, but many of the WTO Agreements have been incorporated into domestic law in a number of Acts of Parliament and various Regulations.  Since 2001, the trade policy of St. Vincent and the Grenadines has undergone substantial changes, in response to regional and international developments, and as a result has become more open and transparent and WTO compliant.

67.               St. Vincent and the Grenadines has been active in the WTO in the context of the Doha Development Round, (DDA).  In the negotiations, the GoSVG has strongly advanced the argument that special and differential is integral to the negotiating process.  It has also joined with other members of the CARICOM in advocating non-reciprocity in NAMA and for flexibilities for small and vulnerable economies in the negotiation process.  THE GoSVG has also highlighted the need for the negotiations to take account of the consequences of preference erosion for developing and particularly Small Vulnerable Economies.  St. Vincent and the Grenadines has supported a request by a number of developing members of the WTO for an extension of time for providing export subsidies until 2015, with the scheduling of the phasing out to commence in 2010.

68.               St. Vincent and the Grenadines regards these subsidies as important to help it fuller integrate into the multilateral system, given what it views as weaknesses associated with its status as a "small and vulnerable economy".  St. Vincent and the Grenadines has also attempted to advance the DDA agenda generally, in the context of its UN membership. 

69.               In the ACP-EU joint ministerial sessions, St. Vincent and the Grenadines has lent support to regional and wider ACP efforts to encourage a successful conclusion to the Doha Round.

Implementation of the Uruguay Round Agreement

(a)                Trade in Goods

70.               Prior to 2001, the GoSVG trade policy placed much effort on trade in goods as part of an import substitution strategy and policy prescription of the World Bank for promoting economic development.  The strategy was implemented through a system of tariffs and non – tariff barriers designed to enable the manufacturing and agricultural sectors to become internationally competitive.

71.               SVG has applied the Common External Tariff ( CET) since February, 1991, and implemented phase IV of the CET on 1st January 1998.  While tariff levels and changes are agreed at the CARICOM level, the final authority to tariff changes rests with Parliament.  Derogations to agreed rates are approved by the Council on Trade and Economic Development (COTED) of CARICOM.

72.               St. Vincent’s schedule (tariff), as applied  in 2006, is based on the Harmonised Commodity Description and Coding  System and comprised 6, 274 Tariff lines at the ten–digit level.  The tariff has nine (9) tiers, with rates 0 – 40%. Almost one – third of tariff lines on agricultural products are subject to a rate of 40%;  and the maximum applied rate on non- agricultural goods is 20%.  As a rule domestic applied rates are in most cases lower than the CET with several products zero (0) listed.

73.               In terms of tariff binding, customs duties for all tariff lines were bound during the Uruguay Round with the exception of tariffs on imports of industrial products(HS 25-97) at a uniform rate of 50%, with over 200 exceptions at the HS four, six, seven or eight digit levels;  Non – Agricultural products included in list C, which are exceptions to the CET, were bound at higher rates, e.g., automobiles were bound at rates between 100% and 140%, according to the category.  Agricultural products were bound at a ceiling level of 100% with some exceptions above the rate, which ranges between 107% and 250%.  The column “other duties and charges” in the schedule was left blank, and this is equivalent to having entered “zero”. No previous tariff commitments were made under the GATT.

74.               During the period under consideration, much efforts were directed towards upgrading custom procedures documentation and registration and exchange controls measures: documentations are no longer processed manually, but electronically, using the ASYCUDA World system.  This will allow for electronic filing of entries, a reform that will facilitate trade.  ASYCUDA not only facilitates electronic filing but also computes the duties and taxes payable.  There were no quota restriction on imports and likewise there are no variable levies imposed on imports.

75.               The 2006 budget Address acknowledged that trade negotiations now, underway will force the GoSVG to rationalise the system of granting duty-free concessions in order to maximize on the value of the revenue loss from these waivers. Government intends to lower the level of concessions granted to 50% of the import duties and consumption tax payable to specific categories.

76.               The import –licensing regime of St. Vincent and the Grenadines are guided by Customs procedures and regulations found in the Customs (Control and Management) Act No. 14 of 1999, and the Customs (Control and Management) Amendment Act of 2007.  The GoSVG intends to review its import licensing regime in an attempt to rationalise the Import and Export (Control) Regulations # 10 of 1992, as it relates to minimising the List.  Changes would also be introduced to the licensing of imports from other CARICOM countries.

(b)                Other Levies and Charges

77.               This category includes Consumption tax, Excise tax, Environmental tax and Stamp duty.  In its 2006 Budget Address, the GoSVG sought to abolish/repeal seven (7) taxes with the introduction of the Value – Added Tax Act No. 25 of 2006 which was initially scheduled to be implemented in January 2007.(later introduced on 1^st May 2007).  These taxes were the consumption duty (import), consumption duty (local), international telecommunications surcharge, domestic telecommunications surcharge, hotel tax, stamp duty (receipts), and entertainment tax.

78.               The VAT is assessed at 15% on taxable supplies and taxable imports;  a reduced rate of 10% is imposed on hotel and holiday accommodation and few exemptions in the Zero-rated and exempted list.  This tax system, it is envisaged, will simplify the administration and collection of taxes in SVG.  The Value Added Tax Act No. 25 of 2006 determine how the tax will be imposed.  A VAT Unit has been established by the Inland Revenue Department to implement the new tax system.  The Inland Revenue Department will be responsible for the administration of VAT and the collection of all domestic taxes while the Customs and Excise Department will be responsible for the collection of taxes on international trade.

79.               A new excise tax on 15 types of goods also took effect on the 1^st May 2007, in addition to the VAT.  These taxes apply to various types of alcohol, tobacco, fuels, vehicles and parts, and incandescent bulbs.

80.               The Trade (Bottle Deposit Levy) Act # 13 of 1991, (amended by Act # 3 of 1993 and Act # 4 of 1993,Act # 3 of 1998 and # 8 of 2002) provides for a refundable levy on beer, malt, stout, ale, aerated beverages and juices in non- returnable bottles or cans at a rate of EC$0.50 cents per bottle or can.  There has been an excise equalisation tax on CARICOM rum at specific rates, but it was abolished as of 1^st May 2007.

81.               There was no change to vehicle surtax, which is an environmental tax payable on motor vehicles over four (4) years old.

(c)                Technical Regulations and Standards

82.               The GoSVG is aware that in order to promote an aggressive national export strategy and industrial development policy for the economy, the development and promotion of internationally recognized standards and best practices are imperative.  During the period under review, the parent Ministry of the SVGBS became the Ministry of Telecommunications, Science and Industry.  The constitution of the National Standards Council (NSC) appointed by cabinet to administrate the general affairs of the Bureau was reviewed to allow for appointments from the public and private sector.

83.               There are no certification bodies in St. Vincent and the Grenadines but the SVGBS is authorized to certify products and services by providing certificates for conformity with labeling standards (these include; labeling of domestic electrical appliances, pre-packaged foods/goods and brewery products.  The SVGBS may also grant license to use the SVG Standard Mark where there is a domestic standard for the product.  The Standard Mark is the property of the Bureau.

84.               During the period under review, the SVGBS has developed forty –one (41) SVG National Standards, of which six (6) were compulsory technical regulations, labelling five (5) and specification for tyres (1).  Since 2001 twelve (12) standards covering areas of construction materials and food products have been recommended by the Council to be declared as Technical Regulations.

(d)                Sanitary and Phytosanitary Measures

85.               During the period under review, a bill to supersede the Plant Protection Bill of 1988 was introduced in 2004.  The Plant Protection Act No. 15 of 2005 was notified to the WTO Committee on Sanitary and Phytosanitary Measures (SPS) as an Act designed to prevent the introduction and to control the spread of plant pest, to protect plant resources, facilitate trade in plants and plant products and to regulate matters.  To this end, there have been some administrative changes for the establishment and implementation of Sanitary and Phytosanitary measures.

86.               Under present arrangement, the Ministry and Agriculture, Forestry and Fisheries addresses issues of phytosanitary and sanitary measures in agriculture, livestock and crops.  The Ministry of Health and the Environment has responsibility for sanitary measures as it relates to health and food safety.  In this new arrangement, and in keeping with the WTO’s International Commission on Phytosanitary and Sanitary Measures, the focal point for St. Vincent and the Grenadines on Phytosanitary measures is the contact person or designated head of the newly established National Plant Protection Organisation (NPPO).  The Plant Protection Act of 2005 delegates the Ministry with responsibility for Agriculture as the designated National Plant Protection Organisation.

87.               Further to this, the Ministry of Agriculture has prepared a draft Bill to be read in Parliament in 2007 on matters pertaining to ‘Agriculture Health and Food Safety’.  Another Bill that is in the drafting stage pertains to “SVG Animal (National and International) Movement and Diseases” relating to anti -mortem and post - mortem inspections.

88.               St. Vincent and the Grenadines in 2007 have noted with grave concern the proliferation of standards developed by private interest groups without reference to SPS Agreements or consultation with national authorities.

(e)                Trade in services

89.               Under the Uruguay Round of trade negotiations, St. Vincent and the Grenadines committed five (5) areas of service activity:  tourism and tourism –related services, recreational and sporting services, financial (re-insurance), and marine transport services for liberalisation.  St. Vincent and the Grenadines did not participate in the continued WTO negotiations on telecommunications nor in the continued negotiation on financial services.

(f)                 Trade – related intellectual property rights

90.               Legislation governing intellectual property rights existed since 1998.  The Commerce and Intellectual Property Office (CIPO) became operational in March 2004, as a statutory agency formally established in December, 2003, under Act No. 43 of 2003.  CIPO functions as regulator of trade names, unincorporated associations, and domestic and external companies.  Domestic legislations, regarding copyright, trademarks, geographical indications, industrial designs, undisclosed information, and layout designs have been updated between 2003 and 2005.

91.               St. Vincent and the Grenadines is a member of the World Intellectual Property Organization (WIPO) and a party to a number of intellectual property conventions.  In August 2002 SVG signed on to the patent Cooperation Treaty (1970) bring the total membership in international instrument on IPR to four (4).

92.               The Legal Affairs Ministry and the Commerce and Property Rights Office continue to experience institutional capacity challenges in meeting the legislative needs of the country.

(ii)               Technical assistance

93.               St Vincent and the Grenadines proposes that any initiative towards the development of Aid for Trade within the context of multilateral negotiations must assist in building an environment where Small Island Developing States can improve their competitive position through enhanced supply- side capacity and trade-related infrastructure.

94.               Since 2001 the sectors that traditionally contributed to economic growth have declined considerably.  The Agricultural sector in St. Vincent and the Grenadines has been plagued by a number of setbacks including the recent discovery of the Moko disease (Bacterial wilt of banana caused by Pseudomonas solanacearum) which would further decimate the struggling Banana industry.

95.               Manufacturing continues to be plagued by the high cost of electricity and overhead charges.  The price for electricity is non competitive as it soars at US$0.38 cents per KWh. compared to US$0.6 cents in Trinidad and Tobago.  This price is amongst the highest in the region and does not favor export – oriented enterprise. Identifying and promoting affordable renewable sources of energy is critical to the survival of small businesses.  Another major challenge is the lack of readily available marine transport within the sub –region that will facilitate the affordable movement of goods and people.

96.               The development of a regional maritime infrastructure is deemed critical to intra regional trade.  Developing the logistical framework could be supported under an aid for trade program.  Simultaneously environmental (tourism) and renewable energy supply issues would greatly enhance competitiveness of the small productive sector which has emerged as a replacement to our declining agro sector. 

97.               Other constraints within the domestic operating environment, has to do with the high cost of obtaining certification, such as ISO or HACCP standards for small enterprises.  There is also limited access to export credit guarantee schemes and low interest finances for production activities.  Venture capital for businesses incubation would also help entrepreneurs diversify their production base and re-engineer their operations.  Seed Capital Funds that invest in innovative smaller companies with strong growth and employment potential would also go a long way to addressing poverty alleviation while creating employment particularly in rural communities.

98.               Lastly, there is a need for a permanent OECS technical mission in Geneva to adequately represent the interest of the sub region.

(iii)             Aid for trade

99.               Trade liberalisation and the decline of the Agricultural sectors have reversed the gains that were achieved in the decades leading up to the period under review.  Export of goods has rapidly declined and a heavy dependency has been placed on trade in services as a main contributor to GDP.

100.            The Government of St. Vincent and the Grenadines recognizes that Aid for Trade should create the enabling conditions for member states through the promotion of enterprise development and innovation.  This should take into account the developmental priorities through technical assistance while distinctly focusing on programs that address wealth creation, distribution and in country value adding.  It is therefore opined that this form of assistance should be geared at reducing the impact or multilateral trade liberalisation while maximizing the benefits of production synergies through:

·         Capacity-Building in Export Strategy Design and Management

·         Capacity-Building in Trade Information Management and Market Analysis

·         Capacity-Building in Quality Management and Standards for Trade and Services Development.

101.            Trade related assistance should therefore be unconditional, demand driven, not related to any previous trade negotiations and incremental to existing programs.  In this regard, such arrangements would mean non- reciprocity with developed countries. The Government of St. Vincent and the Grenadines remains committed to the process of liberalization.  The limited progress Small Developing Island States have made in realizing true benefits from trade liberalization have been stymied by the unequal relationships with developed countries.

VII.           CONCLUSION

102.            The continued erosion of trade preferences has not helped the already vulnerable small economies of the region.  The member states are facing renewed challenges to find solutions to improve economies of scale.  However, the tide of globalisation continues to erode the progress that has been made.

103.            Consequently, the socio-economic dislocation caused by the decrease in competitiveness requires creative response measures if Small and Vulnerable Economies are to survive in the global environment.  Within the limits of their depleting resources these countries will continue to strive to be compliant. 

104.            In light of these realities, St. Vincent and the Grenadines fully endorses the clarion call for aid for trade.

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