Tuesday, September 27, 2022

CPSO’s threat to challenge Guyana’s Local Content Act

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Summary

  • Based on the discussion and analysis contained herein, the CARICOM Private Sector Organisation (CPSO) appeared to be grossly misguided and thus its stance can be construed as being disrespectful to the Guyanese private sector and Guyana as a country. This is by virtue of the CPSO’s failure to engage in any meaningful dialogue on the matter during the consultation period leading up to the finalization of the Local content Act.
  • The analysis conducted herein found that Guyana’s Local Content Act did not violate any provision of the Treaty.
  • There are in fact protectionist measures that countries can adopt that is provided for within the Treaty, to develop new industries and disadvantaged sectors.
  • Guyana’s Local Content framework is no different from that of Trinidad & Tobago, and in fact, Trinidad & Tobago’s Local Content framework is arguably more stringent than Guyana’s.
  • In view of the findings and conclusion of this analysis, it is this author’s unapologetic view that instead of the mediocre damage control statement issued, a wiser and respectful damage control stance by the CPSO would have been a statement of withdrawal of any attempt to challenge the Act, and, stating categorically the apex body’s respect for the Act and encourage its members to comply with the LCL.

Background

This author is profoundly taken aback by the threat by the CARICOM Private Sector organization to challenge Guyana’s Local Content Act. In what appeared to be a leaked email, the Executives of that body are contending that the legislation appear to violate several provisions of the Revised treaty of Chaguaramas.

Following this, the CPSO issued a poorly constructed damage control press release on January 13th 2022 which failed to highlight the specific Articles in the Treaty that are violated.

Discussion and Analysis

It is worthwhile to note that Trinidad & Tobago is a mature petroleum producing state in the region, having been involved in the oil and gas business for more than 100 years, naturally has a far more stringent local content legislative, regulatory and policy framework than Guyana.

The table below briefly illustrates Trinidad’s approach to maximizing local content participation, which is not different from the caveat of Guyana’s local content policy. Particularly, Trinidad’s local content emphasizes “give preference, firstly to locally owned, controlled and financed enterprises, and then those that demonstrate a clear culture, commitment and capacity for maximizing local value-added, participation and capability development, consistent with the country’s aspirations and vision.”

In the case of Guyana, the Act promotes virtually the same thing, preference for locally owned and control companies first and then any other.

Importantly, the Act in no way prevents any CARICOM enterprises to operate in Guyana. The Act merely carved out 40 services where Guyanese owned and controlled companies ought to be given first preference.

Obviously, at any point in time for practicable reasons where Guyanese suppliers are unable to meet the demand in the sector, then the operators in the oil and gas sector will then have to solicit those goods and services elsewhere. The Local Content Act provides for this flexibility in the event this type of situation should arise.

The Revised Treaty of Chaguaramas

It is ironic though that this charge is led by one or two Trinidadian regional conglomerates through the CARICOM private sector body – an attempt to make out a case against Guyana for violation of the treaty, when in fact for many years, it is Trinidad & Tobago that has been and continues to be in violation of the treaty / CSME against Guyana.

For example:

  • Ban on importation of poultry meat from Guyana
  • Transshipment of honey
  • Denial of importation of items already approved for importation into Trinidad
  • Lengthy registration process for pharmaceuticals
  • Trade in Equine
  • The application of hypochlorous acid on eddoes
  • Revision of the Guyana – Trinidad and Tobago Fresh Agricultural Produce and Forest Products Trade Protocols of 2009

The general objectives of the treaty or the CARICOM Single Market Economy (CSME) are stated as follows:

  • Improve standards of living and work;
  • Full employment of labour and other factors of production
  • Accelerated, coordinated and sustained economic development and convergence;
  • Expansion of trade and economic relations with third States;
  • Enhanced levels of international competitiveness;
  • Organization of a greater measure of economic leverage and effectiveness of Member States in dealing with third States, groups of States and entities of any description;
  • Enhanced functional co-operation, including –
  • More efficient operation of common services and activities for the benefit of its peoples;
  • Accelerated promotion of greater understanding among its peoples and the advancement of their social, cultural and technological development;
  • Intensified activities in areas such as health, education, transportation, telecommunications.

The Revised Treaty of Chaguaramas constitute 240 Articles or for simplicity, provisions. Yet, the CARICOM private sector organization failed to point out a single Article which they are contending that the Guyana Local Content Act violates.

Having examined the revised treaty, one can only assume that the violation which the CARICOM private sector organization is referring to is some form of restriction. To this end, Article 32 speaks to the prohibition of new restrictions on the right of establishment where members States shall not introduce in their territories new restrictions relating to the right of establishment of nationals of other Members States save as otherwise provided in this Treaty. Article 37 speaks to the removal of restrictions on the provision of services; Article 44 of the treaty speaks to measures to facilitate establishment, provision of services and movement of capital.

Of note, the Local Content Act is not discriminatory in any form neither does it preclude the establishment of any company from a Member State. In fact, the companies that are seeking to challenge the Act are already established in Guyana and are involved in the provision of a variety of goods and services ranging from insurance, automotive, retail and distribution, etc.

For clarity, new companies from member States seeking to enter into the Guyana market are also not precluded. In this regard, any new company can enter the market and is obligated to comply with Guyana’s laws. The Act further provides for and promotes joint venture (JV) arrangements wherein any company from Member States can partner with local companies through this form of strategic partnership. Hence, by virtue of these elements enshrined within the Local Content Act, and which are no different from those of Trinidad & Tobago’s local content framework, the Act has in no way or form violates any provision set out in the Treaty.

Furthermore, there are several other Articles in the Treaty that are designed to protect individual Member States that are considered less developed economies and for disadvantaged sectors. Essentially, to promote and stimulate the economic development of the Member State.

According to the revised treaty, “disadvantaged sectors” means:

  • Sectors of the economies of Member States in which economic enterprises experience dislocation from the operation of the CSME; or
  • Sectors that may require special support measures of a transitional or temporary nature by reason of natural disasters, whereby the loss in the sector causes social and economic disorder.

Article 47, for example, speaks to restrictions to resolve difficulties or hardships arising from the exercise of rights.

“Where the exercise of rights granted under this Chapter creates serious difficulties in any sector of the economy of a Member State or occasions economic hardship in a region of the Community, a Member State adversely affected thereby may, subject to the provisions of this Article, apply such restrictions as it considers appropriate in order to resolve the difficulties and alleviate the hardships.”

Article 49 speaks to special provisions for less developed countries. Despite that under the Treaty Guyana is classified as a more developed country, when compared to Trinidad & Tobago, it can be strongly argued that Guyana is a far less developed country than Trinidad & Tobago. In this respect, Trinidad & Tobago’s GDP is US$20b, per capita income is approximately US$20k whereas Guyana’s GDP pre-oil is just about US$4b and per capita income of less than US$5k.

This effectively translate to Trinidad & Tobago being four times richer than Guyana both from a GDP and per capita income standpoint. It can also be argued that the average company in Trinidad is 4 times richer than the average locally owned company in Guyana. This can be easily verified by looking at the private sector deposits in the banking sector for both countries. Hence, by these metric Guyana is regarded a lesser developed country than Trinidad & Tobago.

Article 53 speaks to micro and small economic enterprise development. This Article further states that (1) “the Community shall adopt appropriate policy measures to encourage the development of competitive micro and small economic enterprises in the Member States.” (2) “Without prejudice to the generality of the foregoing, the competent Organ shall encourage policy initiatives and the establishment of effective programmes to foster a facilitative legal, economic, and administrative framework in Member States to enhance micro and small economic enterprise development…” Under this Article, even the largest locally owned company in Guyana can be considered a micro enterprise compared to those companies that are four times richer in Trinidad & Tobago. The Local Content Act is an Act that provides measures and initiatives to ensure the development of micro and small enterprises in Guyana. By virtue of allowing for there to be JVs is one such initiative through which local companies can partner with Trinidadian companies to build capacity and enhance competitiveness to compete in the oil and gas sector. There are in fact quite a number of local companies that have partnerships with Trinidadian companies.

Article 151 speaks to support for sensitive industries: COTED may authorize Member State having a sensitive industry which can be disadvantaged by the operation of the CSME to suspend community treatment to products of other Member States.

Article 154 which speaks to promotion of development: COTED shall promote the establishment of infrastructure in a disadvantaged country, region or sector to encourage or stimulate economic activity. COTED may also adopt measures for the establishment of new industries or for the retooling, expansion of existing industries in a disadvantaged country, region or sector. In the case of Guyana, the oil and gas sector fall under this category where it is a nascent industry and a disadvantaged sector for the indigenous private sector.

The Local Content Act which was developed through a robust consultation process inclusive of all stakeholders especially the local private sector, is designed to help develop Guyanese suppliers and to ensure maximum benefit from the oil and gas activities are realized firstly for Guyanese.

Conclusion

Based on the foregoing analysis of the Revised Treaty of Chaguaramas, Guyana’s Local Content Act does not violate any of the Articles. In fact, it can be argued rather strongly that there are several provisions in the Treaty that speaks to protectionist measures for disadvantaged sectors of Member States economies and lesser developed countries. Though Guyana is classified as a more developed State in the Treaty, Guyana is a lesser developed country compared to Trinidad and Tobago using several economic metrics.

Notwithstanding the above conclusion, the Local Content Act does not preclude or impose any sort of restriction for companies in other Member States seeking to enter Guyana. The Act has flexibility mechanisms and provides for Joint Venture arrangements with local companies through which companies in other member states can participate in the local industry.

Finally, it is this author’s unapologetic view that instead of the mediocre damage control statement issued, a wise damage control stance would have been a statement of withdrawal of any attempt to challenge the Act, and, stating categorically the apex body’s respect for the Act and encourage its members to comply with the LCL.

About the Author

Joel Bhagwandin is a financial analyst with over fourteen years’ experience in commercial banking, the financial sector and private sector development combined. During this time, he has accumulated more than five years of professional experience in providing consultancy services in the areas of financial and business advisory solutions to both large corporations and SMEs and eight years managerial experience. Throughout his career, he has thus far contributed to the growth and development of SMEs by helping them to raise funding from within the local capital market. To this end, he has helped SMEs and other larger corporations to successfully raise more than GY$6 billion (US$30 million) in both long-term capital investments and short-term working capital financing.

Additionally, Joel is actively engaged in academic research work on a range of economic and finance issues in Guyana. In this regard, he has authored more than 300 articles on economic and finance issues, and policy analysis.

He currently holds several leadership portfolios in the private sector; he is a Non-Executive Director of the Guyana Oil & Gas Energy Chamber (GOGEC), and Chairman for the Local Content Sub-Committee of the American Chamber of Commerce Guyana (AmCham). He is the former Executive Director (a.g) of the Private Sector Commission, the apex private sector body in Guyana and a former Senior Manager, Strategy and Transactions with Ernst & Young (Guyana).

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