Home' Trinidad and Tobago Guardian : April 24th 2014 Contents BG12 | REGIONAL
BUSINESS GUARDIAN www.guardian.co.tt APRIL 2014 • WEEK FOUR
Disagreement over whether a controversial
investor-state dispute settlement (ISDS) mechanism
will be included in a new trade deal between Canada
and The Bahamas has emerged as a point of con-
tention between the two countries in the protracted
negotiations, Minister of Financial Services Ryan
Pinder has disclosed.
An ISDS clause gives foreign investors the right
to sue a government if the company s business
interests and investment returns are adversely affect-
ed by national policies.
Proponents of ISDS have argued that it allows
investors to protect their investments in situations
where the judicial system of the host country may
be weak or lacks independence, and that states and
their governments are bound by public international
law, which includes bilateral investment treaties
and international investment agreements.
International opponents, who first stood up
against the clause when it was included in the
North American Free Trade Agreement (Nafta), say
it allows big businesses to run roughshod over
national interests in areas ranging from health to
labour rights and environmental protection.
In a recent forum on The Bahamas accession to
the World Trade Organisation (WTO), Pinder said
the government has concerns about the implications
of including such a clause in the Caribbean-Canada
Trade Agreement (CARIBCAN), which is now being
renegotiated by Caricom (Caribbean Community)
on behalf of the region with Canada.
The agreement covers trade in goods as well as
services and investments. Presently, Canada already
has a significant presence in The Bahamas as an
investor in the financial services sector, with Sco-
tiabank (Bahamas), RBC (Bahamas) and CIBC First-
Caribbean International Bank (Bahamas) all being
"That s one area of negotiation ongoing now with
Canada and Caricom, because Canada wants an
investor-state dispute clause where investors can
potentially sue the government. Well, we take a
little bit of a different position on that, where if
we negotiate that we can maybe carve out for cor-
ruption and fraud and those types of things, but
who knows if you leave it too open ended what the
result is," said Pinder.
He compared the demand from Canada with the
WTO s approach to similar situations. Under WTO
rules, a company must persuade a sovereign nation
that it has been wronged, leaving the decision to
bring a trade case before the WTO in the hands of
elected governments, avoiding the prerogative of
corporations to unilaterally bring trade cases against
sovereign countries; a potentially significant legal
burden for a small country like The Bahamas.
While it withstood opposition during the nego-
tiation of Nafta, the ISDS clause has become increas-
ingly controversial on an international scale.
A recent article in Forbes.com highlighted eight
reasons why the US government should "purge"
demands for ISDS from the Trans-Pacific Partner-
ship (TTP) and Transatlantic Trade and Investment
Partnership (TTIP) negotiations that it is presently
The article is based on a paper recently published
by the Cato Institute, a libertarian, pro-free trade
think tank, which claims that demands for the ISDS
have derailed US advances towards further trade
Peckish revelers at Lollapalooza,
a big music festival in São
Paulo earlier this month, were
in for a treat. In contrast to
past years menus of reheated
hamburgers, they could opt
for pulled pork, barbecued ribs or corn on
the cob, courtesy of BOS BBQ, a Texan eatery
in the city.
More surprising than the fare, however,
was the pace at which BOS s two tents dished
it out. In the course of two days the booths,
each manned by six people, served 12,000
portions, or more than one every 15 seconds,
boasts Blake Watkins, who runs the restau-
Such efficiency is as welcome as it is
uncommon. Neighboring stands needed two
to three minutes to serve each customer, lead-
ing to lengthy lines and growling stomachs.
"The moment you land in Brazil, you start
wasting time," laments Watkins, who moved
to the country three years ago after selling a
fast-food business in New York.
To be sure of having at least 10 temporary
workers at Lollapalooza, he hired 20; and,
sure enough, only half of them turned up.
Lu Bonometti, who opened a cookie shop in
an affluent neighborhood of São Paulo 18
months ago, has commissioned four different
firms to fix her shop sign. None has come.
Few cultures offer a better recipe for enjoy-
ing life, but the notion of opportunity cost
seems lost on most Brazilians.
Lines, traffic jams, missed deadlines and
other delays have been so ubiquitous for so
long that "Brazilians have become anesthetised
to them," according to Regis Bonelli of Fun-
dação Getulio Vargas, a business school. On
April 12, when the head of the state-owned
operator of the airport in Belo Horizonte sug-
gested that large chunks of it will not be refur-
bished in time for the soccer World Cup in
June and should simply be "veiled," his remark
elicited no more than a shrug of resignation.
Apart from a brief spurt in the 1960s and
1970s, Brazil s output per worker has either
slipped or stagnated for the past half century,
in contrast to most other big emerging
economies. Total-factor productivity, which
gauges the efficiency with which both capital
and labor are used, is lower now than it was
Labor productivity accounted for 40 per
cent of Brazil s GDP growth between 1990
and 2012, compared with 91 per cent in China
and 67 per cent in India, according to McK-
insey, a consultancy. The remainder came
from an expansion of the work force as a
result of favorable demography, formalization
and low unemployment. This will slow to 1
per cent a year in the next decade, Bonelli
says. If the economy is to grow any faster
than its current pace of 2.0 per cent or so a
year, Brazilians will need to become more
Economists trot out familiar reasons for
the performance. Brazil invests only 2.2 per
cent of its GDP in infrastructure, well below
the developing-world average of 5.1 per cent.
Of the 278,000 patents granted last year by
the United States patent office, only 254 went
to inventors from Brazil, which accounts for
3.0 per cent of the world s output and people.
Brazil s spending on education as a share of
GDP has risen to rich-world levels, but edu-
cational quality has not, with pupils among
the worst-performing in standardiSed tests.
Watkins complains that his 18-year-old bar-
becuers have the skills of 14-year-old Amer-
Less obviously, many Brazilian companies
are unproductive because they are badly man-
aged. John van Reenen of the London School
of Economics found that, although its best
firms are as well run as top-notch American
and European ones, Brazil---like China and
India---has a long, fat tail of highly inefficient
Preferential tax treatment for firms with
turnovers of no more than US$1.6 million
has reeled many irregular enterprises into the
formal economy, but it discourages companies
from growing. As big fish in areas such as
retail make efficiency gains, they need fewer
workers, who instead swell the shoals of less-
productive minnows. Many hire trusted rel-
atives or friends rather than better-qualified
strangers, to limit the risk of being robbed or
being sued by employees for flouting noto-
riously worker-friendly labor laws. The upshot
is even more inefficiency.
Instead of collapsing, feeble firms plod on
thanks to various forms of state protection,
which shields them from competition. Pro-
tectionism weighs on productivity in other
ways too. Punitively high tariffs on imported
technology, such as the whopping 80-per
cent cumulative tax slapped on foreign smart-
phones, make many productivity-enhancing
gizmos prohibitively expensive, says José
Scheinkman of Columbia University in New
York. Rather than buy cheaper and better
products from abroad, firms have to pay pre-
mium prices for lower-quality local ones.
Marcos Lisboa of Insper University believes
that historical evidence points to a solution.
The period of catch-up in productivity growth
began in the 1960s, following a bout of liberal
reforms engendered by years of near-autarkic
industrial policy. A smaller uptick in the early
2000s also followed liberalizing measures,
enacted a decade before to stave off hyper-
Success notwithstanding, both the military
dictatorship of 1964-1985 and the leftist
Workers Party, which has held the presidency
since 2003, soon reverted to interventionist
type. Recently this has meant local-content
requirements, subsidised fuel, subsidised elec-
tricity and overweening regulation. Produc-
tivity has duly sputtered.
Lisboa highlights two salutary examples
from recent years. Agriculture was deregulated
in 1990, allowed to consolidate and gain access
to foreign machines, fertiliser and pesticides.
A few years later financial services enjoyed
far-reaching institutional reforms to boost
the supply of credit and bolster capital markets.
Both were left in peace, and became roughly
4 per cent more efficient each year in the
decade that followed. Brazilian soybean pro-
ducers are now the envy of the world, and
Watkins praises the banking system as some-
thing that works more quickly in Brazil than
it does in the United States.
Regulation is always hard to unwind, Lisboa
concedes. However, if Brazil is to grow beyond
2020, when its working-age population will
begin to decline as a share of the total, it will
have to tackle its productivity problem.
Until it does so, it risks falling into an ever-
@2014 The Economist Newspaper Ltd.
Distributed by the New York Times Syn-
Brazil's 50-year snooze
clause in Bahamas
Continued on Page 13
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