Gov’t should create local content policy supporting competitiveness and protection within WTO parameters

Dear Editor,

Discontentment seems to be growing in private sector and other influential circles over the pace with which Local Content Legislation/Policy formulation and implementation are moving. It is probably this discontentment expressed both publicly and privately, that has evinced recently, a number of pronouncements on Local Content Policy (LCP) by government officials, private sector and locally-based ExxonMobil representatives as well as by sections of the local media. A post by Mr. Timothy Tucker, President of the Georgetown Chamber of Commerce and Industry on his Facebook account expressing his view on the subject stood out.

Mr. Tucker was kind enough to make public an extract from a World Bank Report pertaining to LCP. For the benefit of readers, I consider it necessary to repeat his extract from the World Bank document: ‘As with TRIMS, (Trade Related Investment Measures), GATS (General Agreement on Trade in Services) has provisions for ‘Special and Differential Treatment’ (S&DT) of developing countries which allow for certain exceptions from the general rules. In addition, there are provisions that allow flexibility to encourage foreign suppliers to assist in technology transfers and training through offsets (of particular relevance to the designs of LCP’s). Offset transactions are contractual conditions that require the seller (usually a foreign supplier) to transfer additional economic benefits to the buyer (usually a host government or domestic company) as a condition for the sale of a base good or service. Offsets include preferential hiring and training of nationals, preferences for local sourcing, encouragement of inward investment, support for domestic suppliers to develop future competitiveness, and support of the development of operational infrastructure to be made available for public use (for example, roads, power, water supply, and so on).

Therefore, LCP’s that encourage offset activities in countries that benefit from S&DT would not be in breach of such countries WTO commitments.’ This is sound technical advice coloured with strategic and political connotations. Mr. Tucker ‘rounds off’ the excerpt with his own take that read: ‘Local Content is (a) citizen’s right to benefit from ‘their’ natural resources but like everything in Guyana we got to wait long for it, five months then election results six years for local content.’ Based on statements made, ExxonMobil is not awaiting any local content legislation. Indications are that the company is rolling out its own Local Content Policy through capacity development rather than through legislation. As the minister who was once responsible for superintending the negotiations at the WTO on behalf of CARICOM (20022005), this matter provoked my interest.

CARICOM countries have generally not used WTO flexibilities to their fullest extent. While the World Bank is correct in its interpretation of TRIMS and GATS, the key issue is to avoid breaching WTO National Treatment obligations and ensuring that local businesses do not become ‘hewers of wood and drawers of water’ operating on the periphery of a dynamic and growing industry in particular and the Guyanese economy in general. LCP’s can be designed in such a way that they do not breach WTO obligations, however, for the avoidance of doubt, a country’s LCP can come under close scrutiny by other WTO members. A few examples will suffice; At the WTO Committee on TRIMS, China’s local content provisions on cyber security measures came under scrutiny by WTO members following a claim that the measures could violate Chinese WTO obligations. Also, Indonesia’s Local Content measures came under the microscope following concerns expressed over its measures applicable to mining, oil, gas and solar in particular. Indonesia has been called upon not restrict the flow of foreign goods into the country including from developing countries

Russia and Argentina have also come under scrutiny. Argentina in respect to fiscal measures granted to private companies and Russia as regards import substitution and giving priority to Russian sourced goods and price advantages. Legislation or no legislation, policy makers and private sector advocates of LCL/P should learn from these countries’ experiences and work together to create special carve-outs for local businesses while ensuring that they do not place the country at a disadvantage at the WTO. The recent statement issued by the GCCI, begs the question whether local content is better realized through capacity development rather than via legislation. Rather than allowing it to raise eyebrows it should be put for public debate. In this respect, the Acting President’s statement on September 24, to the effect that ‘Structured Local Content Policy can be a conduit to benefits for all Guyanese’ is instructive especially when juxtaposed against the concerns raised in the S/N editorial of October 1, 2021; ‘Helter-skelter into an oil economy.’

In the final analysis, the fundamental question is, whether local content policies are achievable through capacity development rather than legislation or both. Some countries have successfully developed their oil services sector making it sustainable by offering some protection to local businesses within the meaning of S&DT. At the same time, pursuance of such a policy on the basis of National Treatment would allow local businesses in the oil services sector to grow into a national and potentially, an export industry in their own right. Trinidad and Tobago’s export of significant segments of its oil services sector to Guyana such as transportation, insurance, logistics and human resources are good examples to note. Compounding the issue further was ExxonMobil’s announcement that it will move its T&T operations to Guyana. Realization of this move will bring into sharp focus the whole question of National Treatment. The debate over the urgency/necessity for Local Content legislation has missed three important considerations: the first is, whether such legislation is fundamentally necessary at this point in time; second, is whether the policy should be statutorized for a specific period of time and thirdly, whether LCP should be driven exclusively and unilaterally by foreign operators in the oil and gas sector.

My own view is that government should create sufficient policy space that allows it to implement its local content policies that, on the one hand, support competitiveness while on the other, offer some protection, within the meaning of WTO flexibilities to indigenous infant industries in the oil and gas sector allowing them to grow and develop future competitiveness. Competitiveness aside, in the midst of all the excitement over what “Makes good business sense” (and what does not) the biggest challenge is to avoid the ‘Dutch Disease’ the contours of which some feel are already emerging. In this respect, concubinage between public officials, the ‘oil men,’ carpetbaggers and shysters is where the danger lies. Sincerely, Clement J. Rohee