Mon | Oct 23, 2017

Pandohie's sugar tax proposal flawed

Published:Saturday | November 28, 2015 | 12:00 AM

THE EDITOR, Sir:

I find it necessary to respond to a Gleaner article titled 'Pandohie proposes sugar tax, fewer factories to save sector'. The article is based on an excellent sugar symposium recently put on by the Mona School of Business & Management. The presentations were excellent. Well-known perennial issues aside, they painted an encouraging picture for the future of sugar in Jamaica.

As part of the audience, I raised issue with Mr Pandohie's tax proposal, but I suppose my concerns were not properly understood.

Here's Mr Pandohie's suggestion as reported in The Gleaner.

"My proposal is to tax the sugar-based finished goods, which, under WTO rules, you must tax both the imports and the locally manufactured goods. Then you give a rebate to manufacturers who replace the refined sugar with locally manufactured sugar."

In my humble opinion, Mr Pandohie's recommendation constitutes a de facto withdrawal of Jamaica's commitments under the WTO. Contrary to his rebuttal of my concern at the symposium, the issue is not about charging the same tax on both domestic and imported goods. The issue centres on what can be considered the subsidisation of domestic producers at the expense of foreign producers.

The WTO does not simply concern itself with removing tariff barriers. Here's an excerpt from the WTO itself, under the heading 'Prohibited subsidies'.

"Prohibited subsidies: subsidies that require recipients to meet certain export targets, or to use domestic goods instead of imported goods. They are prohibited because they are specifically designed to distort international trade, and are, therefore, likely to hurt other countries' trade. They can be challenged in the WTO dispute settlement procedure where they are handled under an accelerated timetable. If the dispute-settlement procedure confirms that the subsidy is prohibited, it must be withdrawn immediately. Otherwise, the complaining country can take countermeasures." https://www.wto.org/english/thewto_e/whatis_e/tif_e/agrm8_e.htm

One of the hallmarks of the WTO over the GATTs is that countries can take other countries to task for what they consider unfair trade practices. Of course, as happens in a court of law, both sides will have to argue their case. The process does not always work well (see Antigua vs the USA) but it is in place. The foregoing aside, Mr. Pandohie must be commended for his presentation.

SAMUEL BRAITHWAITE

Lecturer, Department of

Economics

UWI, Mona