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CARICOM: mother of unwarranted waivers

Published:Sunday | April 15, 2012 | 12:00 AM

Had Jamaica continued trading the same quantity of goods with CARICOM as it did in 1982, its exports to the region would today be more than US$200 million, and we would be enjoying a trade surplus of more than US$60 million. Instead, we now have a trade deficit with CARICOM of almost US$1.2 billion, and our exports are barely US$60 million.

In 1982, Jamaica's exports to CARICOM paid for approximately eight per cent of overall imports. Today, earnings from CARICOM exports cover less than one per cent of our import bill.

Jamaica now imports more than 30 per cent of total intraregional CARICOM exports, but less than two per cent of those exports are from Jamaica.

How did Jamaica, CARICOM's most dominant exporter 30 years ago, come to be so woefully disadvantaged in regional trade today?

It cannot be disputed that the import-licence regime imposed by Trinidad on CARICOM products in 1982, and which was used to deny entry of many Jamaican products to that country's market, marked the beginning of the decline of Jamaica's strong position in CARICOM trade. But it is the failure of successive Jamaican governments to effectively respond to Trinidad's improper and discriminatory action, and their general inattention to protecting and promoting Jamaica's economic interest in the fora of CARICOM, that crippled the country's fortunes in regional trade, and may have been a catalyst to the decline of the Jamaican manufacturing sector.

shared benefit

The underlying principle on which duty-free trading blocs are based is the shared benefit to be derived from an agreement to forgo tax revenue on imports from within the bloc in order to improve the competitiveness of their producers within the regional market. In so doing, all their economies benefit over and above the cost of the revenues they have forgone. However, at the core of the system's value is the principle of reciprocity. The revenue sacrificed by one country is expected to be reflected in the performance of its exports to the rest of the region.

When, in 1982, Jamaica waived import duties on US$60 million of CARICOM imports, it also benefited from similar waivers on the US$85 million it exported to CARICOM that year. With that reciprocal performance, the competitiveness of producers in Jamaica and throughout the region was assisted; demand for their products was boosted; and growth in all our economies was facilitated.

But the reciprocity did not last. After achieving its best CARICOM export performance in 1982, Jamaica's trade with the region became increasingly negative. Today, when measured in constant US dollars, Jamaica's exports have declined to no more than a quarter of where they stood 30 years ago. Meanwhile, our imports from the region at current US dollar prices have increased more than twentyfold.

The correlation between the deterioration in our balance of trade with the region and the decline in our overall economic performance seems to have gone unnoticed by the Government. But the worsening of our trade balance from a $25-million surplus in 1982 to a deficit of US$1.2 billion today conceals a tale even more distressing than the dismal numbers would suggest.

Jamaica pays dearly for the success of CARICOM imports in our market. The duties waived on CARICOM imports could be as much as J$14 billion. This enormous fiscal sacrifice could only be justified if Jamaica's exports to CARICOM were more representative of their cost than the mere US$60 million we now export to the region. On the basis of CARICOM's high price tag in duty waivers, Jamaica's regional exports should be well over US$500 million today.

discretionary duty waivers

Notwithstanding these facts and the history showing the Jamaican economy on a generally downward path during our relationship with CARICOM, successive Jamaican governments have failed to address the economic consequences of the glaring inequity in the country's trading relationship with the region. They agonise over the problem of discretionary duty waivers granted by the Ministry of Finance on certain extraregional imports, while CARICOM, the mother of all unwarranted waivers, stares them in the face.

Waivers are usually designed to provide important economic or social benefits to a country. In Jamaica's case, many are intended to improve the competitiveness of important agricultural, manufacturing and service industries like tourism; and to protect consumers from excessively high protective duties that the Government has imposed. The list of waivers which was published recently provides the perfect example. Extraordinarily high duties intended to provide local red peas farmers with protection from lower-cost imports were waived to prevent consumers being penalised for the inability of the local farmers to produce the quantities required to keep the market supplied.

It would be difficult to challenge the wisdom of waiving the extraordinarily high import duty on red peas for the benefit of the Jamaican consumer, or argue with the need for assisting domestic, employment-creating industries. But can anyone explain why cash-strapped Jamaica should bear the cost of waivers on more than US$1.2 billion of CARICOM imports when we do not export more than US$60 million to the region?

The waivers over which our governments have been agonising are dwarfed by those being given to CARICOM. Our slavish adherence to the CARICOM treaty has bled tens of billions of dollars of revenue from our Treasury over the years, with no clear compensating advantage.

For nearly 40 years, Jamaica has been at the fulcrum of the regional movement. Our leaders have been hailed as heroes of the regional community. Our technocrats, ministers and prime ministers have participated in meetings with grandiose agendas. Impressive papers on a range of issues have been written. Grand communiqués have been issued with decisions presumed to advance the region's interest. But all the technical work, the pomp and the ceremony have done nothing to address the haemorrhage of the Jamaican economy that has been induced by our destructive trade relationship with CARICOM.

With the depth of Jamaica's ongoing economic crisis, the needs of our largely poor people and the austere solutions likely to be imposed by the International Monetary Fund to ensure that our external debt is repaid, Jamaica can no longer afford the fiscal and economic cost of CARICOM.

The raison d'être for the protective Common External Tariff is the predicate that CARICOM goods are more costly than their extraregional equivalents. But Jamaica can no longer continue the senseless practice of spending more foreign exchange than necessary for our imports to benefit other CARICOM producers and at the same time forgo as much as J$14 billion of desperately needed revenue for our people.

Trading blocs are intended to provide a level competitive playing field on which all the participating countries are able to benefit economically. This requires continuous reciprocity, without which trade between the states will be uneven, and some states will be disadvantaged. Uneven trade within CARICOM has bettered some countries and beggared others.

suffering in trade

There can be no doubt that Jamaica now heads the list of the beggared. Yet nothing we have heard from our leaders suggests that they appreciate the grave and debilitating nature of the economic disadvantage we suffer in our trade with CARICOM, or that they are prepared to act to rectify it.

The communiqué coming out of the last Heads of Government Meeting, the first for this administration, presents a long list of subjects of beneficial interest to other regional governments. These range from Grenada's dispute with the EXIM Bank of Taiwan to the case by Eastern Caribbean interests against CLICO and BAIC. Yet Jamaica, in the midst of its most crippling economic crisis, could advance no more critical an issue than cricket and the Chris Gayle dispute with the West Indies Cricket Board.

No country in the regional group has suffered the economic disadvantage Jamaica has. It is, therefore, remarkable that any meeting of regional leaders could be convened without the issue of equity and reciprocity in regional trade topping the agenda. The Jamaican Government must insist that urgency be brought to returning equity in our economic relations within CARICOM.

There is no gainsaying the culpability of the Jamaican Government in undermining the competitiveness of the Jamaican economy and leaving our producers at a disadvantage in CARICOM trade. Dismal performance as the custodians of Jamaica's economic interest in the region is a central part of that failure. However, though much damage has been done, it is not too late for the Government to begin to discharge its responsibility and use its lead role in CARICOM to move Jamaica from the position of disadvantage to one of parity in our trade with the region. After all, CARICOM was intended to help our economy, not harm it.

Claude Clarke is a businessman and former minister of trade. Email feedback to columns@gleanerjm.com.